Menu-Based Choice Models

1. Menu-Based Choice Models
A Technical Note on Menu-Based Choice Models
Dr. Steven Cosgrove
DataActiva.com
StevenCosgrove@DataActiva.com
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No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of DataActiva.

2. 2
Menu-based Choice modeling (MBC)
Menu-based Choice modeling (MBC) is an
innovative conjoint-based method, specifically
designed for markets, where the purchase
choice is based on a mass customization. The
interview process in MBC is different, as it
builds its ideal concept/combinations of items
using a menu, perfectly mimicking the type of
mass customization consumers face in real life.
Three types of MBC models:
1. Different packages including a certain number of
features (e.g. Neteflix,SaaS on-line services)
2. Products are offered in combos side by side with á la
carte items(McDonalds, Dell, mobile phone plans,
banking services)
3. Customers build their own product from scratch (eg.,
Ford, BMW)
Menu-based choice models perform better
because it is a single model that predicts all
combinational outcomes.MBC is a good fit for
many business questions, and reflects real-
world buying situations.
Advantages
1. Reflects real-world buying situations (mass
customization)
2. Lets you configure service options
3. Enables you to maximize configurations for
revenue and uptake
4. Lets you analyze complex model—choice
between packages and a la carte?
5. Anticipate sales and profits (mass
customization)
Disadvantages
6. MBC requires more expertise than other
conjoint (CBC ACBC).

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Menu-based Choice modeling (MBC) is an innovative conjoint-based method.
Conjoint analysis is a popular
marketing research tool to
help companies determine
the optimal features and
pricing for their products.
Conjoint analysis
determines the relative
importance that consumers
attach to attributes and the
value or utility they attach
to the different levels of
the attributes.
The research method
involves the presentation
of alternative
configurations of products,
usually in pairs, to the
respondent, for him/her to
select one. levels of the
various attributes are
usually randomly selected
for presentation.
Preferences can be simulated
using the model, and the
results of the simulation runs
can be used to derive the
optimal configuration and
price models.
Traditional choice-based
conjoint (CBC )asked
respondents to trade-off a
set of options and asked
their preference, if any. given
the number of permutations,
the number of attributes and
levels were limited.
Adaptive conjoint analysis
(ACBC) made some
improvements by including
a set of exercises to
determine the most
relevant attributes for a
particular respondent
before asking the
respondent to trade-off.
ACBC not only increased
the number of attributes
and levels, it also reduced
options that were
irrelevant to the
respondent.
Menu-based conjoint
(MBC) creates hypothetical-
choice models that
estimate the probability of
picking a combo or
individual items presented
in the menu at different
prices.

4. 4
The interview process in MBC is different, as respondents build their ideal
concept/combinations of items using a menu, perfectly mimicking the type of mass
customization that they would face in real life.
Some examples of mass customization sales
include:
1. Automobile options,
2. Employee benefit packages,
3. Pharma –drug therapy choices,
4. Restaurant menu (fast-food value menus),
5. Insurance coverage( layers and
configuration),
6. Mobile phones, Internet, cable bundles,
7. Hotels,
8. Banking Service,
9. Software as a Service (SaaS),
10. Shared resources and outsourcing IT, as
well as cloud services.
Three types of MBC models:
1. Different packages including a
certain number of features (e.g.
Neteflix,SaaS on-line services)
2. Products are offered in combos
side by side with á la carte
items(McDonalds, Dell, mobile
phone plans, banking services)
3. Customers build their own product
from scratch (eg., Ford, BMW)

5. 5
Menu-based choice model performs better because it is a single model that
predicts all combinational outcomes.
Each respondent completed 8 menu-based choice tasks
involving selections of value meal vs. a la carte options as
shown . Source: Orme, Bran K. , Sawtooth Software:
Research Paper Series, Task Order Effects in Menu-
Based Choice Modeling, p. 3.
Each respondent completed 8 menu-based choice tasks
involving selections of car model vs. a la carte options as
shown . Source: Orme, Bran K. , Sawtooth Software:
Research Paper Series, Task Order Effects in Menu-
Based Choice Modeling, p. 10.

6. 6
MBC is a good fit for many business questions, and reflects real-world
buying situations.
Advantages
Reflects real-world buying situations
(mass customization)
Lets you configure service options
Enables you to maximize
configurations for revenue and
uptake
Lets you analyze complex model—
choice between packages and
a la carte?
Anticipate sales and profits (mass
customization
Disadvantages
MBC requires more expertise than
other conjoint programs (CBC
ACBC).

7. 7
Summary
• Menu-based Choice modeling (MBC) is an innovative conjoint-based
method specifically designed for markets where the purchase choice is
based on a mass customization.
• The interview process in MBC is different, as respondents build their
ideal concept/combinations of items using a menu, perfectly mimicking
the type of mass customization that they would face in real life.
• Menu-based choice model performs better because it is a single model
that predicts all combinational outcomes.
• MBC is a good fit for many business questions, and reflects real-world
buying situations.