MIT Sloan School of Management News Briefs — July 2005

John Hauser:
MIT Sloan professors develop better way to determine consumer choice

John HauserIn a development that will help companies market products more effectively, two MIT Sloan professors have helped develop a system to identify consumer preferences that is both faster and more efficient than traditional measures.

“The method we have tested is able to pick up consumers' real decision-making process in a way that is easier, more natural, and faster,” said John Hauser, Kirin Professor of Marketing at MIT Sloan. “We can do it in seconds.”

Unlike marketing measures that utilize a “compensatory” model — consumer choice is measured through often complex mathematical calculations that combine a wide range of individual criteria for a particular product — Hauser, Professor Jim Orlin, and their team used an newly-developed method, in which decisions are determined by observing a set of more simplified “rule of thumb” choices and actions by consumers. This improved method better represents the way consumers actually evaluate products, according to the MIT Sloan professors.

In their research, for example, Hauser and Orlin asked consumers — in this case, MIT students — to choose among 32 Smart Phones available on the market. In a traditional compensatory approach, the analyses would have involved identifying individual features, measuring their relative importance, and eventually adding them all up to explain respondents' choices. But the enormous number of factors to consider — from price and provider to color and size — make this a very complex and time-consuming way to measure consumer choice.

By contrast, the new approach involved watching respondents make a set of broader, natural choices in which they first indicated which products to consider and then which of those to choose. These observations enable researchers to infer consumer preferences much more efficiently. The method examines a broad set of decision rules, not only traditional “compensatory” rules, but also screening rules. Must the phone be a flip phone? Can it cost more than $200? Does it require a keyboard? This might seem basic, but prior to this new MIT research, a computer would have taken millennia to test all possible rules. With these new methods, it can be done in seconds.

“People have known for long time that this is how consumers make their decisions about products, but given how many possible combinations of factors can be involved, it has been impractical to actually test all the possible ways they do so,” said Hauser. “We have demonstrated a special structure that allows you to search all possibilities much more quickly so that we can infer what people are actually doing as they make their product decisions.”

The result is a new form of analysis that is more realistic, easier on the respondents, and more accurate in its predictions, all of which will help firms develop products that are more profitable because consumers will want to buy them. Such “non-compensatory” models are particularly useful as more and more products are available to consumers and consumers increasingly use simplified rules to decide which products to buy.

Related Links:
John Hauser Bio
MIT Sloan Virtual Customer Initiative