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Logit Model

Part 2. Marketing Research

  1. Neeraj Arora

Published Online: 15 DEC 2010

DOI: 10.1002/9781444316568.wiem02072

Wiley International Encyclopedia of Marketing

Wiley International Encyclopedia of Marketing

How to Cite

Arora, N. 2010. Logit Model. Wiley International Encyclopedia of Marketing. 2.

Author Information

  1. University of Wisconsin, Madison, WI, USA

Publication History

  1. Published Online: 15 DEC 2010


Consumer choice is arguably the most important variable in marketing. Examples include brand choice in a grocery store purchase, selection of a kitchen appliance at a retailer, or choosing a health club from the available alternatives. Choice is a discrete variable (taking a 0–1 value) and therefore does not lend itself to a linear regression model, where the dependent variable is continuous. The logit model is of great value because it allows a manager to understand the link between marketing actions and consumer behavior. For example, the model can be used to conduct a “what if” analysis for a price change, an in-store display, or a coupon drop. Two popular application areas for the logit model in marketing include household level panel data and choice-based conjoint analysis. While enormously popular, the logit model has limitations. First, the distribution assumption for the error term is fairly ad hoc and results in an undesirable property called the IIA or independence of irrelevant alternatives property. A second limitation is the implicit assumption that consumers use a compensatory evaluation process in selecting an alternative. It is certainly plausible that consumers, in certain contexts, may use a noncompensatory evaluation process. Several solutions to both these problems have been proposed.


  • random utility;
  • probit;
  • multinomial;
  • IIA;
  • market share;
  • conjoint;
  • choice