Using group method of data handling to model customer choice behaviour

Choice modelling is valuable for understanding and predicting customer behaviour. This study introduces the Group Method of Data Handling (GMDH) into choice modelling and applies this new technique to model consumer choice in the longdistance communication market. When we compare the GMDH with the Artificial Neural Network (ANN) and logit models, the results show that the new model provides better predictions of customer choice than the ANN and logit models. In addition, the new model can identify the important explanatory variables that affect customer choice, and reveal how the variables affect this choice, which cannot be directly accomplished using the ANN model. This advantage will help firms to better analyse the behaviour of their customers and, thereby, develop suitable marketing strategies.