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Conjoint Analysis For New Product
Conjoint Analysis For New Product
This project is based on analyzing factors that drive consumer preference in the coffee maker
market in order to design a new coffee maker product for Philips. The dataset is obtained from a
commercial choice-based conjoint analysis study. Using GLIMMIX software and mixture
multinomial logit model, two consumer segments were found, and it is recommended to launch
two optimal products for each segment as well as maintain the existing product so that Philips
can obtain the maximum market share across both the segments.
Glimmix software is used to conduct a market segmentation analysis based on the conjoint study
data. A mixture multinomial logit model is used for analyzing the Choice based conjoint
analysis, as it gives a realistic response than the rank or rating based measurements and can be
used in predicting market share. Bayesian Information Criterion (BIC) statistic is used for
selecting the ideal number of segments, and the smaller BIC value is preferred. The BIC value is
identified to be smallest (2817.14) for 2 segments (Appendix I). In plot of the likelihood against
EM-iterations (Appendix II), likelihood is the largest when class equals two. Hence, 2 segment
model is chosen for analysis. After processing data with minimum and maximum class of two,
entropy value of two segments is found to be 0.886(Appendix. III), which shows that two
segments are well-divided. Posterior segment probabilities are calculated to determine how well
each respondent belongs to a particular segment (Appendix. IV). According to coefficients and
standard error results (Appendix V), Segment 1 has a class size of 0.7405 and Segment 2 has a
class size of 0.2594.
The mixture multinomial logit model is estimated using maximum likelihood function.
According to equation (1), the estimates of part-worth (coefficients) are obtained for two
segments. The output of the Choice-based conjoint analysis consists of the proportion of choices
received by each product (the market share) and is used specifically in the cases of new product
introductions. Here, this model aids to determine the market share of a new coffee maker that
Philips wants to produce alongside the existing products. In equation (2), X 0,p is the attribute
level variable p for the new Philips Coffee Maker product obtained through effects coding.
(1) (2)
Key Findings
For Segment 1, coefficients and standard error results (Appendix V) show that except for Krups,
the rest of the attributes are statistically significant which indicates they are important attributes
for customers. Based on the value of coefficient, having a grinder is the most valuable attribute
for segment 1, followed by having no filter, capacity of 15 cups, $59 in price, and brand of
Philips. In scrutiny of these coefficients, findings are:
1. Coefficient for Grinder equals 1.12 which is significant and strongly positive. If there
were a grinder provided, the odds of choosing this alternative over a product with average
attributes would increase 3.06 (e^1.12) times;
2. Coefficient for Filter equals -0.85 which is significant and strongly negative. If certain
alternatives were to have a filter, the odds of choosing them over average-attributes
product would increase 2.33 (e^0.85) times;
3. Coefficient for capacity of 15 cups a significant and positive coefficient of 0.49. If an
alternative were to produce 15 cups of coffee, the odds of choosing it over average-
attributes product would increase 1.63 (e^0.49) times;
4. Coefficient for $59 equals 0.19 which is significant and positive. If an alternative were
$59, the odds of choosing it over average product would increase 1.21 (e^0.19) times;
5. Coefficient for brand Philips equals 0.17 which is significant and positive. If a coffee
maker were to be manufactured by Philips, the odds of choosing it over average-attributes
product would increase 1.18 (e^0.17) times;
To sum up, the optimal product, in other words the best new product design strategy for segment
1, is a coffee maker of Philips brand which has a grinder but without a filter, worths $59 and of
15 capacity. This optimal product demonstrates the characteristics of segment 1 -- they are
family or corporate buyers show preference for cost-effective products and trust a mainstream
brand like Philips. “Economy Segment” will be used to describe Segment 1 in following parts.
For Segment 2, $79 in price is the most valuable attribute for segment 2, followed by capacity of
5 cups, and having no grinder. In scrutiny of these coefficients, findings are:
1. Coefficient for $79 in price equals 0.57 which is significant and positive. If an alternative
were to charge $79, the odds of choosing it against average-attributes product would
increase 1.77 (e^0.57) times;
2. Coefficient for capacity of 5 cups equals 0.41 which is significant and positive. If an
alternative were able to produce 5 cups of coffee at a time, the odds of choosing it against
average-attributes product would increase 1.51 (e^0.41) times;
3. Coefficient for Grinder is -0.70 which is significant and strongly negative. If there were a
grinder, the odds of choosing this alternative over a product with average attributes would
decrease 2.01(e^0.70) times;
4. Brands have no sway over purchasing intention, neither does with or without a filter.
To sum up, the optimal product, in other words, the best new product design strategy for segment
2, is a $79 coffee maker of capacity of 5, without a grinder or a filter. Segment 2 are most likely
to be white-collar single business individuals with busy lifestyle, which would justify their
demand for low capacity and medium requirement of life quality, especially when negative
reaction to grinder implies that they have no time grinding coffee. “Business Segment” will be
used to refer to Segment 2.
There are six combinations of existing and new products for Philips (Appendix VI). Comparing
its overall market share, the optimal product combination for Philips is keeping the existing
product and launching two optimal new products, which allows Philips to keep existing brand
image and target the whole market at the same time. Under this Circumstance, Philips will obtain
49% overall market share, increasing by 271%. In scrutiny of these scenarios, other findings are:
1. Optimal product targeting at Economy Segment has larger contribution for overall market
share than optimal product targeting at Business Segment, which can be explained by its
larger segment size. New product will higher Philips’ overall market share.
2. Launching the optimal product targeting at Economy Segment, the market share of all
existing products in Economy Segment will decrease by around 50%, including Philip,
the cannibalization that Philip needs to consider.
3. In each scenario, the market share of all the existing products except product 3 will
increase by over 100% in Business Segment, which means new products will generate
synergy effect for Philips and its competitors. Product 3 from Cuisinart will decrease by
96.15% or more, which is the source of increasing market share for other products.