MKTG 4110 Class 9

MODERN USAGE OF CONJOINT ANALYSIS

 Determining consumers’ willingness to pay for a new product (last class)

 Predicting the market share of a proposed new product
 Predicting the impact of a new competitive product on the market share
 Quantifying the trade-offs customers or potential customers are willing to make among
the various attributes or features
 Identify consumer segments
 Lawsuits (e.g., Apple vs. Samsung)

ANALYSIS OF FEATURES “CON”SIDERED “JOINT”LY

 Allows us to understand how consumers make trade-offs among
attributes/characteristics of products and services
 How much are consumers willing to pay/give up to get/avoid different attributes?
 Conjoint analysis is a de-compositional method. Respondents’ overall evaluations of
products are assumed to be a function of utilities of individual attributes

PRODUCTS ARE BUNDLE OF ATTRIBUTES

 Consumers form preferences & make choice over many attributes in a product category
 Products are bundle of attributes
 Think of different models as different combinations of attributes

Difficult Tradeoffs
 Conjoint works by forcing consumers to make difficult tradeoffs
 If you choose left you prefer portability, right you prefer processing power

 Rather than ask directly whether you prefer portability over speed,
 we present realistic tradeoff scenarios and infer preferences from your product choices
 When they are forced to make difficult tradeoffs, we learn what they truly value
CONJOINT ANALYSIS REQUIREMENTS
Product must be a meaningful bundle of attributes
 Attributes are decomposable
o We must be able to identify the important attributes
o Attributes should be actionable
 Such bundle of attributes is defined as a product profile or stimuli,
o to be presented to respondents in a conjoint survey

Conjoint as an individual-level model

 Conjoint provides a unique ability to estimate the preference structure of each
individual in the sample separately.
 Individual conjoint results (eg. PWs) can form the basis for a preference based
segmentation analysis.
 Individual results can be aggregated to portray a segment, population of a market.

Example: MP3

FIVE steps in a conjoint study

Step 1: Identify the research purpose and objectives
Step 2: Design the stimuli
a. Identify and define attributes in customer language
b. Specification of attribute levels
Step 3: Collect evaluation (rating, ranking, etc.) of the product profiles from respondents
Step 4: Analyze the data
a. Compute part-worths values for each level of each attribute
b. Compute importance weights for each attribute (normalized range)
c. Evaluate tradeoffs among attributes
d. Aggregate results across consumers
e. Market simulations
Step 5: Evaluate accuracy of findings
Step 2: Designing the stimuli

 A product profile/stimuli is a specific combination of attributes

Full Factorial Profile Design:

 All possible stimuli are used: allows for study of all interaction effects among attributes
 For the MP3 example that means 3x3x3x2x3=162 profiles.

 In general, it is recommended not to let the number of stimuli (profiles) exceed 25.

Solution: Fractional Factorial Profile Design

 Only a subset of all possible profiles are used
 Software is generally required to select an appropriate set
 Orthogonality (zero correlations across attributes)

Step 3: collect the dependent and independent variable information

 Dependent variable: Obtain Respondent’s evaluation of product profiles

o Rating
o Rankings
 Least-to-most preferred:
o respondents can be asked to first divide the profiles into general groups of like
and dislike and only then to rank each group
 Pair-wise comparisons
o among profiles: this can lead to a large number of pairs.
o (Generally, rating and ranking provide very similar results)

 Independent variables: Convert the product profiles into a series of dummy variables

 Dependent variable: Based on this stimuli, we collect ratings from respondents

Step 4: Analyze the data

 Caution:
t-stats are considered unreliable
(small sample)
 Pooled or other complex models
 Memory 2 is worth 13.67
 Memory 3 is worth 33.33
 The constant is when everything
is 0 the average rating is 40.72

Range for each attribute:

 (max PW-min PW)
Total range:
 sum of range of attributes
Importance for each attribute:
 =range for each attribute / total range

Memory: (33.33 - 0) / 108.722 = 0.31

Size: (0 - - 6) / 108.722 = 0.06
Price: (0 - - 33.33) / 108.722 = 0.31
Video: (6.89 - 0) / 108.722 = 0.06
Color: (13.83 - -15.33) / 108.722 = 0.27

The most important

therefore are memory and price
Tradeoffs
Q: How much would the consumer pay for a video player?
(Assume the starting price was $100.)

Q: The MP3 player may have to be bigger to accommodate additional memory.

Is there a positive trade-off? Is the consumer willing to pay?

First choice rule:

 Respondent chooses the profile with the highest predicted utility

 Usually more appropriate for sporadic, non-routine purchases. Eg. TV, Refrigerator, etc.

Share of preference rule:

 Predictions of choice probabilities sum to 1 over the set of stimuli tested

 Usually more appropriate for frequently purchased items & low-involvement consumers.
 Eg. Yogurt, paper towel, etc
Converting from utility to choices

“The Monster Box” Valuation

64GB, Large, = 40.72+33.33-6-33.33+6.89-15.33
$300, Video, White = 26.28

“Sporty” Valuation
16GB, Small, = 40.72+0+0-5.67+6.89+13.83
$200, Video, Black = 57.77

First choice: maximum utility Share/proportion: utility / sum(utilities)

Sporty = 100% Sporty
TMB = 0% = 57.77/(26.28+57.77) =69%
TMB
= 26.28/(26.28+57.77) = 31%