Trade-Off (Conjoint) Analysis

• Conjoint Analysis is not a single clearly defined

methodological procedure.

• Rather, it is a group of related analytical procedures that

seek the same goal of providing good models of how
consumers make their purchasing decisions.

• In general:

• Determinant attributes are put together in combinations or

sets.
• Respondents rank these sets in order of preference.
• Conjoint analysis finds the optimal levels of each attribute.
 DEFINITION

• Conjoint Analysis
– is any decompositional method that estimates
the structure of a consumer’s preferences (i.e.
estimates preference parameters such as part-
worths, importance weights, ideal points), given
his or her overall evaluations of a set of
alternatives that are prespecified in terms of
levels of different attributes.

Green and Srinivasan, JM 1990

 UTILITY

•Conjoint Analysis determines the utility of each level of the

attributes that describe the choice alternatives - (part-worth
utilities)
•That is, the relative value of the alternatives and attribute
levels are defined, not the absolute value of a product or
service.
•Thus, preferences for the given alternatives are found,
which cannot be evaluated against alternates that are
comprised entirely or in part by attributes not evaluated in
the conjoint process.
 MODEL SPECIFICATION

PART-WORTH FUNCTION MODEL

1.0 Utility

0
Level 1 Level 2 Level 3 Level 4
Attribute
 UTILITY

The zero point of any single-factor utility scale is arbitrary. That is, the utilities
are interval scaled with common units but arbitrary origins.

1.0 Utility 1.0 Utility

.4 50

.2 30

10
0 0 10

2.5 3.0 2 Year 3 Year

Horsepower Warranty
 ATTRIBUTE LEVELS

• Both the range and the number of levels

selected can influence the relative importance of
attributes.
• Levels selected should have a realistic chance
of occurring
• Set the range outside of existing levels, but be
believable
 Common Data Collection Methods

• Full profile
• Two-attribute-at-a-time (tradeoff tables)
 DATA COLLECTION
Full-Profile Approach

• Fractional factorial designs can be employed to reduce the number of evaluations

• Provides realistic descriptions of products
• Amenable to include various types of preference judgments
• Possibility of information overload
• Possibility of order effects; can be minimized.

Product A
3-Year Warranty
• 2.5 Horsepower
• 18 Inch Blade
• $449
Product B
2-Year Warranty
• 2.0 Horsepower
• 18 Inch Blade
• $399

Profile Cards
Example: Lawnmower Competitive Analysis
 EXAMPLE

• Profile Cards are sorted in order of

preference

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Most Least
Preferred Preferred
 DATA COLLECTION

Trade-off Approach
• Simple for respondent and easy to administer
• Sacrifice in Realism
• Large number of judgments even for a small number of attributes, and levels
• Possibility of routinized response patterns
• Fractional factorial designs cannot be employed

18 in 21 in.

2 Year Warranty 4 2

3 Year Warranty 3 1

Tradeoff Tables
Conjoint Analysis for More Complex Problems

• The above example was a full-profile conjoint analysis

(all possible combinations were included).
• For larger problems, a fractional factorial design may be
used (not every combination is included, but a subset of
the combinations in which each level and each attribute
is used at least a few times). Rankings and results are
similar to the full-profile analysis.
• More advanced methods are needed for very complex
problems, and also to handle interactions among
attributes.

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 IDENTIFYING ATTRIBUTES

• Managerial Inputs
– Product Management
– Marketing and Sales
– R&D
– Engineering
• Experts/Consultants
• Customers
– Focused Group Interviews
– In-depth interviews
 IDENTIFYING ATTRIBUTES
• Typically one or more Focused Group Interviews are used to determine
attributes

• Select Focus Group participants to maximize learning

Potential segments
Category users
Brand users and Brand non-users

• Ask questions such as:

What products do you use?
What about these products makes them attractive?
What could make them even more attractive?

• Categorize focused Group Interview responses

selection rule - mentioned by at least 5% of respondents

• Avoid vague concepts, such as:

value
quality
convenience
these concepts are difficult to quantify and have a wide range of
meanings to respondents
 RESEARCH MODALITY

• Conjoint studies can be administered in

a wide variety of ways

• Internet
• Mail
• In-person
• Telephone
• Tele. - Mail - Tele.
 INTERPRETING RESULTS

• In most cases, marketers are not interested in specific

individuals’ preferences.
• Individuals’ product or service preferences usually serve
as input to:
– Market simulators to determine market shares
– Product optimizers to determine the most profitable
product or service offerings
 MARKET SIMULATIONS

• Purpose
– Translate individuals’ preferences into estimated
market shares

• Type of Market Share Simulators

First Choice
Probabilistic - Share of Preference
Bradley-Terry-Luce (BLT)
Logit
Bayesian - Purchase Likelihood
 MARKET SIMULATIONS

First Choice Model

• First-Generation Choice Simulators
• Basic option on most market simulators
• Assumption
– Individuals choose product with highest utility

Prob. = 1.0 if Utility = Max, otherwise Prob. = 0.0

• Advantage
– Conceptually simple and Intuitively appealing
• Limitations:
– When one product dominates another product by only
a small amount of utility, shares may be overstated.
 MARKET SIMULATIONS
BLT Probabilistic Model

• Market share is a linear function of Utility

Utilityi
Share =
 Utilityi

• Advantages: Configurations with similar utilities, will

have similar preferences
• Limitations: Similar products with superficial
differences deflate market shares
 MARKET SIMULATIONS

Logit Model

• Market share is nonlinear and strictly increasing function

of Utility
e(Utility)
Share =
 e(Utility)

• Advantage: Configurations with higher utilities receive

much greater shares than configurations with lower
utilities
 MARKET SIMULATIONS

Products A B C
Average Total Utility 3.1 3.2 3.5

Customer Preference 15% 25% 60%

First Choice 15% 25% 60%

32% 33% 36%
B-T-L Utilityi
Share = 32% 33% 36%
 Utilityi
28% 31% 41%
e(Utility)
Logit Share = 28% 31% 41%
 e(Utility)
 MARKET SIMULATIONS

Bayesian Model
• Uses current market shares to calibrate forecasts for
simulated products
– Input current products and market shares
– Probability Model estimates utility functions for current
products
– Generates factors relating utilities to current shares
– Determines how current market shares will change
after one of the products is modified.
Some Qualitative Attribute Analysis Techniques

• Dimensional Analysis
• Checklists
• Relationships Analysis
– There are many others.

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 A Dimensional Attribute List

• Weight • Explosiveness
• Rust resistance • Flammability
• Length • Aroma
• Color • Translucence
• Water resistance • Buoyancy
• Materials • Hangability
• Style • Rechargeability
• Durability • Flexibility
• Shock resistance • Malleability
• Heat tolerance • Compressibility

7-23
 An Idea Stimulator Checklist
for Industrial Products
• Can we change the physical/chemical properties of
the material?
• Are each of the functions really necessary?
• Can we construct a new model of this?
• Can we change the form of power to make it work
better?
• Can standard components be substituted?
• What if the order of the process were changed?
• How might it be made more compact?
• What if it were heat-treated/hardened/cured/plated?
• Who else could use this operation or its output?
• Has every step been computerized as much as
possible?
 Templates for Creativity

• Attribute Dependency: Find a functional dependency

between two attributes. Ex.: color of ink on coffee cup is
sensitive to heat and can reveal message if coffee is too
hot.
• Replacement: Remove a component and replace with
one from another environment. Ex.: antenna is replaced
by headphone cord on Walkman.
• Displacement: Remove a component and its function
to change the product. Ex.: Removing floppy drives
resulted in ultra-thin PCs.
• Component Control: Find a new connection between a
component internal to the product and one external to
the product. Ex.: Toothpastes with whiteners, suntan
lotions with skin moisturizers.
 Relationships Analysis

• Force combinations of dimensions (features, functions,

and benefits) together.
• Techniques:
– Two-dimensional matrix
– Multidimensional (morphological) matrix
• Two-dimensional example: person/animal insured and
event insured against.
• Household cleaning products example used six
dimensions:
– Instrument used, ingredients used, objects cleaned,
type of container, substances removed, texture or
form of cleaner
7-26
 Another Form of Dimensional Analysis

Two key dimensions for winning new product ideas:

 Utility lever: How the product will affect the
customer’s life (such as simplicity, fun/image,
environmental friendliness, reduced risk,
convenience, and productivity).

 Buyer’s experience cycle: The stage when/where

the product will affect the customer (purchase,
delivery, use, supplements, maintenance, disposal).
Source: W. C. Kim and R. Mauborgne, “Knowing a Winning Business Idea When You See One,” Harvard
Business Review, Sept.-Oct. 2000, pp. 129-138.

7-27
 Morphological Matrix:
New Coffee Maker

Heating: Keeping Coffee Warm:

Heating element in pot Thermal insulating
Open flame under pot technology
Microwave unit Warming unit in put
Adding Coffee: External heat source
By spoon Pouring Coffee:
Built-in measuring cap Valve under pot
Automatic feed Pump in lid of pot
Filtering: Espresso-like jets
Filtering paper
Porous ceramic filter
Centrifuge method
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 Other Methods:
Lateral Search Techniques

• Free association
• Stereotype activity
• Lateral thinking -- avoidance
• Creative stimuli words
• Studying “big winners”
• Use of the ridiculous
• Forced relationships

7-29
 Lateral Thinking — Avoidance

Keep an idea from dominating thinking as it always has in

the past by asking avoiding questions.

• Ask “Is there another way of looking at this?”

• Ask “Why?”
• Focus on an aspect of the problem other than the
“logical” one.
• List all possible alternatives to every aspect of the
analysis.
• Break apart aspects (concepts) of the problem, or
combine them to create even more concepts.
7-30
 Some Creative Stimuli Words

• Guest stars • Photography

• Alphabet • Testimonials
• Truth • Decorate
• Outer space • Fantasy
• Charity • Hobbies
• His and hers • Holidays
• Style • Weather
• Nation • Calendar
• Family • Push button
• Videotape • Snob appeal

7-31
 Use of the Ridiculous

• How can you join two wires together?

– Hold them with your teeth.
– Use chewing gum.
• Can you think of others?
• Do any of these ridiculous ideas suggest a not-so-
ridiculous solution?

7-32
End