Conjoint Analysis

1. Researchers frequently want to know what utility a

particular product feature or service feature will have
for a consumer.

2. Conjoint analysis is a multivariate technique that

captures the exact levels of utility that an individual
customer puts on various attributes of the product
offering. It enables a direct comparison between say,
the utility of a price level of SAR400 versus SAR500,
a delivery period of 1 week versus 2 weeks, or an after
sales response of 24 hours versus 48 hours.

3. Once we know utility levels for every attribute (and

at every level), we can combine these to find the best
combination of attributes that gives him the highest
utility, the second best combination that gives the
second highest utility, and so on.

4. This information can be used to design a product or

service offering.
 Method

1. The researcher determines a set of attributes and their

levels, say 3 attributes, each at 2 levels, which he feels are
critical decision-making variables for his consumers. Now,
all possible combinations of these levels are listed out.

2. For example, in a readymade shirt, price could be one

factor, at levels SAR 300 or SAR 350, stores could be
exclusive or non-exclusive, and design could be checks or
solid colors. We would then take all the possible
combinations as follows -

1. SAR 300 Exclusive Store - Checks

2. SAR 300 Exclusive Store - Solid Colors
3. SAR 350 Exclusive Store - Checks
4. SAR 350 Exclusive Store - Solid Colors
5. SAR 300 Non-exclusive Store - Checks
6. SAR 300 Non-exclusive Store - Solid Colors
7. SAR 350 Non-exclusive Store - Checks
8. SAR 350 Non-exclusive Store - Solid Colors

3. These eight combination can be presented to the

respondent of our survey, and he is asked to rank the
combination he prefers from rank 1 to rank 8.

4. This forms the input data for conjoint analysis.

5. The objective, as stated earlier, is to convert
these rankings into utilities, so we know how
this respondent’s utility varies with any change
in the level of any of the attributes.

6. In other words, the output of conjoint

analysis will generate utility levels for
combinations given above. For example, the
computer output after conjoint analysis may
generate a utility table that looks like this :-

a. SAR 300 – Utility 5

b. SAR 350 – Utility 1
c. Checks – Utility 10
d. Solid Colors – Utility 6
e. Exclusive Stores – Utility 4
f. Non-exclusive Stores – Utility 2

7. Thus this table indicates that relatively,

checks have the highest utility of 10, and solid
colors, 6. Price at SAR 300 has a much
higher utility than SAR 350.
8. Relatively, exclusivity or
otherwise of the stores has less
utility. But exclusive stores have 4,
and non-exclusive stores have 2.

9. The best combined utility can

also be calculated for the original
eight combinations. For example,
for this consumer, the best utility
combination would be a price of
SAR 300, checks and exclusive
stores: 5+10+4=19 points.

10. The second best would be

5+10+2=17 points. (SAR 300,
checks, non exclusive stores). The
third, fourth, fifth….eighth best
combination and their utilities can
similarly be found.
 Number of attributes and levels

1. To avoid creating masses of data , the

researcher has to be careful in selecting
both the number of attributes and the
number of levels of each. Only those
attributes and levels must be used, which
are feasible offerings from the
manufacturer’s / marketer’s view point.

2. Another point of interest is that the

number of combinations being offered for
ranking by respondents should not be too
high . For example, beyond about 35 or 40
combinations, respondent fatigue would
probably induce inaccurate or disinterested
responses, affecting the validity of the
procedure .
 Another Example
Let us take the example of an industrial product –
a CNC machine tool which is used to perform a
variety of manufacturing operations – to illustrate
the application of conjoint analysis .

Similar to the brief example of a branded shirt

discussed earlier, we first identify the attributes of
the product which are important to customers, and
then the levels for each attribute that we are willing
to design and offer to a customer.

Thus, this will be an application of conjoint

analysis for product design of an industrial
machine tool. Let us assume that three attributes of
a CNC machine tool are important :
1. Setup time in minutes: This is the time it takes to
prepare or setup the machine for operations.
2. Delivery period in days: This is the time the
manufacturer needs to deliver after the customer
has placed an order.
3. Number of different tools the machine can
accommodate: This is a measure of machine
flexibility in performing different operations.
These are the three attributes. The levels
of these attributes are

1. Setup time - 3 minutes, 6 minutes, 9

minutes, 12 minutes (4 levels)
2. Delivery period - 18 days, 22 days,
28 days (3 levels)
3. Number of tools - 4, 8 or 10 (3
levels)

These levels are the options that we (the

manufacturer) are willing to consider in
design and delivery of the machine.
Since we have 4, 3 and 3 levels of the three
attributes, we get a total of 4x3x3 = 36 different
combinations of attribute levels. The next stage of
the. input process is to collect from a respondent
his ranking and arrive at the ratings, which is a
reverse of ranking, for all the 36 combinations of
attribute levels. This table would look like Fig . 1
Fig. 1
Input Data for Conjoint Analysis
Machine Tool Problem

Sl. Setup Delivery No.of Rating

No Time Period Tools 36 to 1
(Minutes) (Days) 4,8,10
3,6,9,12 18,22,28
1 3 18 10 36
2 6 18 10 35
3 3 22 10 34
4 6 22 10 33
5 9 18 10 32
6 9 22 10 31
7 3 18 8 30
8 6 18 8 29
9 3 28 10 28
10 6 28 10 27
11 3 22 8 26
12 6 22 8 25

Table contd on next slide

Table contd… Remaining part of Fig. 1
Sl. Setup Time Delivery No.of Rating
No (Minutes) Period Tools 36 to 1
3,6,9,12 (Days) 4,8,10
18,22,28
13 3 28 8 24
14 9 28 10 23
15 6 28 8 22
16 9 18 8 21
17 9 22 8 20
18 12 18 10 19
19 12 22 10 18
20 3 18 8 17
21 6 18 4 16
22 3 22 4 15
23 12 18 8 14
24 12 22 8 13
25 9 22 4 12
26 12 28 10 11
27 9 28 8 10
28 9 18 4 9
29 9 22 4 8
30 12 28 8 7
31 3 28 4 6
32 6 28 4 5
33 12 18 4 4
34 9 28 4 3
35 12 22 4 2
36 12 28 4 1
 Running Conjoint as a Regression Model
It is quite easy to convert the conjoint analysis
input into an equivalent regression model and run
it as a regression. The coding of the attribute
levels for this purpose is known as “Effects
coding“ and Fig. 2 shows our machine tool
example coded for a regression run. In this input
data matrix (Fig. 2), which is similar to coding of
dummy variables, the four levels of Setup Time
recorded as shown in the following table.
Set up time in Var 1 Var 2 Var 3
minutes
S3 1 0 0
S6 0 1 0
S9 0 0 1
S12 -1 -1 -1
.

Thus, 3 Variables, Var 1, Var 2, Var 3 are

used to indicate 4 levels of setup time, as per
the coding scheme above. The property of
this coding is that all the utilities for a given
attribute should sum to 0.
 Similarly , the coding scheme for the 3 levels
of the attribute Delivery Period is as shown
below:
Delivery
Period in Var 4 Var 5
Days
D18 1 0
D2 0 1
2
D28 -1 -1

Finally, the coding scheme for Number of Tools

is as shown below:

Number of
Var 6 Var 7
Tools
1 0
T4
T8 0 1

T10 -1 -1
Thus, seven variables var 1 to var 7 are used to
represent the 4 levels of Setup Time (S3,S6,S9
and S12), 3 levels of Delivery Period (D18, D22
and D28), and 3 levels of Number of Tools (T4,
T8 and T10). All the 7 variables are independent
variables in the regression run. Var 8 is the rating
of each combination given by a respondent, and
forms the dependent variable for the regression
run.

If the conjoint analysis is run as a regression

model, the rating (which is a reverse of ranking)
is used as a dependent variable. All combinations
from the first to the thirty sixth were ranked by
the respondent. Rank 1 can be considered as
highest rating and given a rating of 36. Rank 2
can be given a rating of 35, and so on. Strictly
speaking, this is not an interval scale rating, and
should have only ordinal interpretation.
The complete input data recoded for a
regression run on SPSS is in Fig. 2 (reproduced
below): File: Conjoint Analysis.sav

Fig. 2
Conjoint Problem Input Data Coded for
Regression
Var 1 Var 2 Var 3 Var 4 Var 5 Var 6 Var 7 Var 8
1 1.00 .00 .00 1.00 .00 -1.00 -1.00 36.00
2 .00 1.00 .00 1.00 .00 -1.00 -1.00 35.00
3 1.00 .00 .00 .00 1.00 -1.00 -1.00 34.00
4 .00 1.00 .00 .00 1.00 -1.00 -1.00 33.00
5 .00 .00 1.00 1.00 .00 -1.00 -1.00 32.00
6 .00 .00 1.00 .00 1.00 -1.00 -1.00 31.00
7 1.00 .00 .00 1.00 .00 .00 1.00 30.00
8 .00 1.00 .00 1.00 .00 .00 1.00 29.00
9 1.00 .00 .00 -1.00 -1.00 -1.00 -1.00 28.00
10 .00 1.00 .00 -1.00 -1.00 -1.00 -1.00 27.00
11 1.00 .00 .00 .00 1.00 .00 1.00 26.00
12 .00 1.00 .00 .00 1.00 .00 1.00 25.00

Table contd on next slide

Table contd… Remaining part of Fig 2

Va Var Var Var Var Var Var Var

13 1.00 .00 .00 -1.00 -1.00 .00 1.00 24.00
14 .00 .00 1.00 -1.00 -1.00 -1.00 -1.00 23.00
15 .00 1.00 .00 -1.00 -1.00 .00 1.00 22.00
16 .00 .00 1.00 1.00 .00 .00 1.00 21.00
17 .00 .00 1.00 .00 1.00 .00 1.00 20.00
18 -1.00 -1.00 -1.00 1.00 .00 -1.00 -1.00 19.00
19 -1.00 -1.00 -1.00 .00 1.00 -1.00 -1.00 18.00
20 1.00 .00 .00 1.00 .00 1.00 .00 17.00
21 .00 1.00 .00 1.00 .00 1.00 .00 16.00
22 1.00 .00 .00 .00 1.00 1.00 .00 15.00
23 -1.00 -1.00 -1.00 1.00 .00 .00 1.00 14.00
24 -1.00 -1.00 -1.00 .00 1.00 .00 1.00 13.00
25 .00 1.00 .00 .00 1.00 1.00 .00 12.00
26 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 11.00
27 .00 .00 1.00 -1.00 -1.00 .00 1.00 10.00
28 .00 .00 1.00 1.00 .00 1.00 .00 9.00
29 .00 .00 1.00 .00 1.00 1.00 .00 8.00
30 -1.00 -1.00 -1.00 -1.00 -1.00 .00 1.00 7.00
31 1.00 .00 .00 -1.00 -1.00 1.00 .00 6.00
32 .00 1.00 .00 -1.00 -1.00 1.00 .00 5.00
33 -1.00 -1.00 -1.00 1.00 .00 1.00 .00 4.00
34 .00 .00 1.00 -1.00 -1.00 1.00 .00 3.00
35 -1.00 -1.00 -1.00 .00 1.00 1.00 .00 2.00
36 -1.00 -1.00 -1.00 -1.00 -1.00 1.00 .00 1.00
 Output and its Interpretation
If run as a regression model using SPSS,
the partial output is shown in Fig 3:
Variables 1 to 7 are treated as independent
variables. Now, the column titled ‘B’ (the
unstandardized regression coefficients column)
provides the part utility of each level of
attributes.

For example, Setup Time of S3 (3 minutes) is

represented by variable 1 as per our coding
scheme. Its utility is equal to 5.5 (looking under
column B of Fig 3, for variable 1).

Similarly, the utility for variable 2 representing

S6 (Setup Time of 6 minutes) is 4.16 and for
variable 3 representing S9, it is –1.05. The utility
for the fourth level of Setup Time (S12), is not in
the table, but is derived from the property of this
coding, that all the utilities for a given attribute
should sum to 0. Thus, utility for S12 should be
equal to –(5.5+4.16-1.05), or –8.61.
Similarly, for Delivery Period, the utilities
of D18 and D22 are given by the numbers
3.33 and 1.25, against var 4 and var 5 in
fig.3. But the utility for D28 is derived from
the same property, that the sum of the
utilities for Delivery Period should sum to
zero. Therefore D28 has a utility of –
(3.33+1.25) or –4.58.

Finally, for Number of Tools, T4 has a

utility of -10.33 (variable 6 in fig. 3) and T8
has a utility of 1.58 (variable 7 in fig.3). T10
has a derived utility of –(-10.33+1.58) or
+8.75.

Now, we have the utilities for all the levels

of all attributes, and we can put them into a
table, as follows (rounded off to 1 decimal
points).
 Utilities Table for Conjoint Analysis

Attribute Level Part Range of

Utility Utilities
y
1
Setup Time in S3 5.5 (Max.-Min.)
minutes S6 4.2 =5.5-(-8.6)
S9 -1.1 =14.1
S12 -8.6 for Setup Time
2
Delivery Period D18 3.3 (Max.-Min.)
in Days D22 1.3 =3.3-(-4.6)
D28 -4.6 =7.9
for Delivery
Period.
3
Number of T4 -10.3 (Max.-Min.)
Tools T8 1.6 =8.7-(-10.3)
(Flexibility) T10 8.7 =19.0
for No.of Tools
Now, with the part utilities of every level of
every attribute available to us, we can come to
several conclusions. First, we can conclude
that machine flexibility is the most important
attribute for this customer.

There are two indicators for this. One, the

range of utility values is highest (19.0) for
number of tools (flexibility). Two, the highest
individual value of utility for any level of any
attribute is 8.7, for T10 (number of tools = 10).
Both these figures indicate that number of
tools is the most important attribute at given
levels of attributes.

The Setup Time seems to be the second most

important attribute, as its range of utilities is
14.1, as shown in the above table. The last
attribute in relative importance is the Delivery
Period, with a utility range of 7.9.
 Combination Utilities

We can also pick up one attribute level from

each attribute and combine their part utilities
to calculate the total utility of the
combination. For example, S3, D18 and T4
have a combined utility of 5.5+3.3-10.3 =
-1.5. Similarly, S3, D22 and T4 have a
combined utility of 5.5+1.3-10.3 = -3.5.

If we want the best combination, we pick the

highest utilities from each attribute, and add
them. S3+D18+T10 in this case is the most
preferred combination with a combined utility
of 5.5+3.3+8.7 = 17.5. The next best
combination is S6+D18+T10, with a
combined utility of 4.2+3.3+8.7, or 16.2.
 Individual Attributes

We can also check what difference in

utility a change of one level in one
attribute makes. For example, S3 to S6
(Setup time change from 3 to 6 minutes)
induces only a 1.3 units drop in utility, but
it gets progressively more at the next stage
–S6 to S9 has a difference in utility of 5.3.

Similarly, increase in Delivery Period

from 18 to 22 days costs 2.0 units(3.3-1.3)
of utility drop, whereas 22 to 28 days
causes 5.9 units of drop in utility (1.3-(-
4.6)).

Finally, Number of tools causes a drastic

change in utility of 11.9 units from T8 to
T4, and a significant drop in utility by 7.1
units from T10 to T8.