CONSUMER

PERCEPTION,
CONSUMER
PREFERENCE AND
CUSTOMER
PORTFOLIO
MANAGEMENT
 Contents
• Mapping Consumer Perception And Preference
• Factor Analysis
• Conducting Factor Analysis
• Cluster Analysis
• Conducting Cluster Analysis
• Cluster Reliability and Validity
• Multi Dimensional Scaling
• MDS: Assessing Reliability and Validity
• Correspondence Analysis
• Conjoint Analysis
• Conducting Conjoint Analysis
 Section I
Introduction
 Mapping Consumer Perception And Preference
• Perception is the subjective assessment of any stimulus, which can take the form of any sensory
information such as a picture, sound, or odor.

• As a result, perception can differ based on an individual's experiences, prejudices,

values/beliefs, and personality.

• Preference is an expression of the outcome of expected utility

• Perceptions and preferences influence consumer response

• The mapping or interpretation of customer perception and desire is at the heart of much
consumer-related strategy.
 Section II
Factor Analysis
 Factor Analysis
•• It  allows data to be reduced from many variables to a smaller number of variables while keeping the
original variables' essence.

• Factor Analysis is an interdependence technique that reduces many variables to a smaller number of
factors based on their intercorrelations.

The Factor Analysis Model

A small number of common factors plus a unique factor for each variable are used to define the
covariation among the variables.

The distinct factors are unrelated to one another and to the common ones. The factor model can be
expressed as follows:

+ +………..+ +
 Factor Analysis Contd..
• Each common factor can then be expressed as a linear combination of the observed variables.

+ +………..+

where, Xi = standardized variable, = Estimate of factor, = weight or factor score coefficient, k=

No. of Variable

Typically, the first factor accounts for most of the overall variance.

Since the second element accounts for most of the remaining variation, it is unrelated to the first.
All subsequent factors are based on this principle.
 Conducting Factor Analysis

• To perform factor analysis, you must first formulate the problem, create the correlation matrix, decide
the method of factor extraction, choose a method of factor rotation, and calculate the factor scores.

• The variables used in the Factor Analysis method may be based on previous studies or theories. The
correlation matrix must be tested to determine if FA is a suitable approach for this set of variables.

• The principal components method was chosen as the extraction method in this case.

• The Varimax rotation method was chosen here as the rotation method.

• The "Regression Method" was chosen as the method for calculating factor scores in this case.

• The Scree Map, which is obtained by plotting the number of factors on the X-axis and the related
Eigenvalues on the Y-axis, is another common method of calculating the number of factors.
Factor Rotation
• The Factor Analyses approach gives us an unrotated solution to start with.

• Factor loadings are straightforward relationships between variables and factors.

• The findings are much more difficult to interpret since each factor can have strong associations with

multiple variables. As a result, during the Factor Analyses Procedure, a factor rotation method is chosen.

Oblique rotation

There are also procedures of oblique rotation, in which the axes are not at right angles and the variables
are correlated.

Allowing for factor correlations will also help to simplify the factor pattern matrix.

When it is predicted that variables in the population will be highly correlated, then, such a rotation
technique can be used.
 Section III
Cluster Analysis
 Cluster Analysis
• Cluster analysis (CA) is a term that refers to a collection of procedures that are used to group
objects into relatively homogeneous groups known as clusters.

• CA is an interdependence method in which a group of items is studied at the same time without
distinguishing between dependent and independent variables.

• CA is used when the marketer needs to identify consumer groups in order to conduct segment-
level research or strategy.

The Cluster Analysis Procedure

For the purposes of CA, there are several approaches that can be used. Here, we discuss three
clustering procedures:
 Cluster Analysis

1. Hierarchical Clustering

The development of hierarchical or tree-like structures that aid in the identification of

clusters/segments is a part of hierarchical clustering procedures.

There are the two types of hierarchical methods:

a) Agglomerative Clustering
 object/Everyone is treated as a separate cluster in agglomerative clustering. Then, units are grouped into
larger and larger clusters to form the next stage of clusters.

 The merger process is repeated until all units are members of a single cluster.
 Cluster Analysis

b) Divisive Clustering
 Divisive clustering begins where all objects/individuals are considered part of a single large cluster. Next level of clusters is formed
by dividing/splitting until each object/individual is in a separate cluster.

2. Non-hierarchical clustering
Nonhierarchical clustering approaches operate by choosing one or more cluster centers and then building clusters
around them. Sequential threshold, parallel threshold, and optimizing partitioning are some of these approaches.

A cluster center is chosen in the sequential threshold process, and all objects within a pre-specified threshold
value from the center are grouped together. The process is then repeated for the unclustered points with a new
cluster centre or seed.
 Cluster Analysis

 The parallel threshold approach works in a similar way, except that multiple cluster centers are chosen at the
same time, and objects within the threshold level are grouped with the center that is closest to them.

 Objects may later be reassigned to clusters to optimise an overall criterion, such as average inside cluster
distance for a given number of clusters, which distinguishes the optimising partitioning approach from the two
threshold procedures.

3. Two-step clustering
This analysis finds clusters by using pre-clustering methods first, followed by hierarchical
methods. This clustering approach is capable of handling massive data sets.
 Conducting Cluster Analysis
• The researcher must first formulate the problem, then choose a distance metric, a clustering method, a number

of clusters, interpret and profile clusters, and assess the clustering's validity.

• Many different procedures need to be run and then a solution should be chosen.

• It is recommended that the Cluster Analyses procedure be run using various clustering techniques and a variety

of distance steps, and then determine which solution best addresses the researcher's goal.

Cluster Reliability and Validity

• The distances at which clusters are combined can be used as parameters in hierarchical clustering. The

agglomeration schedule or the dendrogram may provide this detail.

• The ratio of total within-group variance to between-group variance can be plotted against the number of

clusters in nonhierarchical clustering.

 Conducting Cluster Analysis Contd..
• The use of both hierarchical and nonhierarchical approaches should be combined. First, a
hierarchical process such as average linkage or Ward's is used to achieve an initial clustering
solution. The optimizing partitioning method uses the number of clusters and cluster centroids
obtained as inputs.

• Use different distance measures to perform cluster analysis on the same results.

• Compare the findings of various clustering techniques. Split the data in half at random. On each
half, clustering should be done separately.

• Compare the cluster centroids in both subsamples. Remove variables at random. Using the
reduced set of variables, cluster the data.

• Compare the results to those obtained by clustering all of the variables together.
 Section IV
Multi-dimensional
Scaling
 Multi-dimensional Scaling
• MDS stands for multidimensional scaling, which is a collection of procedures for representing
respondents' expectations and desires spatially using a graphical display.

• Geometric relationships between points in a multidimensional space are used to describe perceived
relationships between objects.

• Spatial maps are another name for these representations in Cartesian space.

• MDS is one of the methods for constructing perceptual charts.

The Data: Multi-Dimensional Scaling

Data collected for undertaking MDS can be based on perception data direct comparisons, on perception
data derived comparisons or on preference data
Perception Data: Direct Comparisons

Respondents are asked to rank the stimuli provided in terms of similarity in the direct approach.

If there are n brands of a product, for example, respondents are usually asked to rate each pair of
brands in terms of perceived similarity or dissimilarity. The total number of pair-wise comparisons
required of the respondents is [n(n - 1)]/2.

Perception Data: Derived Comparisons

Respondents score the brands/stimuli on a collection of defined attributes using semantic

differential or Likert scales in order to obtain perception-based data using the derived comparisons
method.
Preference Data

Respondents must order the brands or stimuli in terms of their preference for certain property
when collecting preference data.

Preference scores, paired comparisons showing the brand in a pair they prefer, and preference
ratings for the different brands are all options.

MDS: Assessing Reliability and Validity

• The index of fit, or R-square, is a squared correlation index that shows the proportion of variance
of the optimally scaled data that can be accounted for by the MDS method, which can be used to
determine the reliability of the results obtained. This is a test of how well anything fits.

• Stress values are another group of indicators that can be used to determine the consistency of MDS
solutions. Stress levels of less than 10% are considered to be acceptable.
Preference Data Contd..

• Reliability analysis can be done at the aggregate level as well as for specific subsets of the
entire data collection.

• It's possible that the original data would be divided into two or more bits.

• To make a final decision, MDS analysis can be performed separately on each part and the
results compared.
 Section V
Correspondence
Analysis
 Correspondence Analysis

• A researcher may use correspondence analysis to map the relationships between nonparametric
variables.

• Correspondence analysis is a method that uses data in the form of a contingency table as input.

• This analysis uses dimension-reduction technique

• The resulting spatial maps reveal the similarities among the categories presented in rows and
columns, as well as their interrelationships.
 Correspondence Analysis: Procedure

• For correspondence analysis, the input data is in the form of data that represents categories in rows
and columns.

• In this way, the information used for analysis is identical to the information used to create
contingency tables.
 Section VI
Conjoint Analysis
 Conjoint Analysis

• Conjoint analysis is used to assess the relative value that customers place on product/service
attributes, as well as the utility that they place on the levels of these attributes.

• Respondents are asked to rate the stimuli in the product offering and indicate which version of
the product they prefer.

• Conjoint procedures take preference data and assign values/utilities to the various levels of each
attribute, allowing the researcher to gain an understanding of the customer preference for a
particular version of the overall product.
 The Conjoint Analysis Model

• 
The Basic Conjoint Analysis Model may be represented by following formula:

U(X) =

Where,

U(X) = Overall utility of an Alternative

= 1 if the level of the attribute is present, otherwise 0

= Number of levels of Attribute i

M = Number of Attributes
 Conducting Conjoint Analysis
• Conjoint research can be done by gathering data using the full-profile method, which entails
multiple-factor analyses of potential choices and the development of full or complete brand
profiles for all attributes.

• The total number of potential profiles may often be in the hundreds. In such instances, fractional
factorial designs may be used to reduce the number of stimulus profiles.

• Orthogonal arrays are a form of fractional design that allows for the calculation of all main effects
of interest, even if the main effects are uncorrelated.

• Another method for gathering data for conjoint analysis is to use a pairwise approach, in which
respondents rate two attributes at a time until all possible pairs of attributes have been rated.
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