Introduction to Introduction to Conjoint AnalysisConjoint Analysis

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Different Perspectives, Different GoalsDifferent Perspectives, Different Goals

Buyers: Most desirable features & lowest priceBuyers: Most desirable features & lowest price

Sellers: Maximize profits by: Sellers: Maximize profits by: 1) minimizing costs of providing features 1) minimizing costs of providing features 2) providing products that offer greater overall value 2) providing products that offer greater overall value than the competitionthan the competition

Demand Side of EquationDemand Side of Equation

Typical research: focus on demandTypical research: focus on demand

Establish buyers wants/needsEstablish buyers wants/needs

Assess if it can be built/provided in a cost- Assess if it can be built/provided in a cost- effective mannereffective manner

Products/Services are Composed of Products/Services are Composed of Features/AttributesFeatures/Attributes

Credit Card:Credit Card:Brand + Interest Rate + Annual Fee + Credit LimitBrand + Interest Rate + Annual Fee + Credit Limit

On-Line Brokerage:On-Line Brokerage:Brand + Fee + Speed of Transaction + Reliability of Brand + Fee + Speed of Transaction + Reliability of Transaction + Research/Charting OptionsTransaction + Research/Charting Options

Learning What Customers Want:Learning What Customers Want:Alternative 1Alternative 1

Direct preference questions:Direct preference questions:– What brand do you prefer?What brand do you prefer?– What Interest Rate would you like?What Interest Rate would you like?– What Annual Fee would you like?What Annual Fee would you like?– What Credit Limit would you like?What Credit Limit would you like?

Answers too simplistic Answers too simplistic – (e.g. respondents prefer low fees to high fees, (e.g. respondents prefer low fees to high fees,

higher credit limits to low credit limits)higher credit limits to low credit limits)

Learning What Customers Want:Learning What Customers Want:Alternative 2Alternative 2

Ask about importancesAsk about importances

““How important is it that you get the How important is it that you get the bestbest brand, brand, lowestlowest interest rate, interest rate, lowestlowest annual fee, and annual fee, and highesthighest credit credit limit that you want?”limit that you want?”

Results: Stated ImportancesResults: Stated Importances

Importance Ratings often have low discriminationImportance Ratings often have low discrimination

Average Importance Ratings

7.5

8.1

7.2

6.7

0 5 10

Credit L imit

Annual Fee

Interest Rate

Brand

Learning What Customers Want:Learning What Customers Want:Alternative 3: Alternative 3: Conjoint Analysis Conjoint Analysis

Developed early 1970sDeveloped early 1970sMeasures valuation of components of a product/service Measures valuation of components of a product/service bundle bundle Dictionary definition: “Conjoint: Joined together, Dictionary definition: “Conjoint: Joined together, combined.”combined.” Marketer’s catch-phrase: “Features Marketer’s catch-phrase: “Features CONCONsidered sidered JOINTJOINTly”ly”

How Does Conjoint Analysis Work?How Does Conjoint Analysis Work?

Vary product features (IVs) to build many (often >12) Vary product features (IVs) to build many (often >12) product conceptsproduct concepts

Ask respondents to rate/rank those concepts (DV)Ask respondents to rate/rank those concepts (DV)

Determine unique value (utility) each features addsDetermine unique value (utility) each features adds

Interactions and tradeoffs identifiedInteractions and tradeoffs identified

What’s Good about Conjoint?What’s Good about Conjoint?

Realistic questions:Realistic questions:

Would you prefer . . .Would you prefer . . .

210 Horsepower or 140 Horsepower210 Horsepower or 140 Horsepower17 MPG 28 MPG17 MPG 28 MPG

Choose left: prefer Power. Choose right: prefer Choose left: prefer Power. Choose right: prefer EconomyEconomy

Present Present realisticrealistic tradeoff scenarios and infer tradeoff scenarios and infer preferences from product choicespreferences from product choices

Helps ID key features and boundaries (high and low)Helps ID key features and boundaries (high and low)

Conjoint Steps: Conjoint Steps: 1. Create Attribute List1. Create Attribute List

Attributes assumed to be independent Attributes assumed to be independent (Sonites: Weight, Design, Volume, Max (Sonites: Weight, Design, Volume, Max Freq, Power, and Price)Freq, Power, and Price)Each attribute has varying degrees, or Each attribute has varying degrees, or “levels”“levels”Levels Levels assumedassumed to be mutually exclusive of the to be mutually exclusive of the others (a product has one and only one level others (a product has one and only one level level of that attribute)level of that attribute)– Can “build in” real world constraints, e.g., weight and Can “build in” real world constraints, e.g., weight and

powerpower

How to Formulate Attribute LevelsHow to Formulate Attribute Levels

Concrete/unambiguous meaningConcrete/unambiguous meaning– ““Very expensive” vs. “Costs $575”Very expensive” vs. “Costs $575”– ““Weight: 5 to 7 kilos” vs. “Weight 6 kilos”Weight: 5 to 7 kilos” vs. “Weight 6 kilos”

Sonites:Sonites:– Weight:Weight: 10 -20 kg10 -20 kg– Design (Index): Design (Index): 3 – 103 – 10– Volume (dm3):Volume (dm3): 20 - 10020 - 100– Max Freq (1000Hz):Max Freq (1000Hz): 5 – 505 – 50– Power (W):Power (W): 5 - 1005 - 100

DO NOT leave meaning up to individual DO NOT leave meaning up to individual interpretationinterpretation

Conjoint OutputConjoint Output

1)1) Utilities (part worths)Utilities (part worths)

2)2) ImportancesImportances

Conjoint Output:Conjoint Output: Utilities (Part Worths) Utilities (Part Worths)

Numeric values that reflect how desirable different Numeric values that reflect how desirable different features are:features are:

FeatureFeature UtilityUtilityVanillaVanilla 2.52.5ChocolateChocolate 1.81.8

25¢25¢ 5.35.335¢35¢ 3.23.250¢50¢ 1.41.4

The higher the utility, the betterThe higher the utility, the better

Conjoint Output :Conjoint Output :Attribute ImportancesAttribute Importances

Measure how much influence each attribute has on choicesMeasure how much influence each attribute has on choices

Best minus worst level of each attribute, percentaged:Best minus worst level of each attribute, percentaged:

FLAVOR:FLAVOR:

Vanilla - Chocolate Vanilla - Chocolate (2.5 - 1.8) = (2.5 - 1.8) = 0.70.7 15.2%15.2%25¢ - 50¢25¢ - 50¢ (5.3 - 1.4) = (5.3 - 1.4) = 3.93.9 84.8%84.8%

---------- ----------------Totals:Totals: 4.64.6 100.0%100.0%

This buyer/group price sensitiveThis buyer/group price sensitive

NOTE: Importances directly affected by range of levels chosen NOTE: Importances directly affected by range of levels chosen for each attributefor each attribute

CONJOINT ANALYSIS - RELATIVE IMPORTANCE OF CHARACTERISTICS

Segment Design Max Freq Power Price TotalBuffs 6.4% 1.6% 26.6% 65.4% 100.0%Singles 3.6% 2.2% 38.5% 55.7% 100.0%Pros 8.8% 3.3% 43.4% 44.5% 100.0%HiEarners 15.4% 2.2% 31.9% 50.5% 100.0%Others 18.2% 1.6% 35.5% 44.7% 100.0%

CONJOINT ANALYSIS - UTILITIES - SEGMENT BUFFS

Unit 1 2 3 4 ImportanceDesign Level Index 4 5 6 7 6.4%

Utility [0,1] 0.28 0.37 0.38 0.36Max Freq Level KHz 26 34 42 50 1.6%

Utility [0,1] 0.34 0.36 0.35 0.33Power Level W 50 66 82 98 26.6%

Utility [0,1] 0.12 0.50 0.53 0.23Price Level $ 250 327 404 481 65.4%

Utility [0,1] 0.00 1.00 0.31 0.07

For four (4) different “levels” of the top four (4) attributes, what are the utilities?

Note: Weight & Volumeexcluded

12

12

3

3

1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

0.00 5.00 10.00 15.00 20.00250

327

404

481

Price

50

6682

98

Power

26 34 4250

Max Freq

4

5 67

Design

NOTE: Inverse “U” relationship of attribute levels and utility

SummarySummary

Conjoint is one of several tools made Conjoint is one of several tools made available to aid in setting attribute values.available to aid in setting attribute values.

Please note: This is not an exact science! Please note: This is not an exact science! Consumer preference may shift based on Consumer preference may shift based on market and competitive dynamics.market and competitive dynamics.