Conjoint Analysis >>>>What Do Customers Want?

Stated Preference Analysis

For Product Design and Development
For Pricing

 Conjoint analysis is used to analyze product preference data and simulate

consumer choice.
 Conjoint analysis is also used to study the factors that influence
consumers’ purchasing decisions. Products possess attributes such as price,
color, guarantee, environmental_impact, predicted reliability, and so on.
Consumers typically do not have the option of buying the product that is best
in every attribute, Particularly when one of those attributes is price.
Consumers are forced to make trade-offs as they decide which products to
purchase.
 Consider the decision to purchase a car. Increased size generally means
increased safety and comfort, which must be traded off with increased cost
and pollution. Conjoint analysis is used to study these trade-offs.
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 What Do Customers Want? >> Conjoint Analysis

What Do Customers Want?

 Every brand manager wants to know how various product attributes drive the
sales of a product. For example, what is most important in a consumer’s choice of
car: price, brand, engine horsepower, styling, or fuel economy?

 Conjoint analysis can be used to rank the importance of product attributes and
also rank levels of product attributes.

 For example, what type of styling on an SUV is most preferred?

 Conjoint Analysis is a technique used to assess the relative
importance individuals place on different features of a given
product.
 A conjoint study usually involves showing respondents a set of
features and asking them to indicate how much they like or prefer
the different attributes of that feature.
 The conjoint methodology is a decompositional approach to analyze
consumer preferences.

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 For example, when a soda drinker chooses between Coke and Pepsi, what is
the
relevant importance of the following:
■ Price
■ Brand (Coke or Pepsi)
■ Type of soda (diet or regular)
After showing a consumer several products (called product profiles) and
asking
the consumer to rank these product profiles, the analyst can use full profile
conjoint analysis to determine the relative importance of various attributes.
This
The following
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of multiple regression
Conjoint measurement simultaneously finds a monotonic
scoring of the dependent variable and numerical values for
each level of each independent variable. The goal is to
monotonically transform the ordinal values to equal the sum of
their attribute level values. Hence, conjoint measurement is
used to derive an interval variable from ordinal data
Conjoint Analysis
 Conjoint analysis is based on a main effects analysis-of-variance
model. Data are collected by asking subjects about their preferences
for hypothetical products defined by attribute combinations.
 Conjoint analysis decomposes the judgment data into components,
based on qualitative attributes of the products.
 Conjoint analysis is a popular family of techniques mostly used in
market research to assess consumers’ preferences.

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Compositional vs. decompositional preference models
 Compositional: respondents evaluate all the features (levels
of particular attributes) characterizing a product; combining
these feature evaluations (possibly weighted by their
importance) yields a product’s overall evaluation;
 Decompositional: respondents provide overall evaluations of
a series of products composed of various combinations of
attribute levels; the overall evaluations are then decomposed
into the utilities associated with different levels of the various
attributes;
Example of a compositional model
 Consider the following laptop computer:
 Dell
 320 GB hard drive
 4 GB of RAM
 12.1 inch screen
 Price of $1,200
 On a scale from 0 (lowest) to 10 (highest), how would
you rate this computer on each attribute?
 Assign a total of 100 points to the 5 attributes so that
the points reflect the relative importance of each
attribute.
A compositional preference model

Ryan Lawrence

Evaluatio Importance Evaluatio Importance

n (0 to (total of ExI n (total of ExI
10) 100) (0 to 10) 100)
4 20 80 4 15 60
Dell

320 GB 7 15 105 3 15 45
hard
drive
4 GB of 8 15 120 4 15 60
RAM

12.1 inch 9 25 225 8 25 200

screen

Price of 6 25 150 3 30 90
$1200
680 455
Total
Example of a decompositional model

 Rank the following four descriptions of laptop computers in

terms of overall preference:

Profile 1 Profile 2 Profile 3 Profile 3

Brand Dell Apple Dell Apple

Size of Hard
320 320 320 160
Drive
Amount of
2 4 4 4
RAM
Screen size 15.4 15.4 12.1 12.1

Price $1,200 $1,200 $1,500 $1,200

Rank 4,3 3,4 2,2 1,1

Basic idea of conjoint analysis

 Overall utility for a product can be decomposed into the

utilities (called part-worths) associated with the levels of the
individual attributes of the product;
 The relative importance of a given attribute is given by the
ratio of the part-worth range for that attribute divided by the
sum of all part-worth ranges;
Steps in conjoint analysis
 Determine attributes and attribute levels

 Select product profiles to be measured

 Choose a method of stimulus presentation

 Decide on the response method

 Collect and analyze the data

 Interpret the results

Attributes and attribute levels
Each product is defined by the level of several product attributes. Attributes are the
variables that describe the product. The levels for each attribute are the possible
values of the attributes.
The purpose of conjoint analysis is to help the marketing analyst understand the
relative importance of the attributes and within each attribute the ranking of the
levels.

 Identify the relevant product attributes that are considered during choice

 Select attribute levels that represent the options actually available in the market
Determining the Product Profiles
 The first step in a conjoint analysis is to create the combinations of factor levels
that are presented as product profiles to the subjects.
 The purpose of conjoint analysis is to determine the utilities (values) respondents
attach to each level of each attribute.

 These utilities can be obtained by executing a conjoint analysis on repsondents'

rankings of the whole product profiles, i.e., respondents do not rank or rate each
single level of each attribute, but instead rank or rate whole product packages.
This is more realistic than rating each single
 In full profile conjoint analysis, the consumer is shown a set of products (called
product profiles) and asked to rank them in order from best (#1) to worst.

 For the blood pressure drug there are a total of 3 × 3 × 3 = 27 possible product
profiles.
 It seems unlikely that any consumer could rank the order of 27 product
combinations; therefore, the marketing analyst must show the consumer a much
smaller number of combinations.
 Essentially, you want the attributes to be uncorrelated, so with
few product profiles, a multiple regression will be less likely to
be “confused” by the correlation between attributes.
 Such a combination of product profiles is called an
orthogonal design.

The first step in a conjoint analysis is to create the combinations of factor levels that
are presented as product profiles to the subjects. Since even a small number of factors
and a few levels for each factor will lead to an unmanageable number of potentia
product profiles, you need to generate a representative subset known as an
orthogonal array.
***ORTHOPLAN is telling you that having respondents
rank these 8 profiles will probably suffice.***
Orthogonality means each pair of levels appears equally
across all pairs of attributes within the design
 Example: Laptop Profiles
Brand Hard Drive RAM Screen Price
Dell 320 GB 2 GB 15.4 in $1,200
Apple 320 GB 4 GB 15.4 in $1,200
Dell 160 GB 4 GB 15.4 in $900
Apple 320 GB 2 GB 15.4 in $900
Dell 320 GB 4 GB 12.1 in $1,500
Apple 320 GB 2 GB 12.1 in $1,500
Apple 160 GB 4 GB 15.4 in $1,500
Apple 160 GB 2 GB 12.1 in $900
Apple 160 GB 4 GB 12.1 in $1,200
Dell 160 GB 2 GB 12.1 in $1,200
Dell 320 GB 4 GB 12.1 in $900
Dell 160 GB 2 GB 15.4 in $1,500
Product profiles

 Full factorial designs:

all possible combinations of the levels of the various attributes are used
 Fractional factorial designs:
 a subset of all possible combinations is used
 orthogonal designs in which each level of one attribute is paired equally
with all the levels of other attributes are beneficial
Example: Laptop Profiles

Brand Hard Drive RAM Screen Price

Dell 320 GB 2 GB 15.4 in $1,200
Apple 320 GB 4 GB 15.4 in $1,200
Dell 160 GB 4 GB 15.4 in $900
Apple 320 GB 2 GB 15.4 in $900
Dell 320 GB 4 GB 12.1 in $1,500
Apple 320 GB 2 GB 12.1 in $1,500
Apple 160 GB 4 GB 15.4 in $1,500
Apple 160 GB 2 GB 12.1 in $900
Apple 160 GB 4 GB 12.1 in $1,200
Dell 160 GB 2 GB 12.1 in $1,200
Dell 320 GB 4 GB 12.1 in $900
Dell 160 GB 2 GB 15.4 in $1,500
Methods of stimulus
presentation
Verbal descriptions

Apple Laptop
with 320 GB of Hard Disk Space,
4 GB of RAM, and a
Screen Size of 15.4 inches –
at a Price of $1,200.

 Pictures
 Actual products or prototypes
Response method

 Rankings or ratings of the product profiles in terms of

preference, purchase probability, etc.
 Pairwise comparisons of product profiles in terms of
preference, purchase probability, etc.
 Choice of a product from a set of product profiles

After being shown these combinations, the consumer ranked the

product profiles