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Customer Module
Measuring Consumer Preferences:
Conjoint Analysis
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Managing the Development Process -Concept to Strategy
Concept Development and Testing
-Product Idea
Is a possible product that a company mightoffer to the market
-Product concept
Is an elaborate version of the ideaexpressed in meaningful consumer terms
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Concept Development
A large food processing company getsthe idea of producing a powder to addto the milk to increase its nutritionalvalue and taste.
Translate it into product concepts
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The following are 3 product conceptsconsidered-
Concept 1
An instant breakfast drink for adults who want aquick nutritious breakfast without preparing a
breakfast
Concept 2
A tasty snack drink for children to drink as a
midday refreshmentConcept 3
A health supplement for older adults to drink in
the late evening before they go to bed
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Suppose Concept 1-instant breakfast drink looks best.
Product Positioning Map
Each product concept represents acategory concept. How?
Slow Quick
Inexpensive
Expensive
InstantBreakfast
ColdCereal
Bacon& Eggs
HotCereals
Pan cakes
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Product Positioning Map
Lowin
Calories
Highin
calories
Low price per ounce
High price per ounce
Brand
B
Brand C
Brand A
Instant breakfast Market
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Concept Testingpresenting product concept to the appropriate
target consumers and getting their reactions
Creating Physical Prototypes
CAD & manufacturing programs
Virtual reality (Simul-Shop)
Customer driven engineering
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Concept Testingentails presenting consumers with anelaborated version of concept product
Our product is a powdered mixture that isadded to milk to make an instant breakfast
that gives the person all the needednutrition along with good taste and highconvenience.
The product would be offered in 3 flavors
(vanila, chocolate and strawberry) and would comein individual packets, six to a box at INR 60a box
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1- Are benefits clear to you and Communicability and
believable? believability
2- Do you see this product Need Levelsolving a problem or filling
a need for you?
3- Do other products currently Gap Level, need gap scoremeet this need and satisfy you?
4- Is the price reasonable in Perceived value
relation to the value?
Post receiving this information, consumerresponds to the following information-
Product dimension MeasuredQuestions
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5- Would you (definitely, probably, Purchase Intensionprobably not, definitely not)
buy the product?
6- Who would use this product and User targets, purchasewhen and how often would the occasions and
Product be used? Purchasing frequency
Score will decide whether a Product is a winner, long
shot or loser.
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Conjoint Analysis
Consumer preference for alternative product concepts can
be measured through conjoint analysis, a method
for deriving utility values thatconsumer attach to varying levels ofproduct attributes.
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Carpet Cleaning Agent for home use
1 3 package designs- A, B, C
2 3 Brand Names- Glory, Cleanex, Bissel
3 3 price points- INR 150, INR175 and INR 200
4 A possible Good House Keeping Seal-yes, no
5 A possible money back guarantee- yes, no
5 Design Elements
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To be noted-
108 products concepts Statistical program to derive customers
utility functions for each of the 5 attributes
Utility ranges between 0 and 1
Higher the utility stronger the _________
The greater the difference between higherand lower utility level the more_______ the
attribute The most customer-appealing offer is not
always the most profitable offer to make
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Utility Functions based on ConjointAnalysis
A B C Glory Bissel Cleanex Rs150 Rs175 Rs200
0
1 1 1
0 0
U
TILITY
Package Design Package Design Retail Price
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No Yes
0
1
U
TILITY
Good Housekeeping Seal?
0
1
UTILITY
Money back guarantee?
No Yes
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Customer PreferencesUnderstanding customer preferences is the
crux of marketing...
...specifically for product development &pricing decisions
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What is conjoint analysis?A set of procedures developed to understand
customer preferences for a product
Instead of simply asking customers whether they prefercertain product ideas, conjoint analysis tries to get theunderlying insights about these preferences
It helps marketers by telling them exactly what to fixin aproduct that is not preferred by customers
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What is conjoint analysis?
Conjoint analysis involves decomposing products into theircomponent parts to analyzehow decisions are
made...and then predicthow decisions will be made in thefuture
It is used to understand the importance of different product
components or product features, as well as to determinehow decisions are likely to be influenced by the inclusion,exclusion, or degree of that feature.
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What is conjoint analysis?
This technique is based on the premise that purchase
decisions are not made based on a single factor; but onseveral factors considered jointly.
Consumers do not have the option of having more of every
product characteristic that is desirable and less of everyproduct characteristic that is undesirable.
Conjoint analysis is sometimes referred to as trade-off analysisbecause respondents in a conjoint study are forced to make trade-offs between product features.
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What is conjoint analysis?Conjoint analysis successfully applied to:
Automobiles
CamerasLaptops
Cell phones
Credit cards
Hotels
Shampoos
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Steps in Conjoint Analysis1. Choose Attributes
2. Choose relevant levels of attributes
3. Choose Sample Size & respondent type4. Generate choice sets
5. Show choice set to respondent and collect preference data *
6. Repeat the exercise with a random selection of choice sets for each
respondent7. Estimate utility of each level / option within each product attribute
8. Estimate importance of each attribute
9. Determine optimal combination of attributes for the product
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Choice-based conjoint analysis
Instead of asking respondents to rate eachattribute combination, a choice set of 4-5 attributecombinations (also called product bundle) isshown, and they are asked to choose one.
This pick one task tends to be far easier forrespondents
And then, the underlying 'value system'of acustomer is derived - i.e; how much value acustomer places on different attributesof aproduct
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Attributes
These are product features and representthe dimensions on which a product can bedefined and on which consumers make
choices between competitive products
For instance, a mid-sized car will have attributes such as:
Power steering; Power windows; Engine power; Price;Body colour; Fuel used; Mileage...and so on
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Levels
Levels represent specific amounts of particular attributes.
For instance, for each of the above attributes, therecan be the following levels:
- Power Steering: Yes, No
- Power Windows: Yes, No
- Engine power: 800cc, 1000cc, 1100cc
- Price: 3 lakhs, 4 lakhs, 5 lakhs
- Body colour: Blue, White, Black
- Fuel used: Diesel, CNG, Petrol
- Mileage: 12 kmpl, 14 kmpl, 16 kmpl
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Selecting attributes and levels
1. The attributes must be independent of each other. For example, forTVs, it would be inappropriate to include one attribute level 'largescreen TV' and another attribute that provides screen measurements.In many categories, there is a potential overlap between 'reliability'and 'quality'
2. The attributes should measure only one dimension. For example,consider the following VCR attribute:
Number of Channels:25 ; 75 ; 150 Cable ready ; 250 Cable ready
This attribute should instead, be broken into two attributes as follows:
Number of Channels (25; 75; 150; 250) & Cable Ready (Yes;No)
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Selecting attributes and levels
3. Levels must be chosen so that each product can be defined by only
one of the levels. For example, consider the following attribute andlevels:
Format:Large Screen (48) Television; 29 Television; IncludesPicture in Picture
Here, the Picture in Picture feature should not be included with theformat attribute, as either size of television could include the Picture inPicture feature.
4. There should be nearly an equal number of levels for each attribute.Otherwise, there can be an artificial number of levels effect thatinflates the relative importance of attributes, which have largernumbers of levels.
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Sample Size and Target Respondents
Sample Size depends on:
- number of attributes for the product
- number of levels within each attribute
- the number of product bundles displayed on each card /choice set
- the depth of analysis required (i.e., whether findings areto be presented overall or region-wise, or for each citywithin a region...)
Target Respondents are chosen according to criteria setby the researcher prior to conducting the conjoint study
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Choice Sets
Choice Sets are a collection of product bundles generated bypermutations and combinations of levels within each attribute.
For the car example, a choice set could be as follows:
Product Option APower Windows
1000cc
4 lakhsBluePetrol
12 kmpl
Product Option BPower SteeringPower Windows
1100cc5 lakhsWhiteDiesel
16 kmpl
Product Option C800cc4 lakhs
BlueCNG
14 kmpl
None
ofthese
Choice Set-1
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All options shown to the respondent must be feasibleoptions in a realmarket scenario
Thus, within the conjoint model certain combinations ofattributes may need to be fixed, e.g. 1100cc is possible
only with petrol or diesel Prohibitions are to be built into the Conjoint Analysis
design to avoid infeasible / impractical product options
Prohibition refers to a situation where one attribute isnot applicable if a particular level of another attributeholds true. There should not be too many prohibitionsacross various variables.
Choice Sets
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Deriving utilities & developing an idealproduct
After recording respondents' preferences for 10-12 suchchoice sets, the conjoint software is able to derive 'utilities'or the value-system of each respondent
Armed with this knowledge, a marketer is able to decidewhich attributes have a greater importance in overallpurchase decision, and which levels of those attributesare preferred most
The marketer can also predict customer choices in thesame category, given a certain set of products
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