conjoint ananlysis

8/3/2019 Conjoint Ananlysis

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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

conjoint ananlysis

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