toy horse conjoint analysis
TRANSCRIPT
Executive Summary
Product Recommendations: Product: big rocking glamorous horse sold at $119.99 & big bouncing racing horse sold at $119.99 and our
competitor would sell at $119.99
Profit: $179,580 (this is the lowest profit for that it is based on the quick response of competitor, the real profit would
be >= $179,580 )
Promotion suggestion: when promoting, for female consumers, we emphasizes low price, for male consumers, we
emphasize big, rocking, glamour attributes.
Methodology: Product scheme: all of our analysis are based on a consistent product scheme consisted of 16 products with
different attributes of price, size, motion and style.(see appendix1) Consumer: according to our segmentation scheme, we choose three segments. Then based on segment preference
& profitability, we have product suggestions. Competitor: competitor’s product and reaction are taken into consideration. With our new product lines, we
calculate competitor’s profitability of dropping price and not dropping to determine its response. Based on their reasonable response we determine our optimal solution.
Profitability: compare to our current profit, and make decision based on future profit.
Benefit Segmentation-3 clusters
Price ShopperMost price sensitiveStrongly prefer bouncing and racing horseBouncing>Racing>Bigger Size
Quality BuyerLeast price sensitiveStrongly prefer bigger size and glamour styleBigger Size>Glamour>Rocking
Small Rocking FunStrongly prefer smaller size and rocking horseIndifferent to styleRocking>Smaller Size
50%
30%
20%Low Price Big Size Rocking Motion Glamour Style
-15.0
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25.0 22.4
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-6.5
9.7
0.1
Attribute Preference by Segments
123
The majority of customers prefer big size. However our current product lines only produce small toy horse.
Segment 1For Segment 1, Product 1 is the best choice: $139.99,Small,Bouncing and Racing horses.
Segment 2For Segment 2. Product 11 is the best choice: $139.99, Big, Bouncing and Glamorous horses.
.
Segment 3For Segment 3, Product 13 is the
best choice: $139.99, Small, Rocking and Glamorous horses.
Product Recommendation – competitor’s price: $139.99The recommendations are different if competitor drops its price. So we provide two sets of recommendation under two scenarios. Our recommendation: The product whose utility is bigger than competitor’s and has highest profit margin. Order all products from highest profit margin to lowest(product on the left side of x-axis has highest margin, product on the
right side x-axis has lowest margin); the height of column(y-axis) represents the utility, red dot line represents competitors utility(base line).(detailed calculations see appendix2)
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Competitor’s utility
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Recommended Products Competitive Products
Segment 1For Segment 1. Product 2 is the
best choice, which is price at$119.99,small,Bouncing and
Racing horses.
Segment 2For Segment 2. Product 15 is the
best choice, which is price at$139.99,Big Rocking and
Glamorous horses..
Segment 3For Segment 2. Product 14 is the
best choice, which is price at$119.99,Small Rocking and
Glamorous horses..
Product Recommendation – competitor’s price $119.99Our recommendation: The product whose utility is bigger than competitor’s and has highest margin. Order all products from highest margin to lowest(product on the left side of x-axis has highest profit margin, product on the
right side x-axis has lowest profit margin); the height of column(y-axis) represents the utility, red dot line represents competitors utility(base line).(detailed calculations see appendix2)
Product9
Product1
Product11
Product3
Product13
Product5
Product10
Product2
Product15
Product7
Product12
Product4
Product14
Product6
Product16
Product80.0
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Competitor’s utilityfor each segments
75.653.1
Recommended Products Competitive Products
Priori Segmentation (Gender & Age)
Gender They have opposite preferences of motion and
style. Both male and female prefer big size, male’s
preference is much stronger. Female is even more sensitive.
AgeCompare to difference in two gender groups, not much difference is shown between two age groups, so age is not a strong decisive factor in segmentation.
Combing earlier analysis, Female share similar preference with segment1, target product for segment1 meets female’s preference and female share .
Male share similar preference with segment 2, target product for segment 2 meets male’s preference. The size preference is consistent with our cluster analysis. Majority customers prefer big size.
Low Price Big Size Rocking Motion Glamour Style
-5.0
0.0
5.0
10.0
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20.0
11.712.5
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6.6
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Part utilities by gender
Male Female
Low Price Big Size Rocking Motion Glamour Style
-5.0
0.0
5.0
10.0
15.0
20.0
16.6
8.8
-2.2
0.5
16
3.7
0.5
-0.4
Part Utilities by Age
2-year-old 3~4-year-old
Product Recommendation by Gender & AgeRationale:The decision is made based on firstly the utility, then the highest margin we can get. The best choice of product is based on these two criteria.
BY GENDER
With competitor price of $139.99:
Male&female: best product 11: $139.99, big, bouncing, glamorous(choose product 11 rather than 3 because of less fixed cost);
With competitor price of $119.99:
Male&female: best product 12: $119.99, big, bouncing, glamorous.
BY AGE
With competitor price of $139.99:
2-year-old: best product 11: $139.99, big, bouncing, glamorous;
3~4-year-old: best product 10:$119.99, small, bouncing, glamorous;
With competitor price of $119.99:
2-year-old: best product 12: $119.99, big, bouncing, glamorous;
3~4-year-old: best product8: $119.99, big, rocking ,racing (actually may exit this market because of direct competition.)
Calculations see appendix 3
Priori Segmentation Variables Test
Conclusion: gender has significant influence on price, size, motion and style; age has significant influence on size and motion
Ratings ~ (price+size+motion+style) * ageD
Ratings ~ (price + size + motion + style) * genderD
coefficient Std error P-value
Price:genderD -6.5387 0.5889 -11.103 <2e-16 ***
Size:genderD 8.8586 0.5553 15.954 <2e-16 ***
Motion:genderD 7.2015 0.5889 12.228 <2e-16 ***
Style:genderD 9.3387 0.5553 16.819 <2e-16 ***
coefficient Std error P-value
Price:genderD 0.5817 0.6253 0.930 0.352
Size:genderD 5.0585 0.5896 8.580 <2e-16 ***
Motion:genderD -2.6344 0.6253 -4.213 <2.54e-05 ***
Style:genderD 0.8977 0.5896 1.523 0.128
Produce 3 products at most to avoid cannibalization because of 3 segments.1-product pool: estimate market share of each product based on part utility, choose product that has higher market share and profit margin:Product No.12, No.13, No.11, No,1
2-product pool: target segment 1 & 2(large mkt share), and based on segments preference:-Product No.4: segment 1; No.16: segment 2-Product No.2: segment 1; No.16:segment 2-Product No.2: segment 1; No.12:segment 2
3-product pool: provide targeted product to each segment:-Product No.1, No.11, No.13-Product No.2, No.15, No.14
Build Potential Scenarios Pool Scenarios choosePredict competitor reaction
Calculate competitor’s profit at price $139.99 and at $119.99 after we launch products. If decrease price can boost profit, we predict that competitor will react to us by price decreasing.
Based on competitor’s reaction, calculate the market share and profit for each scenario in the pool, then choose 5 scenarios.
Product-line Scenarios: Decision Process
Two product line is more profitable and the optimal combination is product 4 & 16
Three ProductScenario 5:Product 2 Product 14 Product 15
60%
Two Product Scenario 2: Product 16, Product 4
Scenario 3: Product 16 Product 2
Scenario 4: Product 12 Product 2
One Product Scenario 1: Product 12
39.1%
42.3%32.3%
41.5%
39.7%
19.7%
18.9%
39.4%49.6% $179580
$172894
$168096
$162651
$139709
Product Portfolio Market Share Potential Profit Findings:
If we offer one product:Although product line development fee can be saved, we can not meet diverse customers’ needs, thus making this the lowest profitable.
If we offer two products:Three choice combinations should be considered. Through test, scenario [16,4,8] comes as the most profitable scenario, which matches our prior consumer analysis.
If we offer three products:scenario [2,15,14,8] is our best choice. However because of severe cannibalization and higher fixed cost, this is less profitable than two products.
Note: Our scenario setting is based on competitor’s quick response. The reality is that competitor needs some time to modify their price, so the actual profit would be higher than this. For profit without competitor’s response, see Appendix7.
Competitor reaction: lower price(offer Product 8)
We should adopt the optimal product line of product 4 & 16
By adopting product line of big rocking glamorous horse sold at $119.99 and big bouncing racing horse sold at $119.99, we can expand our total market share from 36% to 89%, and at the same time increase our profit by 139% (detailed data see appendix8)
We get the result under the assumption that our competitor only has two options of price: $139.99 and $119.99. However, according to our analysis, if we adopt the optimal product line, our competitor will be so adversely affected that reach the edge of break even, though they drop price to $119.99. Our competitor is very likely to take further actions against us. The chances are high that they further decrease price.
Even though our competitor may further drop price, we can for sure improve our profitability by adopt new product line to differentiate ourselves and better meet market needs.
Current Best Solution $-
$20,000 $40,000 $60,000 $80,000
$100,000 $120,000 $140,000 $160,000 $180,000 $200,000
$75,009
$179,580 $160,599
$4,196
Profit Comparison
EarlyRiders' Profit Competitor's Profit
Product 1315%
Product 521%
Product 764%
Current
Product 1639%
Product 450%
Product 811%
Best Product Line
Product 16Product 4Product 8
Market Share Comparison
Competitor EarlyRiders
Low Price Big Size Rocking Motion Glamour Style
-5.0
0.0
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Part utilities by gender
Male Female
PromotionFinal Product Line: Product 16: $119.99, big, rocking, glamorous Product 4: $119.99, big bouncing racingCombing part utilities with gender, we can see that there is clear preference by gender: Male prefers product 16; Female prefer product 4.
(Intercept) Low Price Big Size Rocking Motion Glamour Style-5.00.05.0
10.015.020.025.030.035.040.0 34.9
16.6
8.8
-2.20.5
35
16
3.70.5 -0.4
Part utilities by Age
2-year-old 3~4-year-old
Axis Title
Axis
Title
By age groups, there is no clear difference in preference, so this demographic shouldn’t be included in promotion.Conclusion:In our promotion, gender is the most important demographic feature that needs to be taken into consideration. We should promote product 16 to male and product 4 to female.
Price Size Motion Style Wholesale Price VC Margin1 139.99 small Bouncing Racing 111.992 21 90.9922 119.99 small Bouncing Racing 95.992 21 74.9923 139.99 big Bouncing Racing 111.992 29 82.9924 119.99 big Bouncing Racing 95.992 29 66.9925 139.99 small Rocking Racing 111.992 33 78.9926 119.99 small Rocking Racing 95.992 33 62.9927 139.99 big Rocking Racing 111.992 41 70.9928 119.99 big Rocking Racing 95.992 41 54.9929 139.99 small Bouncing Glamorous 111.992 21 90.992
10 119.99 small Bouncing Glamorous 95.992 21 74.99211 139.99 big Bouncing Glamorous 111.992 29 82.99212 119.99 big Bouncing Glamorous 95.992 29 66.99213 139.99 small Rocking Glamorous 111.992 33 78.99214 119.99 small Rocking Glamorous 95.992 33 62.99215 139.99 big Rocking Glamorous 111.992 41 70.99216 119.99 big Rocking Glamorous 95.992 41 54.992
Appendix1: Product Scheme
Appendix2: detailed calculation of product recommendation for 3 segments
Product NO. price size motion style wholesal
e pricevariable
cost margin segment1
sengmet2
segment3
8 119.99 big Rocking Racing 95.992 41 54.992 46.8 75.6 53.116 119.99 big Rocking Glamorous 95.992 41 54.992 40.3 86.6 53.26 119.99 small Rocking Racing 95.992 33 62.992 41.6 59.1 59.6
14 119.99 small Rocking Glamorous 95.992 33 62.992 35.1 70.1 59.64 119.99 big Bouncing Racing 95.992 29 66.992 56.5 68.4 43.4
12 119.99 big Bouncing Glamorous 95.992 29 66.992 50 79.4 43.57 139.99 big Rocking Racing 111.992 41 70.992 24.4 66.8 41.1
15 139.99 big Rocking Glamorous 111.992 41 70.992 17.9 77.8 41.22 119.99 small Bouncing Racing 95.992 21 74.992 51.4 51.85 49.9
10 119.99 small Bouncing Glamorous 95.992 21 74.992 44.9 62.9 49.95 139.99 small Rocking Racing 111.992 33 78.992 19.2 50.3 47.6
13 139.99 small Rocking Glamorous 111.992 33 78.992 12.7 61.3 47.73 139.99 big Bouncing Racing 111.992 29 82.992 34.1 59.58 31.4
11 139.99 big Bouncing Glamorous 111.992 29 82.992 27.6 70.6 31.51 139.99 small Bouncing Racing 111.992 21 90.992 29 43.1 37.99 139.99 small Bouncing Glamorous 111.992 21 90.992 22.5 54.1 38
Competitor’s product at $139.99 and $119.99
Product recommendations when competitor sells at $139.99
Product recommendations when competitor sells at $119.99
Our recommendation: The product whose utility is bigger than competitor’s and has highest profit margin.
price size motion style margin Male Female 2-year-old 3~4-year-old8 119.99 big Rocking Racing 54.992 68.35 51.77 58.1 55.13
16 119.99 big Rocking Glamorous 54.992 74.99 49.07 58.58 54.716 119.99 small Rocking Racing 62.992 55.81 48.09 49.34 51.42
14 119.99 small Rocking Glamorous 62.992 62.45 45.38 49.82 51.014 119.99 big Bouncing Racing 66.992 64.15 54.77 60.26 54.66
12 119.99 big Bouncing Glamorous 66.992 70.79 52.07 60.75 54.247 139.99 big Rocking Racing 70.992 56.68 33.56 41.52 39.13
15 139.99 big Rocking Glamorous 70.992 63.31 30.85 42 38.712 119.99 small Bouncing Racing 74.992 51.61 51.08 51.51 50.96
10 119.99 small Bouncing Glamorous 74.992 58.24 48.38 51.99 50.545 139.99 small Rocking Racing 78.992 44.13 29.87 32.76 35.43
13 139.99 small Rocking Glamorous 78.992 50.77 27.17 33.24 35.013 139.99 big Bouncing Racing 82.992 52.47 36.55 43.69 38.66
11 139.99 big Bouncing Glamorous 82.992 59.11 33.85 44.17 38.241 139.99 small Bouncing Racing 90.992 39.93 32.87 34.93 34.969 139.99 small Bouncing Glamorous 90.992 46.56 30.17 35.41 34.54
Appendix3: detailed calculation of product recommendation by age and gender
Rationale:The decision is made based on firstly the utility, then the highest margin we can get. The best choice of product is based on these two criteria.
Competitor’s product at $139.99 and $119.99
Product recommendations when competitor sells at $139.99Product recommendations when competitor sells at $119.99
Appendix4: Benefit Segmentation (4 clusters)Price Shopper IMost price sensitiveStrongly prefer bouncing and racing horseBouncing>Racing>Bigger Size
Price Shopper IIprice sensitivelove bigger sizeStrongly prefer bouncing and racing style
Small Rocking Funprice sensitiveStrongly prefer smaller size and rocking horseIndifferent to style
25%
26%
20%constant Low Price Big Size Rocking Motion Glamour Style
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Attribute Preference by Segments
1 2 3 4
30%Quality Buyerleast price sensitivestrongly prefer big size and glamour style
Product1
Product9
Product3
Product11
Product5
Product13
Product2
Product10
Product7
Product15
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Product14
Product8
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Segment 1At Price $119.99, Product 2 (small, Bouncing, Racing) is our best choice.At Price $ 139.99, Product 1 (small, Bouncing, Racing) is our best choice.
Segment 2At Price $119.99, Product 2 (small, Bouncing, Racing) is our best choice.At Price $ 139.99, Product 1 (small, Bouncing, Racing) is our best choice.
.
Segment 3At Price $119.99, Product 14 (small, Rocking, Glamorous) is our best choice.At Price $ 139.99, Product 13 (small, Rocking, Glamorous) is our best choice.
.
Segment 4At Price $119.99, Product 15 (big, Rocking, Glamorous) is our best choice.At Price $ 139.99, Product 11 (big, Bouncing, Glamorous) is our best choice.
.
The recommendations are different if competitor drops its price. So we provide two sets of recommendation under two scenarios. Our recommendation: The product whose utility is bigger than competitor’s and has highest margin. Order all products from highest margin to lowest(product on the left side of x-axis has highest profit margin, product on
the right side x-axis has lowest profit margin); the height of column(y-axis) represents the utility, dot line represents competitors utility(red: price $139.99 and green: $119.99).
Appendix5: Product Recommendation for 4 segments
Appendix6: detailed calculation of product recommendation for 4 segments
Competitor’s product at $139.99 and $119.99
Product recommendations when competitor sells at $139.99
Product recommendations when competitor sells at $119.99
Our recommendation: The product whose utility is bigger than competitor’s and has highest profit margin.
Product NO. price size motion style wholesa
le pricevariable
cost margin segment1
sengmet2
segment3
segment4
8 119.99 big Rocking Racing 95.992 41 54.992 48.3 45.3 53.1 75.616 119.99 big Rocking Glamorous 95.992 41 54.992 42.3 38.3 53.2 86.66 119.99 small Rocking Racing 95.992 33 62.992 42 41.2 59.6 59.1
14 119.99 small Rocking Glamorous 95.992 33 62.992 36.1 34.2 59.7 70.14 119.99 big Bouncing Racing 95.992 29 66.992 56.5 56.6 43.4 68.4
12 119.99 big Bouncing Glamorous 95.992 29 66.992 50.5 49.6 43.5 79.47 139.99 big Rocking Racing 111.992 41 70.992 24.3 24.4 41.1 66.8
15 139.99 big Rocking Glamorous 111.992 41 70.992 18.3 17.4 41.2 77.82 119.99 small Bouncing Racing 95.992 21 74.992 50.3 52.49 49.9 51.8
10 119.99 small Bouncing Glamorous 95.992 21 74.992 44.3 45.5 49.9 62.95 139.99 small Rocking Racing 111.992 33 78.992 18.1 20.3 47.6 50.3
13 139.99 small Rocking Glamorous 111.992 33 78.992 12.1 13.3 47.7 61.33 139.99 big Bouncing Racing 111.992 29 82.992 32.5 35.68 31.4 59.6
11 139.99 big Bouncing Glamorous 111.992 29 82.992 26.6 28.7 31.5 70.61 139.99 small Bouncing Racing 111.992 21 90.992 26.3 31.6 37.9 43.19 139.99 small Bouncing Glamorous 111.992 21 90.992 20.3 24.6 38 54.1
3 Cluster• Explained 90.26% of the point
variability • There is no overlap between the
three cluster• Different between and similar
within
4 Cluster• Explained 90.26% of the point
variability • There is big overlap between
clusters• Similar within but not different
between
Appendix7: 3 clusters is our best segment choice
√
Appendix8: Scenario Display When No Response
Scenario Product Market Share Profitability Total Profit Competitor Profit
One Product [12,7] 12 92.8% $ 228,666.90 $ 228,666.90 $ 445.12
Two Products
[16,4,7]16 47.9% $ 93015.5 $ 203,896.20 -$18864.20 4 57.1% $ 110880.7
[16,2,7]16 45.9% $ 102361.2
$ 222,340.10 -$ 19148.10 2 53.8% $ 119978.9
[2,12,7]2 44% $ 106276.7
$ 236,948.80 - $ 14,604.80 12 54.1% $ 130672.1
Three Products [2,15,14,7]
2 50.9% $ 132679.6
$ 222384.4 - $ 17160.4 15 26.6% $ 55533.36
14 21.5% $ 34171.4
Note: these scenario setting is based on competitor’s no response. From this chart we can see that if competitors don’t response, they will get even negative profit. So in most cases, they will take response as lowering their price.
Appendix9: profit change between current products and optimal products
Product Market Share Profitability Total Profit
our current products
13 15.4% $ 28,658 $ 75,009
5 21.0% $ 46,352
competitor product 7 63.6% $ 180,951 $ 160,599
Product Market Share Profitability Total Profit
our best solution16 39.4% $ 66,667
$ 179,580 4 49.6% $ 112,912
competitor product 8 11.0% $ 4,196 $ 4,196