marketing

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Conjoint Analysis
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Outline

• Basic idea of conjoint analysis
• Steps in conjoint analysis
• Uses of conjoint analysis

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Basic idea

• Overall utility for a product can be decom- posed
  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

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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

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Attributes and attribute levels

• Identify the relevant product attributes that are
  considered during choice
• Select attribute levels that represent the
  options actually available in the market
• Trade-off between the completeness of the
  representation and the complexity of the design

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Product profiles

• Full factorial designs
• all possible combinations of the levels of the
  various attributes
• Fractional factorial designs
• subset of all possible combinations
• orthogonal designs in which each level of one
  attribute is paired equally with all the levels
  of other attributes

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Example Laptop Profiles
Brand Hard Drive RAM Screen Price A B
Dell 320 GB 2 GB 15.4 in 1,200 9 6
Apple 320 GB 4 GB 15.4 in 1,200 6 12
Dell 160 GB 4 GB 15.4 in 900 12 5
Apple 320 GB 2 GB 15.4 in 900 11 11
Dell 320 GB 4 GB 12.1 in 1,500 4 3
Apple 320 GB 2 GB 12.1 in 1,500 1 9
Apple 160 GB 4 GB 15.4 in 1,500 3 10
Apple 160 GB 2 GB 12.1 in 900 8 7
Apple 160 GB 4 GB 12.1 in 1,200 5 8
Dell 160 GB 2 GB 12.1 in 1,200 7 1
Dell 320 GB 4 GB 12.1 in 900 10 4
Dell 160 GB 2 GB 15.4 in 1,500 2 2
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Methods of stimulus presentation

• Verbal descriptions
• Pictures
• Actual products or prototypes

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.
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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

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In-class exercise

• Using the data in the table, answer the following
  questions
• (a) How much utility does each of the two
  consumers attach to the different levels of the
  five attributes? (Hint Compute each consumers
  average rating of all the options with a given
  feature. For example, to figure out how much
  consumer A values the Apple brand name, compute
  the average rating of the six Apple laptops.)
• (b) Whats the relative importance of the five
  attributes for the two consumers?
• (c) Consider consumer As ratings. For this
  consumer, whats the predicted utility of a Dell
  computer with 160 GB of hard drive space and 2 GB
  of RAM, a 12.1 inch screen, and a price of
  1,200?
• (d) How much could you raise the price if you
  increased the screen size from 12.1 to 15.4
  inches?

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11.74
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Uses of conjoint analysis

• Market segmentation
• Q How would you segment the market using
  individual-level conjoint analysis output?
• New product design
• Q How can conjoint analysis be used for new
  product design?
• Trade-off analysis (esp. in pricing decisions)
• Q How much could the price of a Dell computer
  with 160 GB of hard drive space and 2 GB of RAM,
  which currently sells for 1,200, be raised if
  the screen size were increased from 12.1 in to
  15.4 in?
• Competitive analysis
• Q How can conjoint analysis be used to simulate
  market shares?