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We will now learn of an important technique, which helps us
determine the best or optimal combination of product features
or attributes. Conjoint measure-ment is the statistical technique
typically used to identify the most desirable com-bination of
attributes or features for the particular product or service under in-
vestigation. This is a highly advanced technique and we shall only
be able to touch on it intuitively. A more detailed explanation is
beyond the scope of our course. However it is an important
technique, which helps a marketing person, decides on what is the
optimal combination of product features to be offered.
By the end of this lesson you should have an intuitive
understanding of what is conjoint analysis and its applications in
marketing and other types of research problems.
What is Conjoint Analysis?
Conjoint analysis is a technique used to identify the most desirable
combination of features to be offered in a new product. It
addresses the problem of how the customer will value the various
tangible and intangible features offered by a particular firms
product.
Conjoint measurement also tells us the extent to which
respondents are willing to give up (trade off) some features and
attributes to retain others.
Thus conjoint analysis is done to determine what utility a consumer
attaches to attributes such as:
Price (high, low,)
After sales service (frequent, monthly, yearly, guarantee)
Product features
Conjoint analysis - How it works
A consumer is asked to compare different products attribute
combinations and rank them. Respondents are to indicate the
combination they most prefer, the second most preferred, etc.
Conjoint analysis is applied to categorical variables, which reflect
different features or characteristics of products. For example for a
new product the features may be:
Colour (different shades)
Size (largest vs. medium vs. small)
Shape (square vs. cylindrical)
Price (different price levels)
It differs from factor analysis because it is only applied to categorical
variables. It is similar to factor analysis in that it tries to identify
interdependencies between a number of variables where the
variables are the different features.
We can best understand Conjoint analysis with the help of an
example:
Example 1
Suppose we have to design a public transport system. We wish to
test the relative desirability of three attributes:
The company aims to provide a service. They wish to test three
levels of frequency, and three levels of prices. Further they want to
test the weightage given by consumer to add on features such as
AC and music. The conjoint problem can be presented as follows:
Fare (three levels Rs10, Rs15, Rs 20)
Frequency of service (10 minutes, 15 minutes, 20 minutes)
AC vs non AC vs. music (Ac & music, AC, music, nothing)
A sample of 500 respondents are selected and asked to rank their
preferences for all possible combinations and for each level. These
are shown below along with one respondents sample rankings.
We can present our trade off information in the form of a table:
Table 1
Frequency Ac AC&music Music Nothing
10
15
20
1
5
9
2
6
10
3
7
11
4
8
12
Basically the respondents preference ranking help reveal how
desirable a particular feature is to a respondent. Features
respondents are unwilling to give up from one preference ranking
to the next are given a higher utility. Thus in the above example
the respondent gives a high weightage to service followed by AC.
the offer of music is clearly not very important as he ranks it below
AC. However he is not willing to trade off frequency of service
with either AC or music.
Conjoint analysis uses preference rankings to calculate a set of
utilities for each respondent where one utility is calculated for each
respondent for each attribute or feature. The calculation of utilities
is such that the sum of utilities for a particular combination shows
a good correspondence with that combinations position in the
individuals original preference rankings. The utilities basically show
the importance of each level of each importance to respondents.
We can also identify the more important attributes by looking at
the range of utilities for each of the different levels.
For Example
Frequency of service has a range from 1.6 to .04. The
range is therefore equal to =1.2.A high range implies that
the respondent is more sensitive to changes in the level
of this attribute.
These utilities are calculated across all respondents for all
attributes and for different levels of each attribute.
At the end of the analysis we would identify 3-4 of the most
popular combinations would be identified for which the relative
costs and benefits can be worked out.
LESSON 36:
CONJOINT ANALYSIS
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Uses of conjoint analysis
It is used in industrial marketing where a product can have
many combinations and features and not all features would be
important to all consumers. In industrial marketing the analysis
can be done at the individual level, as each individual is
important.
In case of consumer goods the analysis should be done segment
wise. To avoid unnecessarily long questionnaires a preliminary
factor analysis should be run to select only testable attributes.
Also the number of attributes should be restricted.
Problems
It is important that the attributes be selected carefully. The analysis
assumes the attributes are important to consumers.
We Now Present some Applications of Conjoint Analysis from
the Internet.
Conjoint helps understand why consumers prefer certain products:
U [product] = U [attribute1 (i)] + U [attribute2
(j)] + ... + U[attribute(k)]
Where:
U [product]=overall utility, or worth of the product
U [attribute (y)] = part worth of the yth level of the Xth
Attribute J = number of attributes
Conjoint analysis is a sophisticated technique for measuring
consumer attitudes and preferences. Like the multi-attribute
model, it helps understand why consumers prefer certain products.
Also like the multi-attribute model, it decomposes overall
preference into a series of additive terms.
However, there is an important difference between conjoint analysis
and the multiattribute model:
The multiattribute model is compositional - it builds up an
inferred overall attitude as the sum of measured sub-
components.
The conjoint model is deco positional - it measures overall
preference and decomposes this into inferred sub-components.
2. Example of Conjoint Analysis Technique
Packaged soups.
Four attributes with the following levels:
a. Flavor onion, chicken noodle, country vegetable
b. Calories 80, 100, 140
c. Salt-free yes, no
d. Price $1.19, $1,49
Altogether there are 3x3x2x2 = 36 possible combinations.
A consumer could, in theory, rate each of the 36 combinations
on a 9-point preference scale.
3. Conjoint Example
Packaged Soups Results for One Subject Salt
Flavor Cal. Free Price Rating
Onion 80 yes $1.19 9
Onion 80 yes $1.49 8
Onion 80 no $1.19 6
Onion 80 no $1.49 6
Onion 100 yes $1.19 7
Onion 100 yes $1.49 6
Onion 100 no $1.19 5
Onion 100 no $1.49 5
Onion 140 yes $1.19 7
Onion 140 yes $1.49 6
Onion 140 no $1.19 5
Onion 140 no $1.49 5
Chicken 80 yes $1.19 7
Chicken 80 yes $1.49 6
Chicken 80 no $1.19 2
Chicken 80 no $1.49 2
Chicken 100 yes $1.19 3
Chicken 100 yes $1.49 3
Chicken 100 no $1.19 2
Chicken 100 no $1.49 1
Chicken 140 yes $1.19 2
Chicken 140 yes $1.49 2
Chicken 140 no $1.19 2
Chicken 140 no $1.49 1
Vegetable 80 yes $1.19 9
Vegetable 80 yes $1.49 8
Vegetable 80 no $1.19 7
Vegetable 80 no $1.49 6
Vegetable 100 yes $1.19 8
Vegetable 100 yes $1.49 7
Vegetable 100 no $1.19 6
Vegetable 100 no $1.49 5
Vegetable 140 yes $1.19 6
Vegetable 140 yes $1.49 5
Vegetable 140 no $1.19 5
Vegetable 140 no $1.49 4
4. Part-worth calculated for one subject:
normalized relative
Attribute level mean mean importance
Flavor vegetable 6.33 1.00 43%
onion 6.25 .98
chicken 2.75 .00
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Calories 80 6.33 1.00 26%
100 4.83 .58
140 4.17 .40
Salt-Free yes 6.06 .92 23%
no 4.17 .40
Price $1.19 5.44 .75 8%
$1.49 4.78 .56
5. Orthogonal Arrays
In actual applications, it becomes impossible to present all possible
combinations of attributes to a consumer. Consider carpet
cleaners:
3 package designs
3 brand names
3 price points
Good Housekeeping Seal yes/ no
Money Back guarantee yes/ no
b. There are 108 possible combinations?
c. Q. what is the fewest number of combinations we can get by
with?
a. Sum of the number of degrees-of-freedom for the main
effects of each attribute:
(3-1) + (3-1) + (3-1) + (2-1) + (2-1) = 8
d. We need to find an orthogonal array of 8 profiles, which
allows us to estimate all additive main effects in the conjoint
model. Typically, we at least double the minimum number for
greater stability.
Issues in designing a conjoint study
a. Attribute selection
b. Collecting preference data
c. Typical sample sizes
d. Profile vs. two-factor evaluation
e. Computerized (adaptive) approaches
7. Desirable problem situations for conjoint analysis
a. Product is realistically decomposable
b. Product is reasoned high-stake decision
c. All combinations that are presented to respondent are
reasonable
d. Product/ service alternatives can be realistically described
e. New product alternatives can be synthesized from basic
attributes
8. Airline Example: Stages
a. Develop relevant set of attributes and select appropriate
levels
b. Use a fractional factorial design to create an orthogonal
array of stimuli.
c. Rate or rank the stimuli
d. Estimate part-worths for attribute levels.
e. Estimate relative importance of attributes
f. Interpretation
9. Airline Example: Discussion
a. Interpretation of results
b. Selecting attributes
c. Selecting attribute levels
d. Applications to market segmentation
e. Applications to product development
10. Example
Conjoint analysis for faculty chair candidate. Conjoint as aid to
decision making.
Attributes Used were
a. Area of specialization (quantitative, consumer behavior,
strategy, management, international)
b. Research orientation (star, active, inactive, minor)
c. Teaching orientation (star, good, average, below average)
d. Current position (chair, full, associate)
e. Role in department (work with junior faculty, work with
faculty at other schools, work with business community)
Discuss Part-Worths and relative importances for eight
faculty members.
Discuss use of non-metric data and monotone
transformation of faculty rank orders, which optimized
the fit of the conjoint model
Sawtooth Software
Research Paper Series
Understanding Conjoint Analysis in
15 Minutes
Joseph Curry,
Sawtooth Technologies, Inc.
1996
Copyright 1996 - 2001, Sawtooth Software, Inc.
530 W. Fir St.
Sequim, WA 98382
(360) 681-2300
www.sawtoothsoftware.com
Understanding Conjoint Analysis in 15 Minutes
Joseph Curry
(Originally published in Quirks Marketing Research Review)
Copyright 1996, Sawtooth Software
Conjoint analysis is a popular marketing research technique that
marketers use to determine what features a new product should
have and how it should be priced. Conjoint analysis became popular
because it was a far less expensive and more flexible way to address
these issues thanconcept testing.
The basics of conjoint analysis are not hard to understand. Ill
attempt to acquaint you withthese basics in the next 15 minutes
so that you can appreciate what conjoint analysis has to offer.
A simple example is all thats required.
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Suppose we want to market a new golf ball. We know from
experience and from talking withgolfers that there are three
important product features:
! Average Driving Distance
! Average Ball Life
! Price
We further know that there is a range of feasible alternatives for
each of these features, for instance:
Average Driving Distance Average Ball Life Price
275 yards 54 holes $1.25
250 yards 36 holes $1.50
225 yards 18 holes $1.75
Obviously, the markets ideal ball would be:
Average Driving Distance Average Ball Life Price
275 yards 54 holes $1.25 and the ideal ball from a cost of
manufacturing perspective would be:
Average Driving Distance Average Ball Life Price
225 yards 18 holes $1.75assuming that it costs less to produce a
ball that travels a shorter distance and has a shorter life.
Heres the basic marketing issue: Wed lose our shirts selling the
first ball and the market
wouldnt buy the second. The most viable product is somewhere
in between, but where?
Conjoint analysis lets us find out where.
A traditional research project might start by considering the rankings
for distance and ball life in
Figure 1.
Figure 1
Rank Average Driving Distance Rank Average Ball Life
1. 275 yards 1 54 holes
2. 250 yards 2 36 holes
3. 225 yards 3 18 holes
This type of information doesnt tell us anything that we didnt
already know about which ball toproduce.
Now consider the same two features taken conjointly. Figures 2a
and 2b show the rankings of the 9 possible products for two
buyers assuming price is the same for all combinations.
Figure 2a
Buyer 1 Average Ball Life
54 holes 36 holes 18 holes
275 yards 1 2 4
250 yards 3 5 7
Average
Driving
Distance 225 yards 6 8 9
Figure 2b
Buyer 2 Average Ball Life
54 holes 36 holes 18 holes
275 yards 1 3 6
250 yards 2 5 8
Average
Driving
Distance 225 yards 4 7 9
Both buyers agree on the most and least preferred ball. But as we
can see from their other
choices, Buyer 1 tends to trade-off ball life for distance, whereas
Buyer 2 makes the oppositetrade-off.
The knowledge we gain in going from Figure 1 to Figures 2a and
2b is the essence of conjointanalysis. If you understand this, you
understand the power behind this technique.
Next, lets figure out a set of values for driving distance and a
second set for ball life for Buyer 1so that when we add these values
together for each ball they reproduce Buyer 1s rank orders.
Figure 3 shows one possible scheme.
Figure 3
Buyer 1 Average Ball Life
54 holes
50
36 holes
25
18 holes
0
275 yards
100
(1)
150
(2)
125
(4)
100
250 yards
60
(3)
110
(5)
85
(6)
60
Average
Driving
Distance
225 yards
0
(7)
50
(8)
25
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(9)
0
Notice that we could have picked many other sets of numbers
that would have worked, so thereis some arbitrariness in the
magnitudes of these numbers even though their relationships to
eachother are fixed.
Next suppose that Figure 4a represents the trade-offs Buyer 1 is
willing to make between ball life
and price. Starting with the values we just derived for ball life,
Figure 4b shows a set of valuesfor price that when added to those
ball life reproduce the rankings for Buyer 1 in Figure 4a.
Figure 4a
Buyer 1 Average Ball Life
54 holes 36 holes 18 holes
$1.25 1 4 7
$1.50 2 5 8 Price
$1.75 3 6 9
Figure 4b
Buyer 1 Average Ball Life
54 holes
50
36 holes
25
18 holes
0
$1.25
20
(1)
70
(4)
45
(7)
20
$1.50
5
(2)
55
(5)
30
(8)
5
Price
$1.75
0
(3)
50
(6)
25
(9)
0
We now have in Figure 5 a complete set of values (referred to as
utilities or part-worths) thatcapture Buyer 1s trade-offs.
Figure 5
275 yards 100 54 holes 50 $1.25 20
250 yards 60 36 holes 25 $1.50 5
225 yards 0 18 holes 0 $1.75 0
Average Driving Distance Average Ball Life Price
Lets see how we would use this information to determine which
ball to produce. Suppose we
were considering one of two golf balls shown in Figure 6.
Figure 6
Distance Ball Long-Life Ball
Distance 275 250
Life 18 54
Price $1.50 $1.75
The values for Buyer 1 in Figure 5 when added together give us an
estimate of his preferences.
Applying these to the two golf balls were considering, we get the
results in Figure 7.
Figure 7
Buyer 1
Distance 275 100 250 60
Life 18 0 54 50
Price $1.50 5 $1.75 0
Total Utility 105 110
Distance Ball Long-Life Ball
Wed expect buyer 1 to prefer the long-life ball over the distance
ball since it has the larger total value.
Its easy to see how this can be generalized to several different balls
and to a representative sample of
buyers.
These three stepscollecting trade-offs, estimating buyer value
systems, and making choice predictions form the basics of
conjoint analysis. Although trade-off matrices are useful for
explaining conjoint analysis as in this example, not many researchers
use them nowadays. Its easier to collect conjoint data by having
respondents rank or rate concept statements or by using PC-based
interviewing software that decides what questions to ask each
respondent, based on his previous answers. As you may expect
there is more to applying conjoint analysis than is presented here.
But if you understand this example, you understand what conjoint
analysis is and what it can do for you as a marketer.
Point to Ponder
Conjoint analysis is a technique that typically handles non
metric independent variables.
Conjoint analysis allows the researcher to determine the
importance of product or service attributes and the levels of
features that are most desirable.
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Respondents provide preferences data by ranking or rating cards
that describe products
These data become utility weight of product characteristics by
means of optimal scaling and loglinear algorithms.
Notes