Customer Module

Measuring Consumer Preferences:

Conjoint Analysis

Managing the Development Process

Concept to Strategy
Concept Development and Testing -Product Idea Is a possible product that a company might offer to the market -Product concept

Is an elaborate version of the idea expressed in meaningful consumer terms

Concept Development
A large food processing company gets the idea of producing a powder to add to the milk to increase its nutritional value and taste.
Translate it into product concepts

The following are 3 product concepts consideredConcept 1

An instant breakfast drink for adults who want a quick nutritious breakfast without preparing a breakfast Concept 2 A tasty snack drink for children to drink as a midday refreshment Concept 3 A health supplement for older adults to drink in the late evening before they go to bed

Each product concept represents a category concept. How?

Suppose Concept 1-instant breakfast drink looks best.

Product Positioning Map

Expensive

Slow

Bacon & Eggs

Pan cakes Hot Cereals Inexpensive

Cold Cereal

Quick

Instant Breakfast

Product Positioning Map

Instant breakfast Market

High price per ounce

Brand C
Low in Calories High in calories

Brand B Brand A Low price per ounce

Concept Testing
presenting product concept to the appropriate target consumers and getting their reactions

Creating Physical Prototypes

CAD & manufacturing programs

Virtual reality (Simul-Shop) Customer driven engineering

Concept Testing entails presenting consumers with an elaborated version of concept product

Our product is a powdered mixture that is added to milk to make an instant breakfast that gives the person all the needed nutrition along with good taste and high convenience. The product would be offered in 3 flavors (vanila, chocolate and strawberry) and would come in individual packets, six to a box at INR 60 a box

Post receiving this information, consumer responds to the following informationQuestions Product dimension Measured

1- Are benefits clear to you and

believable? 2- Do you see this product solving a problem or filling a need for you? 3- Do other products currently meet this need and satisfy you? 4- Is the price reasonable in

Communicability and
believability Need Level

Gap Level, need gap score Perceived value

relation to the value?

5- Would you (definitely, probably, Purchase Intension

probably not, definitely not)

buy the product? 6- Who would use this product and User targets, purchase when and how often would the Product be used? occasions and Purchasing frequency

Score will decide whether a Product is a winner, long shot or loser.

Conjoint Analysis
Consumer preference for alternative product concepts can

a method for deriving utility values that consumer attach to varying levels of product attributes.
be measured through conjoint analysis,

Carpet Cleaning Agent for home use

5 Design Elements
1
2 3

3 package designs- A, B, C
3 Brand Names- Glory, Cleanex, Bissel 3 price points- INR 150, INR175 and INR 200

4
5

A possible Good House Keeping Seal-yes, no

A possible money back guarantee- yes, no

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 higher and lower utility level the more_______ the attribute The most customer-appealing offer is not always the most profitable offer to make

Utility Functions based on Conjoint Analysis

Package Design Package Design Retail Price

1
U T I L I T Y

0
A B C

0
Glory Bissel

0
Cleanex Rs150 Rs175 Rs200

Good Housekeeping Seal? 1

U T I L I T Y

Money back guarantee? 1

U T I L I T Y

0
No Yes

0
No Yes

Customer Preferences
Understanding customer preferences is the crux of marketing... ...specifically for product development & pricing decisions

What is conjoint analysis?

A set of procedures developed to understand customer preferences for a product
Instead of simply asking customers whether they prefer certain product ideas, conjoint analysis tries to get the underlying insights about these preferences It helps marketers by telling them exactly what to fix in a product that is not preferred by customers

What is conjoint analysis?

Conjoint analysis involves decomposing products into their component parts to analyze how decisions are made...and then predict how decisions will be made in the future It is used to understand the importance of different product components or product features, as well as to determine how decisions are likely to be influenced by the inclusion, exclusion, or degree of that feature.

What is conjoint analysis?

This technique is based on the premise that purchase decisions are not made based on a single factor; but on several factors considered jointly.

Consumers do not have the option of having more of every product characteristic that is desirable and less of every product characteristic that is undesirable.
Conjoint analysis is sometimes referred to as trade-off analysis because respondents in a conjoint study are forced to make tradeoffs between product features.

What is conjoint analysis?

Conjoint analysis successfully applied to: Automobiles Cameras Laptops Cell phones

Credit cards
Hotels Shampoos

Steps in Conjoint Analysis

1. Choose Attributes 2. Choose relevant levels of attributes 3. Choose Sample Size & respondent type 4. 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 respondent 7. 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

Choice-based conjoint analysis

Instead of asking respondents to rate each attribute combination, a choice set of 4-5 attribute combinations (also called product bundle) is shown, and they are asked to choose one. This pick one task tends to be far easier for respondents

And then, the underlying 'value system' of a customer is derived - i.e; how much value a customer places on different attributes of a product

Attributes
These are product features and represent the dimensions on which a product can be defined 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

Levels
Levels represent specific amounts of particular attributes.

For instance, for each of the above attributes, there can 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

Selecting attributes and levels

1. The attributes must be independent of each other. For example, for TVs, it would be inappropriate to include one attribute level 'large screen 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) No) & Cable Ready (Yes;

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 and levels: Format: Large Screen (48) Television; 29 Television; Includes Picture in Picture

Here, the Picture in Picture feature should not be included with the format attribute, as either size of television could include the Picture in Picture feature.

4. There should be nearly an equal number of levels for each attribute. Otherwise, there can be an artificial number of levels effect that inflates the relative importance of attributes, which have larger numbers of levels.

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 are to be presented overall or region-wise, or for each city within a region...) Target Respondents are chosen according to criteria set by the researcher prior to conducting the conjoint study

Choice Sets
Choice Sets are a collection of product bundles generated by permutations and combinations of levels within each attribute.
For the car example, a choice set could be as follows:
Choice Set-1 Product Option A Power Windows 1000cc 4 lakhs Blue Petrol 12 kmpl Product Option B Power Steering Power Windows 1100cc 5 lakhs White Diesel 16 kmpl Product Option C 800cc 4 lakhs Blue CNG 14 kmpl

None of these

Choice Sets
All options shown to the respondent must be feasible options in a real market scenario Thus, within the conjoint model certain combinations of attributes 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 is not applicable if a particular level of another attribute holds true. There should not be too many prohibitions across various variables.

Deriving utilities & developing an ideal product

After recording respondents' preferences for 10-12 such choice 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 decide which attributes have a greater importance in overall purchase decision, and which levels of those attributes are preferred most The marketer can also predict customer choices in the same category, given a certain set of products