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Conjoint Analysis

Conjoint Analysis. Outline. Basic idea of conjoint analysis Steps in conjoint analysis Uses of conjoint analysis. 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;

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Conjoint Analysis

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  1. Conjoint Analysis

  2. Outline • Basic idea of conjoint analysis • Steps in conjoint analysis • Uses of conjoint analysis

  3. 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;

  4. 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

  5. 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

  6. 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

  7. Example: Laptop Profiles

  8. 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.

  9. 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

  10. 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 consumer’s 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) What’s the relative importance of the five attributes for the two consumers? (c) Consider consumer A’s ratings. For this consumer, what’s 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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  12. 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?

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