Conjoint Analysis - Part 1/3 Concepts and Intuition

1. Class Outline
• Measuring Consumer Preference
– Problem with intentions-to-buy and self-reported methods
– Conjoint Analysis

2. Preferences
• Intention to buy
– too hard a question
– overconfident about buying probability
stated
preferences
• Self-reported importance weights
– lack of discrimination, everything is important
• Trade-offs
– benefits and costs
– what is desired most
• Actual purchase data
– counts
– sales force reports
revealed
preferences
Consumer
preferences

3. Stated intention-to-buy measures
50
durables
non-durables
% prob. of purchase
40
30
20
10
0
def. not
prob. not
maybe
prob. yes
Consumer
def. yes
preferences

4. How to Learn What Customers Want?
• Ask Direct Questions about preference :
– What brand do you prefer?
– How much RAM do you prefer?
– How much hard disk space do you prefer?
– What type of monitor do you prefer?
– What price do you prefer?
• What is the problem with this?

5. Problems with Direct Questioning
• Answers are often trivial and unenlightening
– “I prefer more processor speed to less”
– “I prefer more RAM to less”
– “I prefer more hard disk space to less”
– “I prefer a lower price to a higher price”

6. More Discrimination from
Trade-off Questions
Traditional Approach
Conjoint Study
Average Importance
Ratings
Average Importance
Ratings
Brand
Brand
Scan Time
Scan Time
Resolution
Resolution
Price
Price
0
2
4
6
8
10
0
10 20 30 40 50

7. Conjoint Analysis
• Useful in
1: Product design
2: Pricing
3: Segmentation and targeting

8. The conjoint world: terms and concepts
•
•
•
•
•
•
Attributes
Attribute levels
Profiles
Utility models
Part-worths
Types of conjoint:
ranking, rating, choice
conjoint world

9. iPhone 5
Black & Slate
White & Silver
16GB
32GB
64GB
$199
$299
$399
• Attribute:_________________________
• Attribute level:_____________________

10. iPhone 5
Black & Slate
White & Silver
16GB
32GB
64GB
$199
$299
$399
• Attribute: Brand, Memory, Price, Color
• Attribute level: Apple/Samsung,
16GB/32GB/64GB, $199/$299,$399, Black/White

11. Conjoint Analysis
• Conjoint Analysis: A technique that enables a
researcher to estimate consumers’ valuations of
different attributes
– Allows us to understand how consumers make
trade-offs among attributes of products and
services
– How much are consumers willing to pay for
different attributes?

12. Example: New Job Choice
Location
Salary
Option 1
$70K
Option 2
$80K

13. Conjoint Reveals What People Really Want
What MBA's
Said...
Rank Based on
Conjoint
Salary
6th
1st
Region of US
2nd
2nd
Job Location
5th
3rd
People/Culture
1st
4th
Functional Area
3rd
5th
Firm Growth
7th
6th
Business Travel
8th
7th
Opp. to Advance
4th
8th
Job Attribute
Consumer
preferences

14. Conjoint Analysis - Intuition
• Force consumers to rank different bundles of
attributes
1.
C
2.
E
C
3.
A
D
4.
F
5.
B
6.
D
A
B
E
F

15. Conjoint Analysis - Intuition
• Using the information contained in consumers’
rankings (or ratings), we can back out what their
valuations of different attributes must be:
1.
C
2.
E
3.
A
4.
F
5.
B
6.
D
Suppose both products C and E contains a certain
attribute that is not found in A,F,B,D. Then the
consumer probably has a high valuation for that
attribute
Suppose both products B and D contains a certain
attribute that is not found in C,E,A,F. Then the
consumer probably has a low valuation for that
attribute

16. Conjoint Analysis: Procedure
1. “Design” a set of product concepts (profiles) - this
will usually come in with collaboration with the
engineering team
2. Ask respondents to rate/rank those product
concepts
3. Based on the respondents’ evaluations of the
product concepts, figure out how much utility each
attribute provides

17. Exercise: Smartphone Choice
• Three Attributes
1. Brand
: Samsung
2. Memory
: 10GB
3. Price
: $150
Apple
20GB
$200

18. Exercise: Smartphone Choice
Products
A
B
C
D
E
F
G
H
Brand
Samsung
Samsung
Samsung
Samsung
Apple
Apple
Apple
Apple
Memory(GB)
10
10
20
20
10
10
20
20
Price($)
150
200
150
200
150
200
150
200

19. Exercise: Smartphone Choice
Brand
Memory
Price
Ranking (Utility)
Apple
20
150
8
Samsung
20
150
7
Apple
10
150
6
Apple
20
200
5
Samsung
10
150
4
Samsung
20
200
3
Apple
10
200
2
Samsung
10
200
1
• 8=Most Preferred; 1=Least Preferred

20. Exercise: Smartphone Choice
Q1) Measure Brand Value
Brand
Memory
Apple
20
Samsung
20
Apple
10
Apple
20
Samsung
10
Samsung
20
Apple
10
Samsung
10
Price
150
150
150
200
150
200
200
200
Utility
8
7
6
5
4
3
2
1
Average
1
2
2
1
1.5

21. Exercise: Smartphone Choice
Q2) Memory Value
Brand
Memory
Apple
20
Samsung
20
Apple
10
Apple
20
Samsung
10
Samsung
20
Apple
10
Samsung
10
Price
150
150
150
200
150
200
200
200
Utility
8
7
6
5
4
3
2
1
Average

22. Exercise: Smartphone Choice
Q2) Memory Value
Brand
Memory
Apple
20
Samsung
20
Apple
10
Apple
20
Samsung
10
Samsung
20
Apple
10
Samsung
10
Price
150
150
150
200
150
200
200
200
Utility
8
7
6
5
4
3
2
1
Average
2
3
3
2
2.5

23. Exercise: Smartphone Choice
Q3) Price = xxx Utils.
Brand
Memory
Apple
20
Samsung
20
Apple
10
Apple
20
Samsung
10
Samsung
20
Apple
10
Samsung
10
Price
150
150
150
200
150
200
200
200
Utility
8
7
6
5
4
3
2
1
Average

24. Exercise: Smartphone Choice
Q3) Price = xxx Utils.
Brand
Memory
Apple
20
Samsung
20
Apple
10
Apple
20
Samsung
10
Samsung
20
Apple
10
Samsung
10
Price
150
150
150
200
150
200
200
200
Utility
8
7
6
5
4
3
2
1
Average
3
4
4
3
3.5

25. Exercise: Smartphone Choice
• $50 = 3.5 (Utility or Ranking)
• Apple > Samsung
1.5 Util. = $( 21.4 )
• 20GB > 10GB
2.5 Util. = $( 35.7 )

26. Exercise: Smartphone Choice
• $50 = 3.5 (Utility or Ranking)
• Apple > Samsung
1.5 Util. = $(
)
• 20GB > 10GB
2.5 Util. = $(
)

27. Exercise: Smartphone Choice
• Three Attributes
1. Brand
: Samsung
Apple
2. Memory
: 10GB
20GB
3. Price
: $150
$200
(1.5)
(2.5)
(3.5)
• Most important attribute: ( Price )
• Least important attribute: ( Brand )

28. Group Exercise – Rating Based Conjoint
• 10=Most Preferred; 1=Least Preferred
Brand
Memory
Price
Rating
Apple
20
150
10
Apple
10
150
8
Apple
20
200
6
Samsung
20
150
7
Apple
10
200
4
Samsung
10
150
5
Samsung
20
200
3
Samsung
10
200
1

29. 1. Brand Value
Brand
Apple
Apple
Apple
Samsung
Apple
Samsung
Samsung
Samsung
Memory
20
10
20
20
10
10
20
10
Price
150
150
200
150
200
150
200
200
Respondent1’s
Rating
10
8
6
7
4
5
3
1

30. 2. Memory Value
Brand
Apple
Apple
Apple
Samsung
Apple
Samsung
Samsung
Samsung
Memory
20
10
20
20
10
10
20
10
Price
150
150
200
150
200
150
200
200
Respondent1’s
Rating
10
8
6
7
4
5
3
1

31. 3. Price = XXX Rating
Brand
Apple
Apple
Apple
Samsung
Apple
Samsung
Samsung
Samsung
Memory
20
10
20
20
10
10
20
10
Price
150
150
200
150
200
150
200
200
Respondent1’s
Rating
10
8
6
7
4
5
3
1

32. Group Exercise: WTP
• $50 = ( 4 ) units
• Apple > Samsung
( 3 ) units = $( 37.5 )
• 20GB > 10GB
( 2 ) units = $( 25 )
• Most important attribute: ( Price )
• Least important attribute: ( Memory )

33. Group Exercise: Attribute Importance Weights
• $50 = (
4 ) units
• Apple > Samsung
( 3 ) units
• 20GB > 10GB
( 2 ) units
• Q1) Partworth range: the difference between
largest and smallest partworths for each attribute
• Q2) Importance weights:
= partworth range / (sum of partworth range)

34. Group Exercise: Attribute Importance Weights
Q1) Partworth range
• $50 difference: 4 units
• Apple > Samsung : 3 units
• 20GB > 10GB: 2 units
Sum of partworth range = 4 + 3 + 2 = 9
Q2) Importance weights:
• Price = 4/9 = 44.4%
• Brand = 3/9 = 33.3%
• Memory = 2/9 = 22.2%