Conjoint Analysis - Estimation Step-by-step demonstration of rating-based conjoint estimation.

1. Class Outline
• Conjoint Demonstration
• Conjoint Analysis using Excel
• Needs-Based Market Segmentation

2. Conjoint Demonstration
http://www.dobney.com/Conjoint/CnjtDemo.htm

3. More examples
• 1. Rank-based conjoint
– http://www.sawtoothsoftware.com/products/ssiweb/ssiwebsamples
• 2. ACA Choice Based conjoint
– http://www.sawtoothsoftware.com/products/ssiweb/ssiwebsamples
• 3. Pair-wise “choices”
– http://www.dobney.com/Conjoint/CnjtDemo.htm
Conjoint Demos

4. Conjoint Analysis using Excel

5. 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

6. Group Exercise #1 - WTP
• $50 = ( 4 ) units
• Apple > Samsung
( 3 ) units = $( 37.5 )
• 20GB > 10GB
( 2 ) units = $( 25 )
• Most important attribute: ( Price )
• Least important attribute: ( Memory )

7. Group Exercise #2 - WTP
• 10=Most Preferred; 1=Least Preferred
Brand
Camera
Price
Rating
Samsung
Yes
150
10
Samsung
Yes
200
6
Samsung
No
150
7
Samsung
No
200
3
LG
Yes
150
8
LG
Yes
200
4
LG
No
150
5
LG
No
200
1

8. Group Exercise #2 - Question
• $50 = (
• Brand: (
) Rating
)>(
)
( ) Util. = $( )
• Camera: (
)> (
)
( ) Util. = $(
• Most important attribute: (
• Least important attribute: (
)
)
)

9. Group Exercise #2 - Solution
• $50 = ( 4
) Rating
• Brand: (Samsung) > (LG)
( 2 ) Util. = $( 25 )
• Camera: ( Yes )> ( No )
( 3 ) Util. = $(37.5)
• Most important attribute: (Price)
• Least important attribute: (Brand)

10. Worth of
Smartphone
Brand
Memory
Price
Other factors

11. Respondent1’s Rating
10
8
6
7
4
5
3
1
Dependent
Variable
Brand
Apple
Apple
Apple
Samsung
Apple
Samsung
Samsung
Samsung
Memory
20
10
20
20
10
10
20
10
Discrete
Independent
Variables
Price
150
150
200
150
200
150
200
200

12. Brand
DumApple Memory
Apple
1
20
Apple
1
10
Apple
1
20
Samsung
0
20
Apple
1
10
Samsung
0
10
Samsung
0
20
Samsung
0
10
DumM20
1
0
1
1
0
0
1
0
• DumApple = 1, Brand=Apple
= 0, otherwise
• DumM20 = 1, Memory = 20
= 0, otherwise
• DumP150 = 1, Price = 150
= 0, otherwise
Price
150
150
200
150
200
150
200
200
DumP150
1
1
0
1
0
1
0
0
Baseline category: Samsung
Baseline category: 10 GB
Baseline category: $200

13. Coeff Standard Error t Stat
Intercept
1
1.677E-16 5.964E+15
DumApple
3
1.677E-16 1.789E+16
DumM20
2
1.677E-16 1.193E+16
DumP150
4
1.677E-16 2.385E+16
P-value L95% U95%
4.744E-63
1
1
5.857E-65
3
3
2.965E-64
2
2
1.853E-65
4
4
Rating = 1 + 3 * DumApple + 2 * DumM20 + 4 * DumP150
Respondent1’s Rating
10
8
6
7
4
5
3
1
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

14. Estimating Regression Coefficients Using
“linest” function
1. Select 4 cells

15. Estimating Regression Coefficients Using
“linest” function
2. =transpose((linest(B3:B10,C3:E10,1,0))
Dependent Independent
Variable
Variable
3. Ctrl + Shift + Enter (array formula)

16. Estimating Regression Coefficients Using
“linest” function
DumP150
DumM20
DumApple
Intercept

17. Group Exercise #3 - Estimation
• Download the excel file: “Conjoint1.xlsx”
• Q1. Based on Brand, Memory, Price descriptions,
finish dummy coding on “Sheet1.”
• Q2. On “Sheet2”, estimate partworths of
respondent 1 and respondent 2.
• Q3. Make partworth tables for respondent 1 and 2.
• Q4. Describe how these two individuals are
different in their preference.

18. Group Exercise #3 - Solution
• Q1. Refer to the coding in “Sheet2”
• Q2. Partworth estimation
Variable
Respondent 1
Variable
Respondent 1
DumP150
3.75
DumP150
2.00
DumM20
0.75
DumM20
2.00
DumApple
3.25
DumApple
2.00
Intercept
0.00
Intercept
0.00

19. Group Exercise #3 - Solution
• Q3. Partworth tables
Respondent 1)
Brand
Memory
Price
Apple
3.25
10 GB
0.0
$200
0.0
Samsung
0.0
20 GB
0.75
$150
3.75
Respondent 2)
Brand
Memory
Price
Apple
10 GB
0.0
$200
0.0
Samsung
•
2.00
0.0
20 GB
2.00
$150
2.00
Q4)
• Respondent 1: Price-sensitive, brand-loyal, does not value memory
• Respondent 2: equally values three attributes; Less brand loyal than
respondent 1, Values memory more than respondent 1

20. Group Exercise #4: Partworth Table Interpretation
• From regression analysis of rating-based conjoint, we get a “partworth” for
each level of each attribute:
User interface
Brand
Price
Touch screen
9.2
Apple
59.5
CAD199
40.1
Keyboard
0.0
Blackberry
20.5
CAD299
30.1
Samsung
30.5
CAD399
20.1
Motorola
0.0
CAD499
0.0
• Q1) Calculate utility of the following profile.
User interface
Profile A
Brand
Price
Utility
Touch screen
Blackberry
CAD299
?

21. Group Exercise #4: Partworth Table Interpretation
• From regression analysis of rating-based conjoint, we get a “partworth” for
each level of each attribute:
User interface
Brand
Price
Touch screen
9.2
Apple
59.5
CAD199
40.1
Keyboard
0.0
Blackberry
20.5
CAD299
30.1
Samsung
30.5
CAD399
20.1
Motorola
0.0
CAD499
0.0
• Q1) Calculate utility of the following profile.
User interface
Profile A
Brand
Price
Utility
Touch screen
Blackberry
CAD299
?

22. Group Exercise #4 – Q1 Solution
•
“Utility” is a measure of preference. Higher the utility, greater the likelihood of
purchase.
•
Given a product “profile” described in terms of the chosen attributes and attribute
levels, we can compute its utility simply by adding up the partworths for the
various elements of the profile
•
Solution
User interface
Profile A
Brand
Price
Utility
Touch screen
Blackberry
CAD299
?
– Utility of Profile A = 9.2 + 20.5 + 30.1 = 59.8 utils

23. Group Exercise #4: Q2 Choice Prediction
• From regression analysis of rating-based conjoint, we get a “partworth” for
each level of each attribute:
User interface
Brand
Price
Touch screen
Apple
59.5
CAD199
40.1
Keyboard
0.0
Blackberry
20.5
CAD299
30.1
Samsung
30.5
CAD399
20.1
Motorola
•
9.2
0.0
CAD499
0.0
Q2) Suppose you are given the following three profiles. Given the three
alternatives, which product is the consumer most likely to choose?
User interface
Brand
Price
Profile C
Touch screen
Blackberry
CAD299
Profile D
Keyboard
Apple
CAD399
Profile E
Touch screen
Samsung
CAD199
Utility

24. Group Exercise #4: Q2 Solution
•
Suppose you are given the following three profiles. Given the three alternatives,
which product is the consumer most likely to choose?
User interface
Price
Utility
Profile C
Touch screen
Blackberry
CAD299
59.8
Profile D
Keyboard
Apple
CAD399
79.6
Profile E
•
Brand
Touch screen
Samsung
CAD199
79.8
Profile E has the highest utility and so is the most likely to be chosen. Profile D is
the next most likely and Profile C is the least likely.

25. Group Exercise #4: Q3 Willingness-to-pay
• From regression analysis of rating-based conjoint, we get a “partworth” for
each level of each attribute:
User interface
Brand
Price
Touch screen
9.2
Apple
59.5
CAD199
40.1
Keyboard
0.0
Blackberry
20.5
CAD299
30.1
Samsung
30.5
CAD399
20.1
Motorola
0.0
CAD499
0.0
•
The WTP for a certain attribute value change (within a certain attribute) is defined
as the maximum dollar amount that the customer will pay for the change (provided
the change represents an improvement).
•
Q3) what is the WTP for the change from Brand=Samsung to Brand=Apple?

26. Group Exercise #4: Q3 Solution
•
The change represents an incremental value of 59.5-30.5=29.0 utils
WTP = 29 x Dollar value of 1 util
•
The dollar value per util can be inferred by looking at the extremes of the partworths for the price
attribute:
(40.1 – 0.0) utils = $499 - $199
1 util = $300/40.1
= $7.481297
•
Putting it all together
WTP = 29 x Dollar value of 1 util
= 29 x $7.481297
= $216.9576
•
If the profile with the more preferred attribute level is priced exactly WTP amount dollars higher,
then the customer is exactly indifferent about the change in that attribute level.

27. Group Exercise #4: Q4 Assessing Attribute Importance
• From regression analysis of rating-based conjoint, we get a “partworth” for
each level of each attribute:
User interface
Brand
Price
Touch screen
9.2
Apple
59.5
CAD199
40.1
Keyboard
0.0
Blackberry
20.5
CAD299
30.1
Samsung
30.5
CAD399
20.1
Motorola
0.0
CAD499
0.0
• Q4) Calculate relative importance of each attribute in %.

28. Group Exercise #4: Q4 Solution
•
In conjoint analysis, the “importance” of each attribute is computed via the
following 2 steps.
•
Step 1: For each attribute, look at the partworths for all the attribute levels within
that attribute and compute the difference between the largest and the smallest.
This difference is the “partworth range” for that attribute.
•
In our example, the partworth ranges are:
Attribute
Partworth Range
User interface
9.2 – 0.0 = 9.2
Brand
59.5 – 0.0 = 59.5
Price
40.1 – 0.0 = 40.1

29. Group Exercise #4: Q4 Solution
•
Step 2: The importance (weights) are just partworth ranges normalized to add up to
1. To normalize, compute the sum of the partworth ranges. Divide each partworth
ranges by the sum.
•
In our example, the sum of the partworth ranges is: 9.2 + 59.5 + 40.1 = 108.8.
•
So the importance for each attribute is:
Attribute
Importance
User interface
9.2/108.8 =0.0846
Brand
59.5/108.8 =0.5469
Price
40.1/108.8 =0.3685

30. Segmentation Using Conjoint Analysis

31. Segmentation Using Conjoint Analysis
• A market segment is a sub-set of a market
made up of people with one or more
characteristics that cause them to demand
similar product or services
• Why?

32. Consumer A
• $50 = 4 Units
 $12.5 = 1 Unit
• Apple > Samsung
4 Units = $50
• 20GB > 10GB
1 Units = $12.5
Consumer
Consumer E F
Consumer
Consumer C D
Consumer B = 2 Units
• $502 Units
• $502 Units
• $502 Units
= =
• $50 =Units
• $50 = 2  $251 Unit
$251 Unit Unit
= =1
$251 Unit
= 1 Unit
$25 Samsung > Applg
= =
 $25 Samsung > Apple
• •
• SamsungApple
• SamsungApple
> > Applg
• Samsung >
0.5 Units$12.0
0.5 Units$12.0
= = $12.2
0.5 Units$12.5
0.5 Units$12.510GB
= =
• 20GB10GB
0.5 Units = > >
• 20GB10GB
• 20GB10GB
• 20GB10GB
> >
• 20GB >
4 Units$100
4 Units$100$100
= =
4 Units$100
4 Units$100
= =
4 Units =

33. $ Value of Apple
Segment 1
Segment 2
$ Value of Memory