Download - Conjoint Analysis - Part 1/3
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Class Outline
• Measuring Consumer Preference
– Problem with intentions-to-buy and self-reported methods
– Conjoint Analysis
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Preferences• Intention to buy
– too hard a question– overconfident about buying probability
• 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
statedpreferences
revealedpreferences
C o n s u m e r p r e f e r e n c e s
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Stated intention-to-buy measures
0
10
20
30
40
50
def. not prob. not maybe prob. yes def. yes
% p
rob
. o
f p
urc
has
e
durables non-durables
C o n s u m e r p r e f e r e n c e s
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• 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?
How to Learn What Customers Want?
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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”
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More Discrimination from Trade-off Questions
Traditional Approach Average Importance
Ratings
0 2 4 6 8 10
Brand
Scan Time
Resolution
Price
Conjoint StudyAverage Importance
Ratings
0 10 20 30 40 50
Brand
Scan Time
Resolution
Price
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Conjoint Analysis
• Useful in 1: Product design2: Pricing3: Segmentation and targeting
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The conjoint world: terms and concepts
• Attributes• Attribute levels• Profiles• Utility models• Part-worths• Types of conjoint:
ranking, rating, choice
c o n j o i n t w o r l d
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iPhone 5
16GB 32GB 64GB
$199 $299 $399
Black & Slate White & Silver
• Attribute:_________________________• Attribute level:_____________________
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iPhone 5
• Attribute: Brand, Memory, Price, Color• Attribute level: Apple/Samsung, 16GB/32GB/64GB, $199/$299,$399, Black/White
16GB 32GB 64GB
$199 $299 $399
Black & Slate White & Silver
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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?
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Example: New Job Choice
SalaryLocation
Option 1
Option 2
$70K
$80K
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Conjoint Reveals What People Really Want
Job Attribute
What MBA's Said...
Rank Based on Conjoint
Salary
Region of US
Job Location
People/Culture
Functional Area
Firm Growth
Business Travel
Opp. to Advance
6th
2nd
5th
1st
3rd
7th
8th
4th
1st
2nd
3rd
4th
5th
6th
7th
8th
C o n s u m e r p r e f e r e n c e s
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• Force consumers to rank different bundles of attributes
A
B
C
D
E
F
A
C
E
F
B
D
1.
2.
3.
4.
5.
6.
Conjoint Analysis - Intuition
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• Using the information contained in consumers’ rankings (or ratings), we can back out what their valuations of different attributes must be:
A
C
E
F
B
D
1.
2.
3.
4.
5.
6.
Suppose both products C and E contains a certainattribute 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 certainattribute that is not found in C,E,A,F. Then the consumer probably has a low valuation for that attribute
Conjoint Analysis - Intuition
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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
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Exercise: Smartphone Choice
• Three Attributes1. Brand : Samsung Apple2. Memory : 10GB 20GB3. Price : $150 $200
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Exercise: Smartphone Choice
Products Brand Memory(GB) Price($)A Samsung 10 150B Samsung 10 200C Samsung 20 150D Samsung 20 200E Apple 10 150F Apple 10 200G Apple 20 150H Apple 20 200
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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
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Exercise: Smartphone ChoiceQ1) Measure Brand Value
Brand Memory Price UtilityApple 20 150 8 1
Samsung 20 150 7Apple 10 150 6 2Apple 20 200 5 2
Samsung 10 150 4Samsung 20 200 3
Apple 10 200 2 1Samsung 10 200 1
Average 1.5
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Exercise: Smartphone ChoiceQ2) Memory Value
Brand Memory Price UtilityApple 20 150 8
Samsung 20 150 7Apple 10 150 6Apple 20 200 5
Samsung 10 150 4Samsung 20 200 3
Apple 10 200 2Samsung 10 200 1
Average
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Exercise: Smartphone ChoiceQ2) Memory Value
Brand Memory Price UtilityApple 20 150 8 2
Samsung 20 150 7 3Apple 10 150 6Apple 20 200 5 3
Samsung 10 150 4Samsung 20 200 3 2
Apple 10 200 2Samsung 10 200 1
Average 2.5
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Exercise: Smartphone ChoiceQ3) Price = xxx Utils.
Brand Memory Price UtilityApple 20 150 8
Samsung 20 150 7Apple 10 150 6Apple 20 200 5
Samsung 10 150 4Samsung 20 200 3
Apple 10 200 2Samsung 10 200 1
Average
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Exercise: Smartphone ChoiceQ3) Price = xxx Utils.
Brand Memory Price UtilityApple 20 150 8 3
Samsung 20 150 7 4Apple 10 150 6 4Apple 20 200 5
Samsung 10 150 4 3Samsung 20 200 3
Apple 10 200 2Samsung 10 200 1
Average 3.5
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Exercise: Smartphone Choice
• $50 = 3.5 (Utility or Ranking)• Apple > Samsung
• 20GB > 10GB1.5 Util. = $( 21.4 )
2.5 Util. = $( 35.7 )
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Exercise: Smartphone Choice
• $50 = 3.5 (Utility or Ranking)• Apple > Samsung
• 20GB > 10GB1.5 Util. = $( )
2.5 Util. = $( )
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Exercise: Smartphone Choice
• Three Attributes
1. Brand : Samsung Apple (1.5)2. Memory : 10GB 20GB (2.5)3. Price : $150 $200 (3.5)
• Most important attribute: ( Price )• Least important attribute: ( Brand )
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Group Exercise – Rating Based Conjoint
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
• 10=Most Preferred; 1=Least Preferred
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1. Brand Value
Brand Memory PriceRespondent1’s
RatingApple 20 150 10Apple 10 150 8Apple 20 200 6
Samsung 20 150 7Apple 10 200 4
Samsung 10 150 5Samsung 20 200 3Samsung 10 200 1
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2. Memory Value
Brand Memory PriceRespondent1’s
RatingApple 20 150 10Apple 10 150 8Apple 20 200 6
Samsung 20 150 7Apple 10 200 4
Samsung 10 150 5Samsung 20 200 3Samsung 10 200 1
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3. Price = XXX Rating
Brand Memory PriceRespondent1’s
RatingApple 20 150 10Apple 10 150 8Apple 20 200 6
Samsung 20 150 7Apple 10 200 4
Samsung 10 150 5Samsung 20 200 3Samsung 10 200 1
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Group Exercise: WTP• $50 = ( 4 ) units• Apple > Samsung
• 20GB > 10GB
• Most important attribute: ( Price )• Least important attribute: ( Memory )
( 3 ) units = $( 37.5 )
( 2 ) units = $( 25 )
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Group Exercise: Attribute Importance Weights
• $50 = ( 4 ) units• Apple > Samsung
• 20GB > 10GB
• Q1) Partworth range: the difference between largest and smallest partworths for each attribute
• Q2) Importance weights: = partworth range / (sum of partworth range)
( 3 ) units
( 2 ) units
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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%