CHAPTER SEVEN

ANALYTICAL ATTRIBUTE APPROACHES: TRADE-OFF ANALYSIS AND QUALITATIVE TECHNIQUES

Trade-Off (Conjoint) Analysis

An Example from this Weekend!

Control Panel Quality of Motor Cost

Determinant Attributes
Control Panel
Digital Non-digital

Quality of Motor
Low Medium High

Cost
Low Average High

Set of Determinant Attributes

As a customer, I had to choose between two set of determinant attributes (based on options available at that time):
Control Panel Option 1 Digital Quality of Motor Medium Cost Average

Option 2

Non-Digital

High

Average

 As a company, you can look for all possible sets of determinant attributes and ask customers to rank them in accordance to their importance, to find new product concepts.

Control Panel
Option 1 Option 2 Option 3 Digital Digital Digital

Quality of Motor
Low Low Low

Cost
Low Average High

Rank

Option 4
Option 5 Option 6 Option 7 Option 8 Option 9 Option 10 Option 11 Option 12 Option 13 Option 14 Option 15 Option 16 Option 17 Option 18

Digital
Digital Digital Digital Digital Digital Non-Digital Non-Digital Non-Digital Non-Digital Non-Digital Non-Digital Non-Digital Non-Digital Non-Digital

Medium
Medium Medium High High High Low Low Low Medium Medium Medium High High High

Low
Average High Low Average High Low Average High Low Average High Low Average High

Lets do an Example from the Book!

Salsa (Spanish for Sauce)
Thickness
Regular Thick Extra-Thick

Spiciness
Mild Medium-Hot Extra- Hot

Color
Red Green

Thickness

Spiciness

Color

Actual Ranking* 4 3 10 6 15 16 2 1 8 5 13 11 7 9 14 12 17 18

Regular Regular Regular Regular Regular Regular Thick Thick Thick Thick Thick Thick Extra-Thick Extra-Thick Extra-Thick Extra-Thick Extra-Thick Extra-Thick

Mild Mild Medium-Hot Medium-Hot Extra-Hot Extra-Hot Mild Mild Medium-Hot Medium-Hot Extra-Hot Extra-Hot Mild Mild Medium-Hot Medium-Hot Extra-Hot Extra-Hot

Red Green Red Green Red Green Red Green Red Green Red Green Red Green Red Green Red Green

Ranking as Estimated by Model 4 3 10 8 16 15 2 1 6 5 13 11 7 9 14 12 18 17

* 1 = most preferred, 18 = least preferred.

Conjoint Analysis: Graphical Output

Thickness
2 1 0 -1 -2
Regular Thick Ex-Thick Mild

Spiciness

Color

Medium-Hot

Ex-Hot Red

Green

0.161

0.913

-1.074 1.667

0.105

-1.774 -0.161

0.161

Conjoint Analysis: Relative Importance of Attributes

0 20 40 60 80 100 %

Spiciness

59.8% 34.6% 5.6%

Thickness
Color

CHAPTER EIGHT

THE CONCEPT EVALUATION SYSTEM

Risk/Payoff Matrix at Each Evaluation

Decision A. Product would fail if marketed B. Product would succeed if marketed A Stop the Project Now AA B Continue to Next Evaluation BA

AB

BB

Cells AA and BB are correct decisions. Cells BA and AB are errors, but they have different cost and probability dimensions.

Planning the Evaluation System

Planning the Evaluation System: Four Concepts

Rolling Evaluation (tentative nature of new products process) Potholes People Surrogates

Rolling Evaluation (or, "Everything is Tentative")

Project is assessed continuously (rather than a single Go/No Go decision) Financial analysis also needs to be built up continuously Not enough data early on for complex financial analyses

Run risk of killing off too many good ideas early

Marketing begins early in the process Key: new product participants avoid "good/bad" mindsets, avoid premature closure

Potholes
Know what the really damaging problems are for your firm and focus on them when evaluating concepts.

People
Proposal may be hard to stop once there is buy-in on the concept. Need tough demanding hurdles, especially late in new products process. Personal risk associated with new product development. Need system that protects developers and offers reassurance (if warranted).

Surrogates
Surrogate questions give clues to the real answer.

Real Question Will they prefer it?

Will cost be competitive? Will competition leap in? Will it sell?

Surrogate Question Did they keep the prototype product we gave them after the concept test? Does it match our manufacturing skills? What did they do last time? Did it do well in field testing?

The ATAR Evaluation Method

A.T.A.R Model
The ATAR model provides a framework to help estimate the adoption rate in each year.
It has been used by companies to estimate Sales. (Sales Forecast)

A.T.A.R Model
The concept is based around four principles:
Awareness Trial Availability Repeat

A for (Appl) Awareness

In order for a person to be a regular purchaser of the new product they must first become Aware that it exists.

T for Trial
Once they have become aware of it they must make the decision to Try it out.

A for Availability
In order to be able to try it out, it must be Available for them to purchase.

R for Repeat
If they are happy with the trial, then they may decide to adopt the product, that is, Repeat the purchase again.

A.T.A.R Model
AWARENESS % OF TARGET MARKET AWARE OF PRODUCT TRIAL - % OF THOSE AWARE WILLING TO TRY PRODUCT AVAILABILITY MEASURE OF DISTRIBUTION INTENSITY REPEAT % OF REPEAT BUYERS

A.T.A.R Model
This model is then combined with the estimation on Profit per-unit to give management indication on Annual Profits expected from the New Product Concept. Profits = Units Sold x Profit Per Unit
Unit Sold = ATAR Profit Per Unit = Revenue per unit - cost per unit

A.T.A.R Model
Profits = Units Sold x Profit Per Unit

Figure 8.5

Units Sold = Number of buying units x % aware of product x % who would try product if they can get it x % to whom product is available x % of triers who become repeat purchasers x Number of units repeaters buy in a year Profit Per Unit = Revenue per unit - cost per unit

A-T-A-R Model Application

10 million x 40% x 20% Number of owners of Walkman-like CD players Percent awareness after one year Percent of "aware" owners who will try product x 70% Percent availability at electronics retailers x 20% Percent of triers who will buy a second unit x $50 Price per unit minus trade margins and discounts ($100) minus unit cost at the intended volume ($50) = $5,600,000 Profits

Points to Note About A-T-A-R Model

1. Each factor is subject to estimation.
Estimates improve with each step in the development phase.

2. Inadequate profit forecast can be improved by changing factors.

If profit forecast is inadequate, look at each factor and see which can be improved, and at what cost.

 In developing estimates for each element, the following should be kept in mind:
Awareness will depend on the extent to which the new product is advertised in the marketplace. For example, it might cost $1.0 million to make 10% of the market aware of the product. Trial implies that the customer actually decides to purchase the new product and try it out. Receiving a free sample in the mail does not necessarily mean that they actually tried the product. Availability relates to the ease with which the purchaser can find the product to purchase. This is directly related to the number of channels (retail stores, internet, etc) that are available to the purchaser. Repeat means that the trial was successful. In the case of convenience items, the purchaser has decided to make repeat purchases. For onetime shopping goods, or specialty goods purchases, repeat may mean recommending the product to a friend.