PRODUCT DEVELOPMENT

& DESIGN
Lecture 9- Conjoint Analysis

Rabeel

Wednesday, April 22, 2014

Which do you Prefer?

PIA

Airblue

NowWhich do you Prefer?

PIA

Rs.
20,000

Airblue

Rs.
17,000

NowWhich do you Prefer?

PIA

Airblue

Rs.
20,000
Non-stop

Rs.
17,000
1-stop

But, its not as simple

as that

Option 1 PIA

Rs. 20,000
1 Stop

Option 2 PIA

Rs. 20,000
Non-Stop

Option 3 PIA

Rs. 17,000
1 Stop

Option 4 PIA

Rs. 17,000
Non-Stop

Option 1 Airblue

Rs. 20,000
1 Stop

Option 2 Airblue

Rs. 20,000
Non-Stop

Option 3 Airblue

Rs. 17,000
1 Stop

Option 4 Airblue

Rs. 17,000
Non-Stop

Task

Divide the cards into three piles

Like
Dont Like
Neutral

Rank order the cards from 1-8 where 1 is

most like and 8 is least like

Option Rankings
Brand

Price

Journey

PIA

Rs. 20,000

1-Stop

PIA

Rs. 20,000

Non-Stop

PIA

Rs. 17,000

1-Stop

PIA

Rs. 17,000

Non-Stop

Air
Blue
Air
Blue
Air
Blue
Air
Blue

Rs. 20,000

1-Stop

Rs. 20,000

Non-Stop

Rs. 17,000

1-Stop

Rs. 17,000

Non-Stop

Consumer 1 Consume
r2

Conjoint Analysis

CA is a multivariate technique used to

understand how consumers develop
preferences for products or services

A fundamental idea behind conjoint

analysis is that a product can be broken
down into a set of relevant attributes

Each attribute has a level associated

with it

Key Terminology

Attributes are features and characteristics that

define various aspects of a product or service. For
example, attributes for airplanes include can
include "brand origin," "price," journey, etc.

Levels are the values that each attribute may

take. For example, Brand Origin could be PIA or
AirBlue and Price could be Rs. 20,000 or
Rs.17,000

Profiles are hypothetical products or services

described as bundles of attributes that are each
set at a particular level.

Test Your Knowledge 1

Think about a credit card and narrow

down the following:

Attribute
Level
Profile

Test Your Knowledge 2

Now, think about a bicycle and narrow

down the following:

Attribute
Level
Profile

Utilities

Utilities (Partworths)

In conjoint analysis, we assume that

each level of each attribute has a certain
utility (quantitative value) for the
consumer

The utility of each level of each attribute

is called a partworth, because it captures
how much this PART of the product is
WORTH to the consumer

The utility of a profile, is the sum of the

Exercise

Consider a fitness facility interested in optimal

design of its locker rooms
Which two attributes might you think would be
determinant?

Whether or not there is a sauna

Size of the lockers

How many levels can you associate with each

of these attributes?

2 levels for Sauna: Yes & No

Three levels for locker size: Small Medium
Large

Exercise

How many different sauna/locker

combinations can you come up with?
6 different combinations
How important do you think each of the
combinations are?
Rankings or Ratings
Calculate the utility of an attribute level
by taking average of the score across
choices where it appears

Exercise: What are

utilities?

Average Rankings for Sauna

Sauna
Yes

3.33

No

1.67

Locker
Medium

Small

Large

0.5

This is the individuals value

system-how an individual
values each level of an

Exercise
Product

Value System
Score

Value
System
Rank

Stated
Original Rank

Medium +
Sauna

4+3.33=7.33

Small + Sauna

3+3.33=6.33

Medium + No
Sauna

4+1.67=5.67

Small + No
Sauna

3+1.67=4.67

Large + Sauna

0.5+3.33=3.83

Large + No
Sauna

0.5+1.67=2.17

Conjoint Analysis
&
Concept
Generation

Concept Generation

Factor Utility Scores-Coffee Example

Attributes are: Flavor, Strength, Intensity of Aroma

How many levels can you come up with?

How many combinations should exist?

New concept for Prepared

Salsas

3 attributes: Which ones are these?

How many levels of each?

How many combinations?

Conjoint Analysis Output- Salsa Data

Calculate
the Range
of each
attribute

Which is the most important attribute?

What can you say about the desirability

of alternate levels of each attribute?
Calculate the percentage importance of
each attribute?
Which attribute is the most important?

Exercise

Select a Personal computer on four attributes: weight, battery life,

quality of resolution of screen, and price. A standard conjoint
analysis produces the following value system for an individual:

If three products described below are available, which product

would the consumer purchase?

Value of
Attributes

An Example: Hybrid Autos

Hy

br
id

VS

rd
a
nd
a
St

Attribute
Attribute I: Feedback
Feedback on the
Current Miles Per
Gallon

No Feedback Provided

Feedback on the
Current Greenhouse
Emissions

Both MPG and Emissions

Feedback

Attribute II: Brand

Honda

Chrysle Nissa
Hyundai
r
n
Attribute III: Annual Maintenance Costs

Toyota

Ford

Chevrolet

VW

Tesla

$100

$250

$500
$1,000
Attribute IV: Price

$1,500

$2,000

$13,500

$17,500

$21,500
$25,500
Attribute V: Miles Per Gallon

$29,500

$33,500

15 MPG

25 MPG

35 MPG
45 MPG
Attribute VI: Type of Fuel

55 MPG

65 MPG

Gasoline

50/50 Hybrid

E85

Clean
BioDiesel Natural Gas
Diesel
Attribute VII: Type of Engine

20/80 Hybrid

Electric

Propane

Hydrogen Fuel
Cells

Hydrogen

Combustion

Attribute Importance
18.77

19.00

17.00

15.99
15.02

15.11

15.00
12.96
13.00

11.00

9.00

12.16

9.99

FEEDBACK

BRANDMAINTENENCE PRICE

MPG

FUEL

ENGINE

Feedback
30.00
20.00
10.00
0.00
GREENHOUSE
-10.00
-20.00
-30.00
-40.00

BOTH

MPGs

NONE

Brand
30.00
20.00
10.00
0.00
-10.00
-20.00
-30.00
-40.00

Maintenance Costs
60.00
40.00
20.00
0.00
-20.00
-40.00
-60.00

Price
60.00
40.00
20.00
0.00
-20.00
-40.00
-60.00

MPG
80.00
60.00
40.00
20.00
0.00
15 MPG
-20.00
-40.00
-60.00
-80.00

25 MPG

35 MPG

45 MPG

55 MPG

65 MPG

Fuel
10.00
5.00
0.00
Gasoline
-5.00
-10.00
-15.00
-20.00

E85

Clean Diesel

BioDiesel

Natural Gas

Propane

Engine
20.00
15.00
10.00
5.00
0.00
-5.00
-10.00
-15.00
-20.00

Determining the Value of the Hyrbid

Ratios of Utility Comparison (Not perfect,

but can get close with balanced attributes)
Take

a Price-Based Measure as a Baseline and

calculate the difference in utility between the
highest and lowest price
Take your Attribute of interest and calculate the
difference in utility between two levels
Divide the Attribute of Interest Utility Difference
by the Price Utility Difference
Multiply this ratio by the price difference
VOILA --- you have the relative price difference
between two attributes

An Example

What is the value of providing Gasoline versus Clean

Diesel as Fuel?

Calculate the Difference in Price Utilities:

$13,500

= 49.85
$33,500 = -50.29
DIFFERENCE = 100.1444

Calcualte the Difference Between Diesel and Gasoline:

Clean

Diesel= 2.86
Gasoline = -2.25
DIFFERENCE = 5.12

5.12 / 100.14 * $20,000 = $1,022.52

Calculate the Following:

Brand Premium that Honda can Command over

Chrysler

How much consumers are willing to pay to

improve from 55 MPG to 65 MPG

How much consumers are willing to pay for a

hybrid versus a combustion engine

How much customers are willing to pay to improve

from 23 MPG to 35 MPG

Uses of
Conjoint

Conjoint Applications

Which features should we include in our

products/services?
How many different products/services should we offer?
How much are consumers willing to pay for each feature
of our product/service? How much would they be willing
to pay extra for an improvement on an existing
characteristic?
How should we price our products/services?
What market share should we expect to obtain if we
launch product/service X?
How do consumers differ in their preferences? Which
segment(s) of consumers should we focus on serving?
What product(s) would appeal to this (these) segment(s)
relative to existing alternatives in the marketplace?

New Product Testing

Do consumers prefer a
refillable cleaner to our
standard offerings?

New Product Testing

Do consumers prefer a
refillable cleaner to our
standard offerings?
Can we command a
premium by
introducing this new
packaging concept?

New Product Testing

Do consumers prefer a
refillable cleaner to our
standard offerings?
Can we command a
premium by
introducing this new
packaging concept?
How much can we
charge for the refills?

Other Uses

New Product Design

Pricing
Packaging Decisions
Market Share Estimation
Strategic Advertising
Cost-Benefit Analysis
Market Segmentation