Con[olnL Analysls

MC1 433
A slmple example
W We wanL Lo markeL a new golf ball
W 1here are Lhree lmporLanL producL feaLures
Average urlvlng ulsLance
Average 8all Llfe
rlce
lgure 1
Average urlvlng ulsLance Average 8all Llfe rlce
273 yards 34 holes $123
230 yards 36 holes $130
223 yards 18 holes $173
W bvlously Lhe ldeal" ball from consumers' vlew
ls
Average urlvlng ulsLance 273 yards
Average 8all Llfe 34 holes
rlce $123
W 1he ldeal" ball from manufacLurers' vlew ls
Average urlvlng ulsLance 223 yards
Average 8all Llfe 18 holes
rlce $173
W Lose money selllng Lhe flrsL buL consumers won'L
be happy wlLh Lhe second opLlon
lgure 2
(average llfe vs average dlsLance)
8uyer 1
34 holes 36 holes 18 holes
273 yards 1 2 4
230 yards 3 3 6
223 yards 7 8 9
8uyer 2
34 holes 36 holes 18 holes
273 yards 1 3 6
230 yards 2 3 8
223 yards 4 7 9
W 8oLh buyers agree on Lhe mosL and Lhe leasL
preferred ball
W 8uL from oLher cholces buyer 1 Lends Lo
Lradeoff ball llfe for dlsLance
W 8uyer 2 makes Lhe opposlLe Lradeoff
W 1he dlfferences beLween lgure 2 and 1 are
Lhe essence of con[olnL analysls
lgure 3
(average llfe vs average dlsLance)
8uyer 1
34 holes 36 holes 18 holes
273 yards 1 2 4
230 yards 3 3 6
223 yards 7 8 9
34 holes
30
36 holes
23
18 holes
0
273 yards
100
(1)
130
(2)
123
(4)
100
230 yards
60
(3)
110
(3)
83
(6)
60
223 yards
0
(7)
30
(8)
23
(9)
0
lgure 4
(average llfe vs prlce)
8uyer 1
34 holes 36 holes 18 holes
$123 1 4 7
$130 2 3 8
$173 3 6 9
34 holes
30
36 holes
23
18 holes
0
$123
20
(1)
70
(4)
43
(7)
20
$130
3
(2)
33
(3)
30
(8)
3
$173
0
(3)
30
(6)
23
(9)
0
urlvlng ulsLance 8all Llfe rlce
273 yards 100 34 holes 30 $123 20
230 yards 60 36 holes 23 $130 3
223 yards 0 18 holes 0 $173 0
W We can plck any seL of comblnaLlons and
flgure ouL Lhe uLlllLy or parLworLhs Lo buyer 1
W 1hree sLeps form Lhe baslcs of con[olnL
analysls
CollecLlng Lradeoffs
LsLlmaLlng buyer value sysLems
Maklng cholce predlcLlons
W Pow Lo generallze Lhls Lo dlfferenL balls and a
represenLaLlve sample
ML Con[olnL Analysls 2006 11
Stage 1 -Designing the conjoint study:
Step 1.1: Select attributes relevant to the product or service
category,
Step 1.2: Select levels for each attribute, and
Step 1.3: Develop the product bundles to be evaluated.
Stage 2 -Obtaining data from a sampIe of respondents:
Step 2.1: Design a data-collection procedure, and
Step 2.2: Select a computation method for obtaining part-worth
functions.
Stage 3 -EvaIuating product design options:
Step 3.1: Segment customers based on their part-worth
functions,
Step 3.2: Design market simulations, and
Step 3.3: Select choice rule.
Con[olnL SLudy rocess
W SLep 11 SelecL aLLrlbuLes levels
ocus group
Ask new producL developmenL Leam
Secondary daLa
Should noL use Loo many aLLrlbuLes
W SLep 12 SelecL levels of aLLrlbuLes
Choose aLLrlbuLe levels slmllar Lo Lhe exlsLlng producLs
As few levels as posslble Lo slmpllfy respondenLs Lask
8oughly Lhe same number of level for each aLLrlbuLe
W SLep 13 use orLhogonal deslgn Lo develop producL bundles
ML Con[olnL Analysls 2006 13
Product
Option
Cuisine Distance Price Range Preference
Rank Value
1 Italian Near $10
2 Italian Near $15
3 Italian Far $10
4 Italian Far $15
5 Thai Near $10
6 Thai Near $15
7 Thai Far $10
8 Thai Far $15

Slmple Lxample of
Con[olnL Analysls
ML Con[olnL Analysls 2006 14
Slmple Lxample of
Con[olnL Analysls
Product
Option
Cuisine Distance Price Range Preference
Rank Value
1 Italian Near $10 8
2 Italian Near $15 6
3 Italian Far $10 4
4 Italian Far $15 2
5 Thai Near $10 7
6 Thai Near $15 5
7 Thai Far $10 3
8 Thai Far $15 1

W SLage 2 bLalnlng uaLa from respondenLs

W SLep 21
alrwlse evaluaLlon
8ankorderlng producL bundles
LvaluaLllng producLs on a raLlng scale
ML Con[olnL Analysls 2006 16
1ype of crust (3 types)
1ype of cheese (3 types)
r|ce (3 |eve|s)
ttributes
Topping (4 varieties)
mount of cheese (2 IeveIs)
totaI of 216 (3x4x3x2x3) different pizzas can be deveIoped from these
options!
Crust
Topping
Type of cheese
Pan
Thin
Thick
PineappIe
Veggie
Sausage
Pepperoni
Romano
Mixed cheese
MozzeraIIa
mount of cheese
Price
2 Oz.
6 Oz.
$9.99
$8.99
$7.99
Designing a Frozen Pizza
Note: The exampIe in the book
aIso has a 4 oz option for amount
of cheese.
ML Con[olnL Analysls 2006 17
ueslgnlng a rozen lzza
Lxample 8aLlngs uaLa
ML Con[olnL Analysls 2006 18
&(P) = %%a
ij
x
ij
k
i=1
m
j=1
P: particuIar product/concept of interest
&(P): The utiIity associated with product P
a
ij
: &tiIity associated with the jth IeveI (j = 1, 2, 3...k
j
) on the
ith attribute
k
j
: Number of IeveIs of attribute i
m: Number of attributes
x
ij
: 1 if the jth IeveI of the ith attribute is present in product
P, 0 otherwise
Con[olnL uLlllLy CompuLaLlons
j
ML Con[olnL Analysls 2006 19
uLlllLy CompuLaLlon
(ueslgnlng a rozen lzza)
Cust 1 Cust 2 Cust 3
Base* 0 45 30
Thin crust 10 -5 0
Thick crust 15 10 0
Veggie 10 0 50
Sausage 25 5 0
Pepperoni 30 20 0
Mixed Cheese 3 -10 0
MozzareIIa 10 10 -5
6 oz 10 15 -20
$ 8.99 20 -10 10
$ 7.99 35 -5 20
Customer's &tiIity
*Base product is: Pan pizza with pineappIe, 2 oz of Romano cheese,
and priced at $9.99.
ML Con[olnL Analysls 2006 20
W ueflne Lhe compeLlLlve seL Lhls ls Lhe seL of producLs
from whlch cusLomers ln Lhe LargeL segmenL make
Lhelr cholces Some of Lhem may be exlsLlng producLs
and oLhers concepLs belng evaluaLed We denoLe Lhls
seL of producLs as
1

2

n

W SelecL Cholce rule
Maxlmum uLlllLy rule
Share of preference rule
LoglL cholce rule
Alpha rule
MarkeL Share and 8evenue Share
orecasLs
ML Con[olnL Analysls 2006 21
Maxlmum uLlllLy 8ule (Lxample)
MS P
Consumers who prefer i the most
K
i
k
K
( )

&nder this choice ruIe, each customer seIects the

product that offers him/her the highest utiIity among
the competing aIternatives. Market share for product
P
i
is then given by:
K is the number of consumers who participated in the study.
ML Con[olnL Analysls 2006 22
Lher Cholce 8ules
Share of utility rule: Under this choice rule, the consumer
selects each product with a probability that is proportional
to the utility of that compared to the total utility derived from
all the products in the choice set.
Logit choice rule: This is similar to the share of utility rule,
except that it gives larger weights to more preferred
alternatives and smaller weights to less preferred
alternatives.
Alpha rule: Modified version of share of utility rule. Before
applying the share of utility, the utility functions are
modified by an "alpha factor so that the computed market
shares of existing products are as close as possible to their
actual market shares.
ML Con[olnL Analysls 2006 23
MarkeL Share CompuLaLlon
(ueslgnlng a rozen lzza)
W ons|der a market w|th three customers and three products
Aloha Special Meat-Lover`s Treat Veggie Delite
Crust Pan Thick Thin
Topping Pineapple Pepperoni Veggie
Type of Cheese Mozzarella Mixed Cheese Romano
Amount of Cheese 6 oz 6 oz 2 oz
Price $8.99 $9.99 $7.99

ML Con[olnL Analysls 2006 24

MarkeL Share CompuLaLlon
(ueslgnlng a rozen lzza)
Dt|||ty (Va|ue) of each product for each
customer
Aloha Special Meat-Lover`s Treat Veggie DeLite
Customer 1 40 58 55
Customer 2 45 50 35
Customer 3 30 10 100

Maximum &tiIity RuIe: If we assume customers wiII onIy buy the

product with the highest utiIity, the market share for Meat Lover's treat
is 2/3 and for Veggie DeIite is 1/3.
Share of preference ruIe: If we assume that each customer wiII buy
each product in proportion to its utiIity reIative to the other products,
then market shares for the three products are: Ioha SpeciaI (27.2%),
Meat Lover's Treat (27.9%) and Veggie DeIite (44.9%).
ML Con[olnL Analysls 2006 23
ldenLlfylng SegmenLs 8ased on
Con[olnL arL WorLhs
ML Con[olnL Analysls 2006 26
roducL ueslgn for Speclflc SegmenLs
W es|gn opt|ma| product by segment
Segment 1 (Va|ue segment S2 of the market)
A th|ckcrust p|zza w|th 6 Cz m|xed cheese and
p|neapp|e (or sausage) topp|ng pr|ced at 5799
1h|s w||| get about 32 share and revenue |ndex
of around 100 (the same as the base product)
Segment 3 (rem|um segment 27S of the
market) A pan p|zza w|th 2 Cz of komano cheese
and pepperon| or sausage topp|ng pr|ced at 5999
1h|s w||| get 31 share of th|s segment and have
revenue |ndex of about 100
nexL class AdverLlslng
romoLlon