Here are some potential uses of conjoint analysis: - Market segmentation: Cluster individuals based on part-worth utilities to identify segments with similar preferences. - New product design: Test hypothetical product concepts/attributes to identify the most attractive design before development. - Pricing decisions: Determine how much attributes are worth to consumers and the trade-offs between attributes and price. - Competitive analysis: Simulate market shares of existing and new products to analyze competitive positioning and responses.

1. Consumer Behavior
Conjoint analysis
Conjoint Analysis

2. Consumer Behavior
Conjoint analysis
Outline
• Basic idea of conjoint analysis
• Steps in conjoint analysis
• Uses of conjoint analysis

3. Consumer Behavior
Conjoint analysis
Basic idea
• Overall utility for a product can be decom-
posed into the utilities (called part-worths)
associated with the levels of the individual
attributes of the product;
• The relative importance of a given attribute is
given by the ratio of the part-worth range for
that attribute divided by the sum of all part-
worth ranges;

4. Consumer Behavior
Conjoint analysis
Steps in conjoint analysis
• Determine attributes and attribute levels
• Select product profiles to be measured
• Choose a method of stimulus presentation
• Decide on the response method
• Collect and analyze the data
• Interpret the results

5. Consumer Behavior
Conjoint analysis
Attributes and attribute levels
• Identify the relevant product attributes that
are considered during choice
• Select attribute levels that represent the
options actually available in the market
• Trade-off between the completeness of the
representation and the complexity of the
design

6. Consumer Behavior
Conjoint analysis
Product profiles
• Full factorial designs:
all possible combinations of the levels of the
various attributes
• Fractional factorial designs:
–subset of all possible combinations
–orthogonal designs in which each level of one
attribute is paired equally with all the levels of
other attributes

7. Consumer Behavior
Conjoint analysis
Example: Laptop Profiles
Brand Hard Drive RAM Screen Price A B
Dell 320 GB 2 GB 15.4 in $1,200 9 6
Apple 320 GB 4 GB 15.4 in $1,200 6 12
Dell 160 GB 4 GB 15.4 in $900 12 5
Apple 320 GB 2 GB 15.4 in $900 11 11
Dell 320 GB 4 GB 12.1 in $1,500 4 3
Apple 320 GB 2 GB 12.1 in $1,500 1 9
Apple 160 GB 4 GB 15.4 in $1,500 3 10
Apple 160 GB 2 GB 12.1 in $900 8 7
Apple 160 GB 4 GB 12.1 in $1,200 5 8
Dell 160 GB 2 GB 12.1 in $1,200 7 1
Dell 320 GB 4 GB 12.1 in $900 10 4
Dell 160 GB 2 GB 15.4 in $1,500 2 2

8. Consumer Behavior
Conjoint analysis
Methods of stimulus presentation
• Verbal descriptions
Apple Laptop
with 320 GB of Hard Disk Space,
4 GB of Ram, and a
Screen Size of 15.4 inches –
at a Price of $1,200.
• Pictures
• Actual products or prototypes

9. Consumer Behavior
Conjoint analysis
Response method
• Rankings or ratings of the product profiles in
terms of preference, purchase probability, etc.
• Pairwise comparisons of product profiles in
terms of preference, purchase probability, etc.
• Choice of a product from a set of product
profiles

10. Consumer Behavior
Conjoint analysis
In-class exercise
Using the data in the table, answer the following questions:
(a) How much utility does each of the two consumers attach to the
different levels of the five attributes? (Hint: Compute each consumer’s
average rating of all the options with a given feature. For example, to
figure out how much consumer A values the Apple brand name, compute
the average rating of the six Apple laptops.)
(b) What’s the relative importance of the five attributes for the two
consumers?
(c) Consider consumer A’s ratings. For this consumer, what’s the
predicted utility of a Dell computer with 160 GB of hard drive space and 2
GB of RAM, a 12.1 inch screen, and a price of $1,200?
(d) How much could you raise the price if you increased the screen size
from 12.1 to 15.4 inches?

11. 11.74

12. Consumer Behavior
Conjoint analysis
Uses of conjoint analysis
• Market segmentation
Q: How would you segment the market using individual-level
conjoint analysis output?
• New product design
Q: How can conjoint analysis be used for new product design?
• Trade-off analysis (esp. in pricing decisions)
Q: How much could the price of a Dell computer with 160 GB of hard
drive space and 2 GB of RAM, which currently sells for $1,200, be
raised if the screen size were increased from 12.1 in to 15.4 in?
• Competitive analysis
Q: How can conjoint analysis be used to simulate market shares?