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Advanced	
  Quant	
  Techniques	
  
July	
  14,	
  2011	
  
MBC,	
  as	
  Easy	
  As	
  ABC?	
  An	
  
introduc:on	
  to	
  Menu	
  Based	
  Conjoint	
  
Dirk	
  Huisman,	
  SKIM	
  
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Dirk Huisman
Chairman | SKIM
expect	
  great	
  answers	
  
MBC, as Easy As ABC?
An introduction to Menu Based Conjoint	
  
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
What is Menu-Based Conjoint?
An exercise that replicates a specific kind of choice
situation by allowing consumers (respondents) to
specify their desired product by selecting single
features or bundled group of features.
Menu-based conjoint is the family name showing the
relation with other variations to conjoint analysis, a
class of discrete choice models.
You may also call it a build-your-own product exercise.
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
In “traditional” CBC a consumer choses
among full profiles
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Traditional CBC is most suitable for
“complete” products without optional features
•  Consumers do intuitively choose one out of several
pre-defined concepts and repeat the “shopping trip”.
•  Methodology has been validated and results are
calibrated to fully mimic reality
but
•  This does not mimic many real life choice situations:
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Capturing real life in a fast food
restaurant looks as easy as ABC
Building your own product is as easy as ordering a meal
at Burger King
Mmmh, today I
feel for a
Whopper.
I mean, the
menu, with fries
and Coke..and I could go
large, it’s only
$1 more!
Surprise me, they
have cookies!
OK, then I’ll not take
the menu, just a
whopper, and a
cookie And who cares I am
about to consume
2500 calories.
It’s a balance day.
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Choice situations where combining items
matters, require Menu Based Conjoint
•  Menu optimization in fast food/branded restaurant
chains
•  Converging TLC markets / services: bundling
•  BYO computers (e.g. Dell)
•  Optional features pricing optimization in automotive
market
•  Add-on services in the financial and insurance
services industry
•  Mix and Match situations like in apparel
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Whopper	
  	
  $3.50	
  	
  	
  	
  	
  	
  	
  	
  California	
  	
  W.	
  $	
  4.50	
  
Omega3	
  	
  $3.75	
  	
  	
  	
  	
  	
  	
  	
  Chicken	
  Deli	
  $	
  3.50	
  
Cheddar	
  	
  $0.50	
  	
  	
  	
  	
  	
  	
  American	
  cheese	
  	
  
	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  $	
  0.75	
  
Crispy	
  Onions	
  
	
  $1.50	
  
Bacon	
  
	
  $1.50	
  
Curly	
  fries	
  $1.25	
  
French	
  fries	
  $1.05	
  
✔	
   ✔	
  
✔	
  
✔	
  Supersize	
  +	
  $0.25	
  
✔	
  
Total	
  price	
  $	
  8.50	
  	
  
Mimicking reality in the choice
task is not complex
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Or why don’t we build our own
computer, as if we’re Dell?
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
MBC sound like a great idea. Why didn’t
we do it earlier?
•  Computational barriers are relieved
•  Hundreds of ways you can configure your product
•  Computationally not feasible to take all of them into
account
•  Lack of rules to meaningfully aggregate and generalize
individual ideal points
•  Recent developments make it easier (not easy)
•  New interest in the methodology, better estimates
•  Papers and methodological conferences
•  Commercially available software to analyze
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
•  Realistic choice tasks, representative for a different
class of choice situations
•  Enables predictions about many items
•  Valuable insights into aspects not captured by CBC
•  Most-often chosen combination, explicitly allowing
for interaction effects between items
•  Cross-effects price sensitivity and cannibalization
effects
•  Menu pricing and discounts
MBC is new. Is it better?
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
%	
  =mes	
  a	
  single	
  burger	
  is	
  purchased	
  
Cookie	
  Price	
   Price	
  discount	
  for	
  a	
  menu	
  
Forecast how a price change
for one or more of the menu
items impacts revenues
Menu	
  
%	
  =mes	
  cookies	
  are	
  included	
  in	
  an	
  order	
  
MBC results: valuable new insights
Estimate interaction effects
between menu items,
suggesting cannibalization
dynamics
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
0%	
  
5%	
  
10%	
  
15%	
  
20%	
  
25%	
  
Tofu	
  burger	
  +	
  
Vitamin	
  water	
  
+	
  pecan	
  
cookie	
  
Tofu	
  burger	
  +	
  
Vitamin	
  water	
  
+	
  fries	
  
Tofu	
  burger	
  +	
  
Soda	
  +	
  fries	
  
Tofu	
  burger	
  +	
  
Soda	
  +	
  salad	
  
Tofu	
  burger	
  +	
  
Soda	
  +	
  muesly	
  
yogurt	
  
Tofu	
  burger	
  +	
  
Vitamin	
  water	
  
+	
  fries	
  
Tofu	
  burger	
  +	
  
Fruit	
  juice	
  +	
  
fries	
  
Most chosen combinations of drink and sides when a Tofu burger is chosen
Most notably how menu items
perform in conjunction
Observation of the most common combinations suggests the creation of a new menu
based on Tofu burger and Vitamin water
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Challenges are primarily due to the
“infancy” of the approach
•  Analysis approach under development
•  Different methods for analyzing different approaches to MBC
and BYO are known
•  But we lack a golden standard or precise guidelines; the
final decision is left to the “experience” of the methodologist
•  Computationally intensive
•  Survey challenges
•  Respondent fatigue in a situation of repetitive tasks needed
for collecting sufficient data point
•  Large sample sizes necessary for validity and precision
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
Q & A
Dirk	
  Huisman	
  
SKIM	
  
Sue	
  York	
  
The	
  Future	
  Place	
  
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
For further information:
Technical papers about MBC:
Bakken, David G. and Megan Kaiser Bond (2004), “Estimating Preferences for Product Bundles
vs. a la carte Choices”, Sawtooth Software Conference Proceedings, pp 123-134.
Cohen, Steven H. and John C. Liechty (2007), “Have it Your Way: Menu-based conjoint analysis
helps marketers understand mass customization”, Marketing Research Magazine, Fall 2007, pp
28-34.
Liechty, John, Venkatram Ramaswamy, and Steven H. Cohen (2001), “Choice Menus for Mass
Customization: An Experimenal Approach for Analyzing Customer Demand with an Application
to a Web-Based Information Service”, Journal of Marketing Research, May 2001, pp 183-196.
Rogers, Greg and Tim Renken (2003), “Validation and Calibration of Choice-Based Conjoint for
Pricing Research,” Sawtooth Software Conference Proceedings, pp 209-215.
Ben-Akiva, M. and S. Gershenfeld (1998), “Multi-featured Products and Services: Analysing
Pricing and Bundling Strategies”, Journal of Forecasting, 17.
Conklin. M., B. Paris, T. Boehnlien-Kearby, C. Johnson, K. Juhl, A. Zanetti-Polzi, K. Gustafson, B.
Palmer, (2007) “Menu Based Choice Models”, ART Forum.
Bryan K. Orme,,(2010) “Menu-Based Choice Modeling Using Traditional Tools”, Sawtooth
Software, RESEARCH PAPER SERIES
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
contact us or follow us online!
SKIM
Dirk Huisman | Chairman
d.huisman@skimgroup.com | +31 102823561
twi>er.com/	
  
skimgroup	
  
facebook.com/	
  
skimgroup	
  
linkedin.com/	
  
company/skim	
  
youtube.com/	
  
skimvideos	
  
skimgroup.com	
  
Dirk Huisman, SKIM, The Netherlands
NewMR Advanced Quant Techniques, July 14, 2011
contact us or follow us online!
SKIM | Locations
New York, USA
Juan Andrés Tello
j.tello@skimgroup.com
+1 201 963 8430
Rotterdam, NL
Mini Kalivianakis
m.kalivianakis@skimgroup.com
+31 10 282 3535
twi>er.com/	
  
skimgroup	
  
facebook.com/	
  
skimgroup	
  
linkedin.com/	
  
company/skim	
  
youtube.com/	
  
skimvideos	
  
skimgroup.com	
  
Geneva, Switzerland
Vicky Nef
v.nef@skimgroup.com
+41 22 747 7519
London, UK
Debora Corfield
d.corfield@skimgroup.com
+44 203 178 6910

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Dirk huisman advanced quant - 2011

  • 1. Event  sponsored  by  Affinnova   All  copyright  owned  by  The  Future  Place  and  the  presenters  of  the  material   For  more  informa=on  about  Affinnova  visit  h>p://www.  affinnova.com/   For  more  informa=on  about  NewMR  events  visit  newmr.org   Advanced  Quant  Techniques   July  14,  2011   MBC,  as  Easy  As  ABC?  An   introduc:on  to  Menu  Based  Conjoint   Dirk  Huisman,  SKIM  
  • 2. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Dirk Huisman Chairman | SKIM expect  great  answers   MBC, as Easy As ABC? An introduction to Menu Based Conjoint  
  • 3. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 What is Menu-Based Conjoint? An exercise that replicates a specific kind of choice situation by allowing consumers (respondents) to specify their desired product by selecting single features or bundled group of features. Menu-based conjoint is the family name showing the relation with other variations to conjoint analysis, a class of discrete choice models. You may also call it a build-your-own product exercise.
  • 4. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 In “traditional” CBC a consumer choses among full profiles
  • 5. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Traditional CBC is most suitable for “complete” products without optional features •  Consumers do intuitively choose one out of several pre-defined concepts and repeat the “shopping trip”. •  Methodology has been validated and results are calibrated to fully mimic reality but •  This does not mimic many real life choice situations:
  • 6. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Capturing real life in a fast food restaurant looks as easy as ABC Building your own product is as easy as ordering a meal at Burger King Mmmh, today I feel for a Whopper. I mean, the menu, with fries and Coke..and I could go large, it’s only $1 more! Surprise me, they have cookies! OK, then I’ll not take the menu, just a whopper, and a cookie And who cares I am about to consume 2500 calories. It’s a balance day.
  • 7. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Choice situations where combining items matters, require Menu Based Conjoint •  Menu optimization in fast food/branded restaurant chains •  Converging TLC markets / services: bundling •  BYO computers (e.g. Dell) •  Optional features pricing optimization in automotive market •  Add-on services in the financial and insurance services industry •  Mix and Match situations like in apparel
  • 8. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Whopper    $3.50                California    W.  $  4.50   Omega3    $3.75                Chicken  Deli  $  3.50   Cheddar    $0.50              American  cheese                                                                                          $  0.75   Crispy  Onions    $1.50   Bacon    $1.50   Curly  fries  $1.25   French  fries  $1.05   ✔   ✔   ✔   ✔  Supersize  +  $0.25   ✔   Total  price  $  8.50     Mimicking reality in the choice task is not complex
  • 9. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Or why don’t we build our own computer, as if we’re Dell?
  • 10. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 MBC sound like a great idea. Why didn’t we do it earlier? •  Computational barriers are relieved •  Hundreds of ways you can configure your product •  Computationally not feasible to take all of them into account •  Lack of rules to meaningfully aggregate and generalize individual ideal points •  Recent developments make it easier (not easy) •  New interest in the methodology, better estimates •  Papers and methodological conferences •  Commercially available software to analyze
  • 11. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 •  Realistic choice tasks, representative for a different class of choice situations •  Enables predictions about many items •  Valuable insights into aspects not captured by CBC •  Most-often chosen combination, explicitly allowing for interaction effects between items •  Cross-effects price sensitivity and cannibalization effects •  Menu pricing and discounts MBC is new. Is it better?
  • 12. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 %  =mes  a  single  burger  is  purchased   Cookie  Price   Price  discount  for  a  menu   Forecast how a price change for one or more of the menu items impacts revenues Menu   %  =mes  cookies  are  included  in  an  order   MBC results: valuable new insights Estimate interaction effects between menu items, suggesting cannibalization dynamics
  • 13. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 0%   5%   10%   15%   20%   25%   Tofu  burger  +   Vitamin  water   +  pecan   cookie   Tofu  burger  +   Vitamin  water   +  fries   Tofu  burger  +   Soda  +  fries   Tofu  burger  +   Soda  +  salad   Tofu  burger  +   Soda  +  muesly   yogurt   Tofu  burger  +   Vitamin  water   +  fries   Tofu  burger  +   Fruit  juice  +   fries   Most chosen combinations of drink and sides when a Tofu burger is chosen Most notably how menu items perform in conjunction Observation of the most common combinations suggests the creation of a new menu based on Tofu burger and Vitamin water
  • 14. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Challenges are primarily due to the “infancy” of the approach •  Analysis approach under development •  Different methods for analyzing different approaches to MBC and BYO are known •  But we lack a golden standard or precise guidelines; the final decision is left to the “experience” of the methodologist •  Computationally intensive •  Survey challenges •  Respondent fatigue in a situation of repetitive tasks needed for collecting sufficient data point •  Large sample sizes necessary for validity and precision
  • 15. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 Q & A Dirk  Huisman   SKIM   Sue  York   The  Future  Place  
  • 16. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 For further information: Technical papers about MBC: Bakken, David G. and Megan Kaiser Bond (2004), “Estimating Preferences for Product Bundles vs. a la carte Choices”, Sawtooth Software Conference Proceedings, pp 123-134. Cohen, Steven H. and John C. Liechty (2007), “Have it Your Way: Menu-based conjoint analysis helps marketers understand mass customization”, Marketing Research Magazine, Fall 2007, pp 28-34. Liechty, John, Venkatram Ramaswamy, and Steven H. Cohen (2001), “Choice Menus for Mass Customization: An Experimenal Approach for Analyzing Customer Demand with an Application to a Web-Based Information Service”, Journal of Marketing Research, May 2001, pp 183-196. Rogers, Greg and Tim Renken (2003), “Validation and Calibration of Choice-Based Conjoint for Pricing Research,” Sawtooth Software Conference Proceedings, pp 209-215. Ben-Akiva, M. and S. Gershenfeld (1998), “Multi-featured Products and Services: Analysing Pricing and Bundling Strategies”, Journal of Forecasting, 17. Conklin. M., B. Paris, T. Boehnlien-Kearby, C. Johnson, K. Juhl, A. Zanetti-Polzi, K. Gustafson, B. Palmer, (2007) “Menu Based Choice Models”, ART Forum. Bryan K. Orme,,(2010) “Menu-Based Choice Modeling Using Traditional Tools”, Sawtooth Software, RESEARCH PAPER SERIES
  • 17. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 contact us or follow us online! SKIM Dirk Huisman | Chairman d.huisman@skimgroup.com | +31 102823561 twi>er.com/   skimgroup   facebook.com/   skimgroup   linkedin.com/   company/skim   youtube.com/   skimvideos   skimgroup.com  
  • 18. Dirk Huisman, SKIM, The Netherlands NewMR Advanced Quant Techniques, July 14, 2011 contact us or follow us online! SKIM | Locations New York, USA Juan Andrés Tello j.tello@skimgroup.com +1 201 963 8430 Rotterdam, NL Mini Kalivianakis m.kalivianakis@skimgroup.com +31 10 282 3535 twi>er.com/   skimgroup   facebook.com/   skimgroup   linkedin.com/   company/skim   youtube.com/   skimvideos   skimgroup.com   Geneva, Switzerland Vicky Nef v.nef@skimgroup.com +41 22 747 7519 London, UK Debora Corfield d.corfield@skimgroup.com +44 203 178 6910