Consumer Behavior Conjoint analysis Conjoint Analysis Consumer Behavior

Consumer Behavior Conjoint analysis Conjoint Analysis

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

Consumer Behavior Conjoint analysis Basic idea • Overall utility for a product can be decomposed 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 partworth ranges;

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

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

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

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

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

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

In-class exercise Consumer Behavior Conjoint analysis 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?

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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?