Conjoint Analysis

Conjoint analysis is a statistical technique used in market research to determine how people value different features that make up an individual product or service. Conjoint (trade-off) analysis has become one of the most widely-used quantitative methods in Marketing Research. It is used to measure the perceived values of specific product features, to learn how demand for a particular product or service is related to price, and to forecast what the likely acceptance of a product would be if brought to market. Rather than directly ask survey respondents what they prefer in a product, or what attributes they find most important, conjoint analysis employs the more realistic context of respondents evaluating potential product profiles. The objective of conjoint analysis is to determine what combination of a limited number of attributes is most influential on respondent choice or decision making. A controlled set of potential products or services is shown to respondents and by analyzing how they make preferences between these products, the implicit valuation of the individual elements making up the product or service can be determined. These implicit valuations (utilities or part-worths) can be used to create market models that estimate market share, revenue and even profitability of new designs. The principle behind conjoint analysis is to break a product or service down into it's constituent parts (see conjoint design) then to test combinations of these parts to look at what customers prefer. By designing the study appropriately it is then possible to use statistical analysis to work out the value of each part in driving the customers decision. Today it is used in many of the social sciences and applied sciences including marketing, product management, and operations research. It is used frequently in testing customer acceptance ofnew product designs, in assessing the appeal of advertisements and in service design. It has also been used in product positioning. For example a computer may be described in terms of attributes such as processor type, hard disk size and amount of memory. Each of these attributes is broken down into levels - for instance levels of the attribute for memory size might be 1GB, 2GB, 3GB and 4GB.

These attributes and levels can be used to define different products orproduct profiles. The first stage in conjoint analysis is to create a set of product profiles which customers or respondents are then asked to compare and choose from. Obviously, the number of potential profiles increases rapid for every new attribute, so there are techniques to simplify both the number of profiles to be tested and the way in which preferences are discovered. Different flavours of conjoint analysis have different approaches and strengths and weaknesses By analysing which items are chosen or preferred from the product profiles offered to the customer it is possible to work out statistically both what is driving the preference from the attributes and levels shown, but more importantly, give an implicit numerical valuation for each attribute and level The result is a detailed picture of how customers make decisions (see thedemonstration to see it at work), a picture that can be used to buildmarket models which can predict market share in new market conditions and test the impact of product or service changes on the market to see where and how you can gain the greatest improvements over your competitors. Not surprisingly conjoint analysis has become a key tool in building and developing market strategies. By combining these market models with internal project costings, companies can evaluate decisions in terms of Return on Investment (ROI) before going to market. For example determining what resources to put into New Product Development and in what areas. Conjoint analysis also forms the basis of much pricing research and powerful needs-based segmentation.

Conjoint Design
A product or service area is described in terms of a number of attributes. For example, a television may have attributes of screen size, screen format, brand, price and so on. Each attribute can then be broken down into a number of levels. For instance, levels for screen format may be LED, LCD, or Plasma. Respondents would be shown a set of products, prototypes, mock-ups, or pictures created from a combination of levels from all or some of the constituent attributes and asked to choose from, rank or rate the products they are shown. Each example is similar enough that consumers will see them as close substitutes, but dissimilar enough that respondents can clearly determine a

preference. Each example is composed of a unique combination of product features. The data may consist of individual ratings, rank orders, or preferences among alternative combinations. As the number of combinations of attributes and levels increases the number of potential profiles increases exponentially. Consequently, fractional factorial design is commonly used to reduce the number of profiles that have to be evaluated, while ensuring enough data are available for statistical analysis, resulting in a carefully controlled set of "profiles" for the respondent to consider.

Types of conjoint analysis

Some of the types of conjoint analysis are given below:

Adaptive Conjoint Analysis - ACA Adaptive Conjoint Analysis (ACA) is one of two most common methods for carrying out conjoint analysis. The benefits of ACA are that it allows for a large number of attributes (up to 30) and levels (up to 7 per attribute) to be used. However, ACA does require a computer-based interview and the large number of attributes means that it is common for an ACA interview to last 45 minutes or more. In addition, some of the methods it uses to simplify the task of working out utilities mean that some care is needed in choosing and designing the attributes in order to get reliable results. Technically ACA is known as a hybrid technique as it contains elements of 'self-explication' followed by the trade-off tasks themselves.

Choice Based Conjoint Analysis- CBC The most common alternative to ACA is Choice-based conjoint (CBC). Although this uses the same over-arching principles as ACA, in design, implementation and calculation it is completely different.

Whereas ACA has respondents selecting from products described with two or three attributes, CBC shows full descriptions using all the attributes available. In addition, CBC can show more than just two "products" at the same time, together with a none-of-these option enabling more realistic choice decisions to be evaluated. The limitation on the amount a respondent can absorb at a time, combined with the rapidly increasing number of "full-profile" combinations that are possible means that choice-based conjoint is typically limited to 5-7 attributes (in contrast to 25-30 for ACA). The advantages choice-based conjoint gives you are greater robustness of results - particularly for pricing work (although there are ways of getting around ACA's pricing limitations), combined with shorter and therefore less costly fieldwork. It is also favoured for it's rigour academically.

Discrete Choice Analysis A more advanced form of choice-based conjoint is Discrete Choice Analysis (also known as "stated preference research"). DCA studies are particularly popular for transportation studies looking at modal choice - the preference between a train, car and airline for instance. The main difference from CBC is the inclusion of continuous variables such as price and time. This allows the ability to examine the varying costs of the ticket with varying times taken to travel and so to establish the value of time for the journey.

Full profile Conjoint Analysis An additional option that dates back a long time but that is still used is full profile conjoint analysis. Full-profile is the original form of conjoint and is still in use, though predominantly in the US it would appear. Like choice-based conjoint this uses a more limited number of attributes to describe the product or service, but sufficient cards or treatments are shown to one respondent to enable individual level utilities to be calculated. A fractional factorial design is used to specify a fixed set of profiles that need to be shown for analysis. The difficulty is that this does limit the number of attributes quite severely. However these old school studies are still popular for simple,

non-computer-based conjoint projects and are most common for students learning about conjoint for the first time.

Conjoint Analysis Questionnaire

Ratings: On a scale of 0-10, with 0 being least important and 10 being most important. Choose one option for the rating of 0 and one with the rating of 10. Rest of the ratings can be repeated.
Questionnaire sample Price Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR Less than 10 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR 10 20 EUR More than 20 EUR More than 20 EUR More than 20 EUR More than 20 EUR More than 20 EUR More than 20 EUR More than 20 EUR More than 20 EUR Taste Average Average Average Average Good Good Good Good Excellent Excellent Excellent Excellent Average Average Average Average Good Good Good Good Excellent Excellent Excellent Excellent Average Average Average Average Good Good Good Good Fair-traded Yes Yes No No Yes Yes No No Yes Yes No No Yes Yes No No Yes Yes No No Yes Yes No No Yes Yes No No Yes Yes No No Packaging Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Attractive Not Attractive Rating

More than 20 EUR More than 20 EUR More than 20 EUR More than 20 EUR

Excellent Excellent Excellent Excellent

Yes Yes No No

Attractive Not Attractive Attractive Not Attractive

Conclusion

The goal of any conjoint survey is to assign specific values to the range of options buyers consider when making a purchase decision. Armed with this knowledge, marketers can focus on the most important features of products or services and design messages most likely to strike a cord with target buyers.