Conjoint Analysis

A Product (P) is a combination of a set of Attributes (A1, A2, A3, ....)

A1

A2 A3 A6 A5

P
Example Health Drink

A4

Flavor

Nutrition

Solubility Energy

Price
Color
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Information Processing
Extract a1 = f(A1) Product Information a2 = f(A2) w1a1 w2a2 Product Evaluation Combine

... an = f(An)
Attribute Evaluation

... wnan
Attribute Weighting

Premise - Individuals evaluate the value or utility of a product/service/idea/decision by combining the separate amounts of utility provided by each attribute/factor.

Implications of the Information Processing Model

Individual decisions are attribute-based.
If the weights and attribute levels are known, then market performance can be predicted.

Premise of Conjoint Analysis

In real purchase/decision situations, individuals do not make choices based on a single attribute/factor like comfort or cost. Individuals examine a range of features or attributes and then make judgments or trade-offs to determine their final purchase choice. Conjoint analysis examines the trade-offs to determine the combination of attributes that will be most satisfying to the individual.

 A small sample technique that quantifies peoples preferences or priorities when faced with the task of evaluating a set of products/alternative decisions and choosing the most preferred alternative.
Parallels a realistic purchase/decision situation Often labeled trade-off analysis.
What features or benefits is an individual willing to trade off?

For instance, if you were going to purchase a Health Drink, some of your trade-off considerations might be Flavor Energy Solubility Nutrition Price Color
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What does Conjoint Analysis do?

Conjoint analysis fathoms/uncovers the individuals "preference structure" from his overall ratings or rankings of the product/service/idea. Conjoint Analysis is a Decompositional Model which decomposes the respondents overall preference for an object to determine how much is due to each attribute it possesses and each possible value of that attribute. Conjoint Analysis is a Multivariate Technique that estimates the Utility of the Levels of various attributes or features of an object, as well as the relative importance of the attributes themselves. PURPOSE: Estimate Attribute Importance Weights that would best match a individuals decision choice.
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Example
Product category: Health Drink. The attributes and their levels are shown below.

Attributes Levels
Flavor Energy Solubility Color Nutrition Price/kg Chocolate, Elaichi, Plain Low, Medium, High Low, High White, Brown Low, Medium, High 174, 198, 225, 250
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Conducting Conjoint Analysis

1. Selecting Factors
a) Factors that define the total worth of the product should be considered.

b) All attributes that potentially create the overall worth should be included.
c) Factors that best differentiate between objects should be included. d) Factors must be distinct and represent a precise concept.
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2. Selecting Levels
a) Actionable Measures - must be capable of being put into practice. b) Communicable Measures - must be easily communicated for a realistic evaluation.

c) Balanced number of levels - relative importance of a variable increases as the number of levels increases.
d) Set the range of the levels somewhat outside the existing values - not an unbelievable level can reduce inter attribute correlations. Attribute multi-collinearity should be remedied as far as 10 practicable.

3. Selecting the Basic Model Forms

A. Specify respondent's composition Rule 1) Additive Model - A respondent "adds up" the part-worth of each attribute to arrive at the total combination of attributes (the product). This is simplest and most popular. Total worth of product (i, j, ... , n) = Part-worth of level i of factor 1 + Part-worth of level j of factor 2 ++ Part-worth of level n of factor m.
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2) Interactive Model - In addition to the above, for certain combinations of levels, the total value can be more or less than just their sum. This may decrease predictive power because of reduction in statistical efficiency.

Choice of composition rule determines the types and number of stimuli.

B. Part-worth Relationship (within a factor)

Type of relationship can be specified for each factor separately.

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Conjoint output of Health Drink for a respondent

Subject No. 2
Attributes
Flavor

Levels
Chocolate Elaichi Plain Low Medium High Low High White Brown Low Medium High 174 198 225 250 Total

Utility
0.6667 -0.0833 -0.5833 0.6667 -2.3333 1.6667 0.3750 -0.3750 0.0000 0.0000 -0.3333 2.1667 -1.8333 -1.5000 -1.2500 2.5000 0.2500

Range = Max - Min

0.6667 (- 0.5833) = 1.25

Importance
1.25*100/14=8.93

Energy

1.6667 (- 2.333) = 4.00

4.00*100/14=28.57

Solubility Color Nutrition

0.375 (- 0.375) = 0.75 0.0 0.0 = 0.00 2.1667 (-1.8333) = 4.00

0.75*100/14=5.36 0.00*100/14=0.00 4.00*100/14=28.57

Price/kg

2.5000 (-1.5000) = 4.00

4.00*100/14=28.57

14.00

100

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Interpreting Part-worths
Using the Parts-Worth values, answer the following questions: 1. What is the most important feature (variable) in the purchase decision for this one individual and what is the preferred level of that feature? 2. What feature is next in importance and what is the preferred level of that feature? 3. What are two features that have less impact on preference?
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Possible relationships between levels and utility

UTILITY

2
LINEAR

2
IDEAL

DISCRETE

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Part worth diagrams for the attributes of Health Drink for a respondent
0.8 2 0.6 1.5

Estimated utility

0.4

Estimated utility

0.2

0.5

-0.5

-0.2

Chocolate

Elaichi

Plain

Low

Medium

High

-1

-0.4

-1.5

-0.6

-2

-2.5 -0.8

Flavor
0.5

-3

Energy
1

0.4 0.9

Estimated utility

Estimated utility

0.3

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

0.2

0.1

-0.1

Low

High

-0.2

-0.3

-0.4

-0.5

White Solubility Color

3 2.5

Brown

2.5

Estimated utility

Estimated utility

1.5

1.5

0.5

0.5

-0.5

Low

Medium

High

-1

-0.5

Rs 174

Rs 198

Rs 225

Rs 250

-1.5

-1

-2

-1.5

-2.5

-2

Nutrition

Price per kg

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Attribute Importance
30 25

Importance

20

15

10

Flavor

Energy

Solubility

Color

Nutrition

Price

Attributes
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4. Creating a Stimuli
1. Factorial Design - when all combinations are used. Impractical when number of factors and/or levels is large. 2. Fractional Factorial Design - when a subset of stimuli to be used. Use procedure ORTHOPLAN in SPSS to create the stimuli. Number of stimuli to be used depends on the composition rule selected. Additive model assumes only main effects without interactions - so stimuli should be so selected that they are orthogonal to ensure correct estimation of main effects.
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Creating Concept Cards using SPSS

Click DATA ORTHOGONAL DESIGN GENERATE Enter attribute names and attribute labels (optional)

Enter attribute levels and their labels (optional)

Click OPTIONS Choose minimum number of cards

Choose number of holdout cards

Select path, folder name and file name Click OK

Concept cards will be saved in file name

DO NOT DELETE OR MODIFY (UNLESS SOME CARDS ARE NOT REALISTIC) THIS FILE. YOU WILL NEED THIS FILE FOR RUNNING CONJOINT ANALYSIS.
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Creating Concept Cards using SPSS

To display the concept cards in editor Click FILE DATA FILE NAME

Cards will be displayed with attribute level numbers

To view in label form Click: VIEW VALUE LABELS To create card profiles for respondents Click DATA ORTHOGONAL DESIGN DISPLAY Select all factors Select PROFILES FOR SUBJECTS Click OK

Profiles will be generated in the output file

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Concept cards generated by SPSS for the Health Drink Example

fl 2.00 2.00 1.00 1.00 1.00 3.00 1.00 1.00 1.00 2.00 2.00 3.00 1.00 1.00 3.00 3.00 3.00 3.00 2.00 1.00 en 1.00 1.00 1.00 1.00 3.00 3.00 1.00 2.00 2.00 3.00 2.00 2.00 3.00 1.00 1.00 1.00 2.00 1.00 1.00 3.00 sl 1.00 2.00 1.00 2.00 2.00 1.00 2.00 1.00 1.00 1.00 2.00 2.00 2.00 1.00 2.00 1.00 1.00 1.00 2.00 2.00 cl 2.00 2.00 2.00 2.00 2.00 2.00 1.00 1.00 2.00 1.00 1.00 2.00 1.00 1.00 1.00 1.00 2.00 2.00 1.00 2.00 nu 3.00 2.00 1.00 1.00 3.00 1.00 1.00 3.00 2.00 1.00 1.00 1.00 2.00 1.00 3.00 2.00 1.00 3.00 1.00 2.00 pr 1.00 3.00 2.00 4.00 2.00 3.00 3.00 3.00 4.00 4.00 2.00 1.00 1.00 1.00 4.00 2.00 1.00 1.00 1.00 2.00 status_ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 card_ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

A total of 20 product concepts are generated using fractional factorial design, 16 of which are used for estimation of model parameters and 4 for cross validation.
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Concept cards generated by SPSS for the Health Drink Example

fl Elaichi Elaichi Chocolate Chocolate Chocolate Plain Chocolate Chocolate Chocolate Elaichi Elaichi Plain Chocolate Chocolate Plain Plain Plain Plain Elaichi Chocolate en Low Low Low Low High High Low Medium Medium High Medium Medium High Low Low Low Medium Low Low High sl Low High Low High High Low High Low Low Low High High High Low High Low Low Low High High cl Brown Brown Brown Brown Brown Brown White White Brown White White Brown White White White White Brown Brown White Brown nu High Medium Low Low High Low Low High Medium Low Low Low Medium Low High Medium Low High Low Medium pr 174 225 198 250 198 225 225 225 250 250 198 174 174 174 250 198 174 174 174 198 status_ Design Design Design Design Design Design Design Design Design Design Design Design Design Design Design Design Holdout Holdout Holdout Holdout card_ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

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5. Presentation Methods
Use procedure PLANCARD in SPSS to create separate cards containing complete product descriptions for each stimulus for evaluation by the respondents. Trade-off Method Full-Profile Method
Flavor
Choco Elaichi Plain

Energy

Low Medium High

Flavor Elaichi Energy Low Solubility Low Color Brown Nutrition High Price per kg 174

Major Limitations

1. Sacrifice in realism. 2. Large no. of judgements necessary. 3. Respondents get confused.

1. Information overload respondents focus on a few factors. 2. Order of factor listing may have impact on evaluation. 23

6. Collect data - Measure of Consumer Preference

1. Rank ordering 2. Rating (i.e., a 1 to 10 scale ) A sample of 50 respondents from the institute campus is asked to rank the 20 product concepts on the basis of their purchase intentions. The concepts are presented to them using the Full profile approach.

Note
Total no. of parameters in the model = total no. of levels of all attributes no. of attributes + 1 (3+3+2+2+3+4 6+1= 12). So, this is the minimum no. (NC ) of stimuli (concepts) required to estimate all the parameters in the model. However, if you use NC stimuli, there is a problem (?!) You must use more no. of stimuli to overcome this problem. There is no hard and fast rule to determine the no. of stimuli to be used. In practice, approximately 1.5 to 2 times the minimum no. of (NC ) stimuli is used for the purpose of efficient estimation of the parameters, and testing.
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7. Estimation
Use procedure CONJOINT( A SYNTAX FILE NEEDS TO BE CREATED) in SPSS to perform conjoint analysis produce a part-worth estimate for each level of each attribute. The mathematical model is (for the Health Drink example):

y b0 b1DFL1 b2 DFL2 b3 DEN1 b4 DEN 2 b5 DSL b6 DCL b7 DNU 1 b8 DNU 2 b9 DPR1 b10 DPR2 b11DPR3 e
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Regression coefficients to utilities

Attribute Levels (Labels) Chocolate Elaichi Plain Levels (No.) 1 2 3 Dummies DFL1 0 1 0 DFL2 0 0 1 Utility U F1 U F2 U F3

Flavor

U F 2 U F1 b1 ,U F 3 U F1 b2 U F1 U F 2 U F 3 0
Solve for UF1, UF2, UF3.
Note that SPSS Conjoint procedure reports the utilities (as seen earlier).
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8. Evaluating the results

Estimate total worths of product profiles, then compare it to consumers choice ranking - use Kendall's tau for rank-order data and Pearson's correlation coefficient for rating data. Attribute Importance Estimate Importance of an attribute of an object as estimated by conjoint analysis.

9. Interpreting the results

1. Aggregate versus individual - unless the group of respondents is homogeneous the aggregate model may be misleading. You may use cluster analysis to identify homogeneous groups, then use the aggregate conjoint model for each group.
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Forecast market shares

Use the coefficients to predict each subject's utility for each product in the market (including proposed new products). Identify each respondent's preferred product; i.e., the product with the highest predicted utility.
Count the number of subjects that prefer each alternative and compute the market shares.

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Market Simulation Example

Predict market shares for Health Drink 1 vs. Health Drink 2 Respondent #2:
Health Drink 1
Flavor Elaichi Energy Low Solubility Low Color Brown Nutrition High Price per kg 225 -0.0833 0.6667 0.3750 0.0000 -1.8333 2.5000

Health Drink 2
Flavor Chocolate Energy Low Solubility Low Color Brown Nutrition High Price per kg 225 0.6667 0.6667 0.3750 0.0000 -1.8333 2.5000

Total Utility

1.6251

Total Utility

2.3751

Respondent #2 chooses Health Drink 2! Repeat for rest of respondents. . .

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Market Simulation Results

Predict responses for 50 respondents, and we might see shares of preference like:

35% 65%

Elaichi Chocolate

65% of respondents prefer the Chocolate Health Drink.

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Market Share Estimation

Probability of Purchasing (Market Share) of Health Drink j Pj = Uj/Uj, where Uj = Total Utility of Health Drink j, and Uj = Sum of Health Drink utilities in simulation Two Health Drink Market Utility Uj
Health Drink 1 Health Drink 2 1.6251 2.3751

Total

4.0002

Estimated Market Share Pj 40.6% 59.4% 100.00

Assuming the utilities are for a homogeneous group.

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Forecasting Demand for Health Drink 3

Some Facts
Last years demand = X million units Last years Market share of Health Drink 1 = 26% Last years Market share of Health Drink 2 = 74%

Assumptions
The market share is static - total demand is same as that of last year. The Health Drinks 1, 2, 3 will represent the entire market.
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Demand Forecasting without Calibration

D3 = P3 * X, where
D3= predicted demand for Health Drink 3 P3 = predicted market share of Health Drink 3, and Total market size = X million units Note: This method of prediction is valid if the market simulations are able to estimate the realworld market share fairly accurately.
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Demand Forecasting with Calibration an Example

D3 = P3 * Ck * X, where
Ck = Calibration factor due to Health Drink k (1 or 2) = Ak / Pk , where Ak = the actual market share of Health Drink k Pk = predicted market share of Health Drink k

Therefore,
C1 = 26/41 = 0.63 C2 = 74/59 = 1.25
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Hypothetical Three Health Drinks Market Estimated Market Shares

Utility Uj 1.6251 2.3751 1.9000 5.9002
Estimated Market Share Pj 27.5% 40.3% 32.2% 100.0

Health Drink 1 Health Drink 2 Health Drink 3 Total

Market Share for Health Drink 3 (Calibrated) 32.2*0.63 = 20.29% (due to Health Drink 1) 32.2*1.25 = 40.25% (due to Health Drink 2)
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Conjoint Market Simulation Assumptions

All attributes that affect buyer choices in the real world have been accounted for Equal availability (distribution)

Respondents are aware of all products

Long-range equilibrium (equal time on market)

Equal effectiveness of sales force

No out-of-stock conditions
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Shares of Preference Dont Always Match Actual Market Shares

Conjoint simulator assumptions usually dont hold true in the real world But this doesnt mean that conjoint simulators are not valuable! Simulators turn esoteric utilities into concrete shares Conjoint simulators predict respondents interest in products/services assuming a level playing field

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Segment the market.

Segmentation is based on wants and needs as represented by the coefficients, rather than on demographic variables.
Cluster analysis is the tool of choice.

After the segments are identified, the demographics of the segments can be compared.

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Strengths of Traditional Conjoint

Good for both product design and pricing issues Can be administered on paper, computer/internet Shows products in full-profile, which many argue mimics real-world Can be used even with small sample sizes
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Weaknesses of Traditional Full-Profile Conjoint

Limited ability to study many attributes (more than about six)
Limited ability to measure interactions and other higher-order effects (cross-effects)

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