Have you ever had to make a decision between two or more options, in a situation where
there are some things you like about one option and some things you like about the other?
Of course you have.
Now think of all the organizations out there trying to create successful products and services,
not to mention sell them at just the right price. It's a complex, competitive world,
and many managers are just making educated guesses about how best to appeal to consumers.
Well, there's a proven approach for these product and service providers. It's called
conjoint analysis.
So what is conjoint analysis, and what can it do for you?
Conjoint analysis is a marketing insight technique for predicting how products you create or
re-design should perform when taken to market.
Companies win over consumers by putting in the right features and charging the right
price. For example, smartphone manufacturers are packing more and more capabilities into
these tiny devices, with billions of dollars at stake if they get the right combinations
of features and price.
Hotels and resorts fine-tune their facilities and service levels to appeal to specific target
markets, such as business travelers or luxury vacationers.
Consumer packaged goods companies tweak their packaging, flavors, and nutritional contents
to appeal to new market segments and create successful line extensions.
Next let's consider Jane, who works for a company that manufacturers bazoogles.
A rival company across town came out with a new bazoogle and Jane's sales have gone
in the wrong direction. Now, she's got a crisis on her hands.
Bazoogles can have 2 to 4 snozzles, large or small monitors, and varying levels of noise,
zoinks and whizbangs.
The problem is, there are 1000s of combinations of features, and Jane needs to come up with
the right combination at the right price to regain market share.
Jane has some ideas that she could concept test among a sample of potential customers.
She could describe potential bazoogles and ask potential customers to tell her how much
they would like to buy each one.
Of course, she doesn't have enough time, money, or customers to do enough of these
concept tests.
What she really needs is a smarter, more scientific way to test the thousands of possible bazoogles
to find the optimal one. That's where conjoint analysis comes in.
To start, Jane does some research so she can list the key attributes and levels of her
and her competitors' bazoogles.
For example, a bazoogle could have 3 snozzles, a small monitor, high noise, and shoot out
30 zoinks per minute.
Conjoint analysis software systematically combines the features from Jane's list to
show competing bazoogles at different prices. Consumers simply pick one from each scenario,
much like they'd do in the real world. You can see why it's often called discrete choice
analysis.
Across a sample of respondents, numerous combinations are shown and the software keeps track of
how often different features were chosen at different prices when offered on different
bazoogles.
Using statistical analysis, the software estimates preference scores for each consumer in the
sample. Combinations of features that are chosen a lot get high utility scores.
In essence, conjoint analysis has taken a snapshot of each consumer's brain and derived
a statistic model that quantifies the preferences that lead them to choose different bazoogles
and pay for them the way they do.
It's almost like Jane has captured 100s of virtual consumers with their decision-making
rules within the software on her computer.
She's now got a what-if market simulator that acts like a voting machine for bazoogles.
She can specify any of 1000s of potential bazoogles in her conjoint analysis software,
and the virtual consumers' will vote on those potential bazoogles versus her competitors'.
Better yet, if Jane knew something about the cost of manufacturing the features, the software
could search all potential bazoogles to find the one that's likely to beat the competition
and maximize profit.
Most any time people face decisions among different options made up of conjoined features,
you could develop key insights into consumer choice using conjoint analysis. As you can
imagine, the potential applications are numerous.
And if you want to make more than one version of your product to target distinct market
segments, conjoint analysis helps you do that too.
Conjoint analysis is unlike common survey approaches that try to ask respondents what's
important in a product and how much they're willing to pay.
Instead, respondents choose from realistic product options like they would in the real
world.
The most commonly used conjoint analysis approach today is Choice-Based Conjoint (CBC).
It's based on the some of the same theories that won Dr. Dan McFadden the Nobel Prize
in Economics.
We hope this presentation has helped to explain some basics of conjoint analysis and show
how it can benefit those trying to create the right product at the right price for consumers.
If you'd like to learn more about conjoint analysis, feel free to visit us at SawtoothSoftware.com.