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.
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.
Total utility = Sum of all partial utilities
Conjoint analysis can also be used through many softwares that are available like Sawtooth software.
Conjoint Analysis is perfect for answering these types of questions:
· What is the optimal feature set for my product?
· What price level maximizes its profitability?
· What services are consumers willing to pay more for in the product?
· Which of these changes will increase our market share?
· What impact will this have on my current suite of products/cannibalization?
As Conjoint analysis is very beautifully explained by Saurabh with golf ball example. So I am not getting into what is conjoint analysis but focus more on its applications.
Uses for Conjoint Analysis
Conjoint analysis is appropriate when a researcher wants to measure preference for a product or service, the source of that preference, or the impact on preference caused by product design changes. While there are a wide number of uses for conjoint analysis, four of the most common will be discussed below.
· Product Design
· Research Market Segmentation
· Research Brand Equity
· Research Price Sensitivity Research
Product Design Research
Product design research is the most common use of conjoint analysis among marketing researchers today. By knowing buyers’ preference for various product features, as well as the design and production costs associated with those features, products can be designed that produce the strongest preference among buyers while still being profitable for the seller.
Market Segmentation Research
Generally buyers’ utilities were not identical. It is more likely that there will be groups of buyers that exhibit similar preference structures, but that not everyone will agree. Market segmentation research is a name applied to the process of identifying and explaining the meaningful differences between groups of buyers.
Conjoint analysis can be used two ways in segmentation research. First, results can be compared across segments that already exist, or a priori segments. Alternatively, the market segments can be identified from the data collected in the study itself.
Brand Equity Research
conjoint analysis can be used to better understand the market’s preference for specific brands. While there are many ideas about exactly what brand equity is, the discussions tend to revolve around a) economic value that b) biases consumer choice. Simply stated, brand equity is the power of certain brands to:
• Charge more money than their competitors and still be purchased, or
• Realize incremental market share while maintaining competitive pricing.
Price Sensitivity Research
Similarly, conjoint methods can be used to measure the market’s price sensitivity towards a brand. Price sensitivity is most frequently measured with price elasticity of demand. Price elasticity is defined as the percent change in demand divided by the percent change in price. Price elasticities are generally negative. Elasticities between 0 and -1 are termed inelastic and represent markets that are not price sensitive. Elasticities less than -1 indicate price sensitive, or elastic, markets.
Author Aakash Bavariya (13001)
Operations Group 2