Monday, 5 September 2011

Predicting the real !! {Conjoint Analysis}

We all make choices in our lives – what to buy, whether to take one job offer over another, where to invest our money, and many others. Often these choices involve trade-offs. Take for instance a car-buying decision: overall Car A is preferred, but Car B, which is a close second, has more of the desired features. Is an iPod port or a sunroof a deciding factor, a deal-maker or deal-breaker? What trade-offs are consumers most likely to make in the real world?

The problem for marketers and businesses which offer products and/or services is that, often, people will say they prefer one thing and then act differently when it comes to making the choice.

A business contemplating launching or changing a product or service or altering pricing or features requires business intelligence market research before acting. The same is true for a business finding itself losing market share—or job applicants—to a competitor. The business could greatly benefit from a better understanding of what consumers in the target audience would actually choose in the face of a real, and finite, list of options.

There is a way to make profitable decisions and avoid costly mistakes through scientific market intelligence. It starts with a proven technique called conjoint analysis.

In the simplest of terms, conjoint analysis breaks down a product or service into its component parts – its features – and through a series of questions or possible scenarios it can home in on each component and determine which is most powerful in a consumer buying decision

For example, consider a company that produces and markets bottled water and is trying to decide what to do vis-à-vis the competition to increase its market share. The component parts of bottled water are “Brand,” “Price,” “Claim” (e.g. mineral water, spring water, etc.), “Type of bottle” (e.g. screw-top, flip-top, etc.).

A conjoint study starts with a determination of the range of features to include in the study. The conjoint analysis would then be constructed to determine which of the features drive the decision to purchase bottled water.

In a series of questions, different combinations of the various attributes of bottled water are presented, with people in the study group indicating their choice.

By analyzing the pattern of responses for each study participant, it can be determined what the underlying value system (“utility values”) is for that person for each feature included in the study. One outcome is an understanding of the product changes which can most drive increased volume and profit. In other words, conjoint predicts the trade-offs real consumers would make given the available choices. In the case of the bottled water example, the company could have considered lowering the price to increase market share only to discover, through conjoint analysis, that the largest increase in market share could be achieved through offering a flip-top bottle.

“If business people and marketers could really understand the trade-offs consumers would make, they could tailor their products and services more effectively – and profitably”

Kush Adesara-Finance 5

Roll no.-13085

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