Conjoint Analysis

Conjoint analysis is a technique used by market researchers to make customers narrow down on choices. Conjoint analysis requires research participants to make a series of trade-offs. Analysis of these trade-offs will reveal the relative importance of the given choices. To improve the predictive ability of this analysis, research participants should be grouped into similar categories. Conjoint is used to determine what features a new product should have and how it should be priced. Conjoint analysis became popular because it was a far less expensive and more flexible way to address these issues than concept testing. For 40 years researchers from a variety of disciplines - economics, operations research, psychology, statistics, marketing and business--have studied aspects of the multi attribute choice problem. Conjoint analysis is concerned with the day-to-day decisions of consumers--what brand of toothpaste, automobile, or mobile.

The theoretical work of Luce and Tukey (1964), conjoint analysis was introduced to the marketing research community in the early 1970s. Conjoint has been one of the most documented methods in marketing research. Judging by the thousands of conjoint applications that have been conducted since 1970, it has become the most popular multi attribute choice model in marketing. One use of conjoint analysis can be shown by this example; a real estate developer is interested in building a high rise apartment complex near an university. To ensure the success of the project, a market research firm is hired to conduct focus groups with university students. Students are segmented by academic year (freshers, seniors and graduate studies) and amount of financial aid received. Study participants are given a series of index cards. Each card has 6 attributes to describe the potential building project (proximity to campus, cost, and facilities like gymnasium, garden, laundry options, floor plans, and security features). The estimated cost to construct the building described on each card is equivalent. Participants are asked to order the cards from least to most appealing. This forced ranking exercise will indirectly reveal the participants' priorities and preferences, in this conjoint analysis can be used in determining participant’s priorities.

Raghvendra Singh

13031, Finance Group – 6

Reference - http://en.wikipedia.org/wiki/Conjoint_analysis