Dealing with Trade- Offs..

Life is all about trade-offs. The jeans you really need- or the pretty black dress you’ve been eyeing for the longest time ever. A wife with assets (financial ofcourse), or one with the brains. A dinner date, or the movies with your buddies. So how do you make these all important decisions while always maximising your utility. Atleast for us the stakes aren’t so high. The same decision making accuracy could cost Apple its brand, and the Product Manager his job. Whether the objective is increased market share, profit margin or revenue, every product manager makes trade-offs—quality vs. cost, time to market vs. breadth of features, richness of the offering vs. ease of use

So, how do you know what the market wants? What market segments exist? What those segments prefer? What will they pay? In short, how do you know what trade-offs to make? The answer is to get the market to make the trade-offs for you. Not the entire market, ofcourse, just a representative sample of the market.

By using conjoint analysis, you, as a product manager, can do just that: understand the trade-offs you should make by understanding the trade-offs your market will make. Then, apply your increased market insight to your revenue, profit or share objective.

Conjoint analysis is one of many techniques for dealing with situations in which a decision maker has to choose among options that simultaneously vary among two or more variables. It is both a trade-off measurement technique for analyzing preferences and intentions-to-buy responses and a method for simulating how consumers might react to changes in current product/services or the introduction of new products into an existing competitive array.

So the questions a Conjoint Analysis could seek to answer for you as a product manager are:

· Do i have the right pricing strategy?

Conjoint analysis helps determine how customers trade off different price levels with the features of your product they most desire- without asking them directly. That’s the magic.

· How important are new features?

Conjoint analysis tells you the must have features of your product by segment, so you can tailor your marketing efforts to a particular demographic or behavioural profile.

Does my brand matter?

Conjoint Analysis reveals what factors drive consumer behaviour: price, brand or features- and whether your brand can command a premium

Why it works...

The direct survey question “ how much would you pay for ABC?” would throw up unreliable and misleading results. So instead, by taking note of the consumer’s opinion through a series of products with differing features over a range of prices, accuracy is sought.

Techniques such as the use of regression analysis to compute mathematical values that explain consumer behaviour- how much value is placed on value, location, features etc; and then correlate this data to demographic, lifestyle or other consumer profiles.

APARNA RAMACHANDRAN

FINANCE - GROUP 1