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Introduction
Conjoint analysis is a marketing research technique designed to help managers determine
the preferences of customers and potential customers. In particular, it seeks to determine how
consumers value the different attributes that make up a product and the tradeoffs they are willing
to make among the different attributes or features that compose the product. As such, conjoint
analysis is best suited for products that have very tangible attributes that can be easily described
or quantified.
Although the history of conjoint analysis can be traced to early work in mathematical
psychology,1 its popularity has grown tremendously over the last few years as access to easy-touse software has allowed its widespread implementation. There have been probably hundreds of
applications of conjoint analysis in industrial settings. 2 Some of the more important issues for
which modern conjoint analysis is used are the following:
1. Predicting the market share of a proposed new product, given the current offerings of
competitors
2. Predicting the impact of a new competitive product on the market share of any given
product in the marketplace
3. Determining consumers willingness to pay for a proposed new product
4. Quantifying the tradeoffs customers or potential customers are willing to make among the
various attributes or features that are under consideration in the new product design
R. Duncan Luce and John W. Tukey, Simultaneous Conjoint Measurement: A New Type of Fundamental
Measurement, Journal of Mathematical Psychology 1 (February 1964): 127.
2
Paul E. Green, Abba M. Krieger, and Yoram Wind, Thirty Years of Conjoint Analysis: Reflections and
Prospects, Interfaces 31 (MayJune 2001): 5673.
This technical note was written by Ronald T. Wilcox, Associate Professor of Business Administration. Copyright
2003 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order
copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced,
stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic,
mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation.
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Levels
Price
$23,000
$25,000
$27,000
$29,000
Brand
Toyota
Volkswagen
Saturn
Kia
Horsepower
220 HP
250 HP
280 HP
Upholstery
Cloth
Leather
Sunroof
Yes
No
This is a very simple design that contains a total of 15 attribute levels. Real designs often
contain more attributes and levels than are presented here.
When constructing an experimental design, it is important to keep the following points in
mind:
1. The more tangible and understandable the levels of each attribute are to the respondents,
the more valid the results of the research will be. For example, attribute levels such as
really roomy are vague, meaning different things to different people, and should be
avoided.
2. The greater the number of attribute levels to be tested, the more data that will be needed
to achieve the same degree of output accuracy.
3. For quantitative variables (price and horsepower, in this example), the greater the
distance between any two consecutive levels, the harder it will be to get a good idea of
how a consumer might evaluate something in between the two (e.g., $24,000).
Data Collection
Collecting data for a conjoint analysis has been made relatively simple by the advent of
dedicated off-the-shelf software. The exact nature of the data collected is dictated by the type of
conjoint analysis that is used. An exhaustive discussion of the benefits and drawbacks of each of
the many different types of conjoint analysis now in use is beyond the scope of this technical
note. But those interested are encouraged to read Orme for a good discussion of this topic.3
The state of the art in conjoint data collection involves using personal computers or a
web-based version of the software to guide respondents through an interactive conjoint survey.
The software creates the hypothetical product profiles using the experimental design provided by
the researcher and estimates the attribute-level utilities from participant ratings or choices.
Bryan K. Orme, Which Conjoint Method Should I Use?, Sawtooth Software Technical Paper (2003). A
copy of this paper is available at http://www.sawtoothsoftware.com/download/techpap/whichmth.pdf (accessed
April 3, 2012).
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Brand
Horsepower
Upholstery
Sunroof
Level
$23,000
$25,000
$27,000
$29,000
Toyota
Volkswagen
Saturn
Kia
220 HP
250 HP
280 HP
Cloth
Leather
Yes
No
Utility (part-worth)
2.10
1.15
1.56
1.69
0.75
0.65
0.13
1.27
2.24
1.06
1.18
1.60
1.60
0.68
0.68
t-value
14.00
7.67
10.40
11.27
5.00
4.33
0.87
8.47
14.93
7.07
7.87
10.67
10.67
4.53
4.53
The estimated utilities or part-worths correspond to average consumer preferences for the
level of any given attribute. Within a given attribute, the estimated utilities are generally scaled
in such a way that they add up to zero. So a negative number does not mean that a given level
has negative utility; it just means that this level is on average less preferred than a level with an
estimated utility that is positive.
Conjoint analysis output is also often accompanied by t-values, a standard metric for
evaluating statistical significance. Because of the way conjoint utilities are scaled, the standard
interpretation of t-values can yield misleading results. For example, the level Saturn of the
attribute Brand has a t-value of 0.87. In general, a t-value of this magnitude would fail a test of
statistical significance; however, this t-value is generated because within the attribute Brand,
the level Saturn has neither a very high nor very low relative preference. It is basically in the
middle in terms of overall preference. Because of the scaling, levels that have more moderate
levels of preference within a given attribute are likely to have estimated utilities close to zero,
which tends to produce very low t-values (recall that the t-test is measuring the probability that
the true value of a parameter is not different from zero).
A better way to think about statistical significance in this context is to examine the tvalues of the levels with the highest and lowest preference within a given attribute. An applicable
common practice would be if the sum of the absolute value of these two statistics is greater than
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three, then that given attribute is significant in the overall choice process of consumers. At a
practical level, it is rare that an attribute will not be significant, and, if you find one that is, it
means it probably should not have been included in the experimental design in the first place,
because respondents are not considering that attributes information when they make choices.
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$25,000 and $27,000, we can solve for the exact price by performing a linear interpolation within
this range.4 Specifically, the interpolation yields:
$25,000
1.15 0.74
$2,000 $25,302 .58
1.15 (1.56 )
This implies that, if the sunroof is added, the price of the vehicle could be raised from
$23,000 to about $25,300, and the average consumers attitude would be one of indifference
between the two vehicles. Qualitatively, it shows that the value of a sunroof to consumers is very
substantial.
This same kind of analysis can be performed for other attributes. We could ask how much
additional horsepower we would need to add if the interior was changed from leather to cloth.
This particular question does present a problem, however. Because the current vehicle under
consideration has 280 horsepower, and that is the maximum amount of horsepower tested by the
conjoint analysis, it will be impossible to determine how much consumers will value additional
horsepower. This leads to an important consideration when constructing the experimental design.
That is, if the output is to be used for tradeoff analysis, it is important that the range of the levels
tested within each attribute span the entire range of that attribute before management would ever
consider it as a realistic design alternative. If the experimental design takes this into account, we
can perform a tradeoff analysis between any two attributes in the design.
Market share forecasting
Another common application is forecasting market share. To use conjoint output for this
kind of prediction, two conditions must be satisfied:
1. The company must know the other products, besides its own offering, that a consumer is
likely to consider when making a selection in the category.
2. Each of these competitive products important features must be included in the
experimental design. In other words, you must be able to calculate the utility of not only
your own product offering, but also that of the competitive products.
This is a common way to approximate the relationship between the value of the attribute and its utility for
attribute values that were not directly tested by the conjoint analysis. The closer the tested levels are to each other,
the more accurate this approximation. Also notice that this interpolation can only be performed for quantitative
attributes such as price. Interpolating between qualitative attributes, such as brand, is nonsensical.
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Market share prediction relies on the use of a multinomial logit model. 5 The basic form of
the logit model is
Sharei
eU i
n
j 1
Uj
where:
Ui is the estimated utility of product i,
Uj is the estimated utility of product j, and
n is the total number of products in the competitive set, including product i.
To make things clear, consider the following example. Suppose we are interested in
predicting the market share of a car with the following profile: Saturn; $23,000; 220 HP; cloth
interior; no sunroof. We believe that when consumers consider our car, they will also consider
purchasing cars that are currently on the market with the following profiles:
1. Toyota; $27,000; 250 HP; cloth interior; no sunroof
2. Volkswagen; $29,000; 280 HP; leather interior; no sunroof
3. Kia; $23,000; 220 HP; cloth interior; no sunroof
For the Saturn and its associated product profile, the estimated utility is 2.10 0.13
2.24 1.60 0.68 = 2.55. Similarly, the utilities of the three competing products can be
calculated:
1. 1.56 + 0.75 + 1.06 1.60 0.68 = 2.03
2. 1.69 + 0.65 + 1.18 + 1.60 0.68 = 1.06
3.
With these utilities in hand, we can now directly apply the logit model to forecast market share
for the Saturn. This is given by the following:
ShareSaturn
e 2.55
A good marketing reference to learn about the basics of the logit model is Gary L. Lilien and Arvind
Rangaswamy, Marketing Engineering: Computer-Assisted Marketing Analysis and Planning, 2nd ed. (Englewood
Cliffs, NJ: Prentice Hall, 2002). Also, most econometrics textbooks will have information on logit models.
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This implies that this particular Saturn vehicle will achieve a 2.5% market share within
the specified competitive set. The market share of any vehicle that can be described by the
experimental design and a set of competitive vehicles, also described by the experimental design,
can be found in a similar manner.
Determining attribute importance
A researcher may also be interested in determining the importance of any individual
attribute in the consumers decision processes. Quantifying these attribute importances using the
conjoint output is straightforward and can provide both interesting and useful insights into
consumer behavior.
Intuitively, the variance of the estimated utilities within a given attribute tells you
something about how important the attribute is in the choice process. Take, for example, the
attributes Sunroof and Upholstery, both of which have only two levels. If you understand the
material up to this point, it should be reasonably clear that Upholstery is a more important
attribute than Sunroof. That is because the utility difference between having a sunroof and not
having a sunroof (2 0.68 = 1.36) is smaller than the utility difference between having leather
versus cloth interior (2 1.60 = 3.20).
The common metric used to measure attribute importances is
Ii
Ui U i
n
j 1
U j U
where:
Ii is the importance of any given attribute i,
U is the highest utility level within a given attribute (subscripts indicate which attribute),
and
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importance. For example, if the tested price range was $21,000 $31,000 instead of
$23,000 $29,000 (Table 1), this is very likely to increase the estimate attribute importance of
price.
Lets now consider a concrete example using the attribute Horsepower. The importance
of this attribute is calculated as follows:
I Horsepower
1.18 2.24
(2.10 1.69 ) (0.75 1.27 ) (1.18 2.24 ) (1.60 1.60 ) (0.68 0.68) = 0.25
In the example, 25% of the overall decision weight is assigned to Horsepower. The
reader may verify through analogous calculations that the decision weight for Price is about
27%; Brand, about 15%; Sunroof, about 10%; and Upholstery, about 23%. The numbers
provide a very intuitive metric for thinking about the importance of each attribute in the decision
process.
Final Thoughts
Conjoint analysis has a broad array of possible applications. Many of these applications
are variants of the three very common applications presented here. The increasingly widespread
availability of conjoint analysis softwareboth PC and web-enabledpoints to its continued
growth as a marketing decision aid.
This note has presented what is generally known as aggregate-level conjoint analysis.
That is, all of the respondents are pooled into one group, and a single set of attribute-level
utilities are estimated from the ratings or choices provided by the people in this group. Recent
advancements in conjoint analysis have enabled researchers to estimate different utilities for
different groups of respondents and even, in some cases, for individual respondents. Although
the mathematics necessary for this procedure is sometimes quite complex, it is now possible to
estimate the attribute-level utilities and to compute tradeoff analyses for each individual
respondent. This has some significant advantages over aggregate-level analysis, particularly
when considering marketing segmentation issues. Either way, the data collection and the basic
interpretation of the output remain the same. Although there is currently no textbook that can
provide answers to all the questions that might arise when applying this technique in a business
setting, there is, as of this writing, a very good and surprisingly comprehensive collection of
technical papers located on the site of a company that markets conjoint analysis software
(http://www.sawtoothsoftware.com/techpap.shtml). These provide answers to many of the
practical implementation questions a user may face.