Conjoint Analysis

Chapter 8 Conjoint Analysis
Copyright 2010 Pearson Education, Inc., publishing as Prentice-Hall.
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LEARNING OBJECTIVES Upon completing this chapter, you should be able to do the following: Explain the managerial uses of conjoint analysis. Know the guidelines for selecting the variables to be examined by conjoint analysis. Formulate the experimental plan for a conjoint analysis. Understand how to create factorial designs. Explain the impact of choosing rank choice versus ratings as the measure of preference.
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LEARNING OBJECTIVES continued . . . Upon completing this chapter, you should be able to do the following: Assess the relative importance of the predictor variables and each of their levels in affecting consumer judgments. Apply a choice simulator to conjoint results for the prediction of consumer judgments of new attribute combinations. Compare a main effects model and a model with interaction terms and show how to evaluate the validity of one model versus the other. Recognize the limitations of traditional conjoint analysis and select the appropriate alternative methodology (e.g., choice-based or adaptive conjoint) when necessary .
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Conjoint Analysis Defined

Conjoint analysis . . . is a dependence technique used to understand how respondents develop preferences for products or services. The dependent variable is a measure of respondent preference and can be metric or nonmetric (choice-based conjoint). The independent variables are dummy variables representing attributes of multiattribute products or services.
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Conjoint Analysis . . .
Is not a new technique but an application of techniques we have covered already:
Metric conjoint analysis is a regression analysis. Choice-based conjoint is a discrete regression (e.g., logit).
The researcher first constructs a set of real or hypothetical products by combining selected levels of each attribute (factor):
In most situations, the researcher will need to create an experimental design. Some computer programs will create the design (Sawtooth Software, SPSS Conjoint).
These combinations or profiles are then presented to respondents, who provide their overall evaluations.
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In developing the conjoint task the researcher must answer four questions . . .
What are the important attributes that could affect preference? How will respondents know the meaning of each factor? What do the respondents actually evaluate? How many profiles are evaluated?
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Is calculated as shown below:

Y 0 1 X 1i 2 X 2i 3 X 3i i , i
Is a decompositional technique:
Conjoint decomposes stated overall preference to determine preferences for each attribute. That is, the researcher collects data on the overall preference for a stimulus and decomposes it to ratings for the individual attributes. In contrast, with compositional techniques the researcher collects ratings on many product characteristics and then compares the ratings to an overall preference rating to develop a predictive model.
Individual-, aggregate-, or segment-level models can be

estimated.
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Conjoint Analysis differs from other multivariate techniques in four distinct areas . . .
1. Its decompositional nature. 2. Specification of the variate. 3. The fact that estimates can be made at the individual level. 4. Its flexibility in terms of relationships between dependent and independent variables.
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Managerial Uses of Conjoint Analysis . . .
Define the object or concept with the optimum combination of features. Show the relative contributions of each attribute and each level to the overall evaluation of a product. Predict customer judgments among objects with differing sets of features. Isolate segments of potential customers who place differing importance weights on features (homogeneous within segments, heterogeneous between segments). Identify market opportunities by exploring the market potential for feature combinations not currently available.
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Statistics and Terms Associated with Conjoint Analysis
Part-worth functions. The part-worth functions, or utility functions, describe the utility consumers attach to the levels of each attribute. Relative importance weights. The relative importance weights are estimated and indicate which attributes are important in influencing consumer choice. Attribute levels. The attribute levels denote the values assumed by the attributes. Full profiles. Full profiles, or complete profiles of brands, are constructed in terms of all the attributes by using the attribute levels specified by the design. Pairwise tables. In pairwise tables, the respondents evaluate two attributes at a time until all the required pairs of attributes have been evaluated.
A Simple Example
Scenario: a man buying a basic cartridge camera (faced with eight choices)
Major brand Major brand Major brand Major brand Store brand Store brand Store brand Store brand $80 $50 $30 $20 $80 $50 $30 $20
Respondents Ranking of Eight Camera Brands

Price($)
20 30 50 80
Major Brand
8 7 5 3
Store Brand
6 4 2 1
Average Rank
7.0 5.5 3.5 2.0
Average rank
5.75
3.25
Note, 8 is most preferred and 1 is least preferred
Respondents Utility Values of Eight Camera Brands

Price($)
20 30 50 80
Major Brand
8 7 5 3
Store Brand
6 4 2 1
Average Rank
7.0 5.5 3.5 2.0
Utility
1.00 .70 .30 .00
Average rank
5.75
3.25
Utility
.75
.25
Rank Order of Respondents Total Utilities.

Price($)
20 30 50 80
Major Brand
8 (1.75) * 7 (1.45) 5 (1.05) 3 (.75)
Store Brand
6 (1.25) 4 (.95) 2 (.55) 1 (.25)
Marginal Utility
1.00 .70 .30 .00
Marginal Utility
.75
.25
* 1.75 = .75 (major brand utility) + 1.00 ($20 utility)
Part-worth
Selecting the Part-worth relationship
Level Linear
Quadratic or idea
Level
Level
Trade-off Approach
Factor 1: Price $1.19 Generic $1.39 $1.49 $1.69
KX-19
Cleanall
TidyUP Pros: Easy, simple, few cognitive decisions Cons: Sacrifice in only see a few attributes at a time, large number of judgments, easy to get confused and pattern response, cant use pictoral or non written stimuli, only non metric responses, cant use fractional factorial designs.
Full Profile Approach
Brand Name : KX 19
Price : $ 1.19 Form: Powder Color brightener: Yes
Shows all attributes at once
Pros: Better, more realistic, flexible scaling, fewer judgments.
Cons: As the number of factors increases so does the possibility of information overload--can be overwhelming if have > 6 attributes. The order in which the factors are listed on the stimulus card may have an impact on the evaluation.
Stage 1: Objectives of Conjoint Analysis
o To determine the contributions of predictor variables and their levels in the determination of consumer preferences. o To establish a valid model of consumer judgments.
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Research Question
The research question must be framed around two major issues . . .
Is it possible to describe all the attributes that give utility or value to the product or service being studied? That is, the researcher must be able to define the total utility of object (all attributes that create or detract from overall utility) What are the key attributes involved in the choice process for this type of product or service? That is, must be able to specify factors that best differentiate between objects.
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Rules of Thumb 81 continued . . .

Objectives of Conjoint Analysis A successful conjoint analysis requires that the researcher:
Accurately define all of the attributes (factors) that have a positive and negative impact on preference Apply the appropriate model of how consumers combine the values of individual attributes into overall evaluations of an object
Conjoint analysis results can be used to:

Provide estimates of the utility of each level within each attribute Define the total utility of any stimuli so that it can be compared to other stimuli to predict consumer choices (e.g., market share)
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Stage 2: Design of a Conjoint Analysis

Selecting a conjoint analysis methodology: Traditional conjoint analysis. Adaptive conjoint analysis. Choice-based conjoint analysis.
Designing stimuli selecting and defining factors and levels: General characteristics of factors and levels. o Communicable measures. o Actionable (not fuzzy) measures.
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Stage 2 continued . . .
Specification issues regarding factors: o Number of factors as factors and levels are added, more stimuli are needed, or else reliability of parameters is reduced. o Fractional factorial designs may be used when the number of factors is large. o Factor multicollinearity some factors are necessarily correlated, such as horsepower and gas mileage, but they may be orthogonal in the experimental design. o Unique role of price as a factor correlated with many other factors, price-quality inferences.
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Stage 2 continued . . .
Specification issues regarding levels: o Balance or equalize the number of levels across factors. o Range of the factor levels.
Specifying the basic model form: Composition rule how does the respondent combine the part-worths to obtain overall worth? Should the researcher use an additive or an interactive model?
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The Composition Rule: Additive vs. Interactive
Additive model Interactions some attribute levels are more valuable when paired with certain levels of other attributes. Also, testing interactions requires more stimuli to be evaluated, but may be a more realistic picture of judgments.
Selecting the part-worth relationship: Linear Quadratic (ideal-point) Part-worth

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Conjoint Analysis . . . Data Collection

Choosing a presentation method:
Trade-off presentation compares attributes two at a time. Full-profile presentation most popular and most realistic.. Pairwise presentation a combination of other two methods.
Creating the stimuli:

o Trade-off presentation: number of trade-off matrices is N(N-1)/2, where N is the number of factors. o Full-Profile presentation: Factorial design Fractional factorial design Bridging design
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Unacceptable Stimuli . . .
Creation of an optimal design, with orthogonality and balance, does not mean all stimuli will be acceptable for evaluation, for several reasons: Obvious stimuli. Unbelievable stimuli. Combinations of attributes may be precluded.
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Eliminating Unacceptable Stimuli . . .
Courses of Action: Generate another fractional factorial design. Use a Nearly orthogonal design. Exclude prohibited pairs.
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Selecting a measure of consumer preference: o Rankings (requires transformation or specialized computer software) o Ratings o Choices Survey administration o Personal interviews. o Respondent burden retesting.
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Stage 3: Assumptions of Conjoint Analysis
Few statistical assumptions needed. Conceptual assumptions are more important than with other multivariate techniques (e.g., main effects vs. interactive).
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Stage 4: Estimating the Conjoint Model and Assessing Overall Fit
Selecting an estimation technique: Rank-order evaluations require specialized programs (e.g., MONANOVA, LINMAP). Ratings: Multiple regression. Choices: Logit, probit. Evaluating goodness of fit: Potential for overfitting. Validation or holdout stimuli for individual-level analysis. Validation or holdout respondents for aggregate-level analysis.
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Examining the Estimated Part-Worths
Ensuring Practical Relevance. Assessing Theoretical Consistency

reversals.
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Reversals . . .
Factors contributing to reversals: Respondent effort. Data collection method. Research context. Identifying reversals graphical analysis. Remedies for reversals: Do nothing if only a few. Apply constraints. Delete respondents.
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Stage 5: Interpreting the Results
Aggregate vs. Disaggregate analysis:

Individual-level part-worths can be clustered to form segments. Finite mixture conjoint models form segments automatically. Aggregate analysis may predict market shares well but not individual preferences. The most important factor is the one with the greatest range of part-worths.
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Stage 6: Validation of the Conjoint Results
Internally Externally
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Managerial Applications of Conjoint Analysis
Segmentation groups respondents with similar part-worths to identify segments. Profitability analysis if the cost of each feature is known, the cost of each product can be combined with the expected market share and sales volume to predict its profitability. Conjoint simulators uses what-if analysis to predict the share of preferences a stimulus is likely to capture in various competitive scenarios of interest to management.
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Conjoint Simulations
Step 1: Specify the Scenario(s) Step 2: Simulate the Choices Step 3: Calculate Share of Preference
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Alternative Conjoint Methods

o Self-explicated conjoint models Respondent provides a rating of the desirability of each level of an attribute and then rates the relative importance of the attribute overall. Part-worths are calculated by combining these ratings. This is a compositional approach. If number of factors cannot be reduced to a reasonable level for a traditional conjoint analysis, this may be an option. o Hybrid conjoint analysis Combines self-explicated and traditional conjoint models Self-explicated values are used to create small subsets of stimuli for respondents to evaluate. Collectively, all stimuli are evaluated by a portion of the respondents. Suitable alternative when the number of attributes is large ACA, Sawtooth Software
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Example: Packaged Soup

Factors Flavor Levels Onion
Dependent Variable is preference (0-10)
Chicken
Veg Calories 80 100 140 Salt Free Yes No Price 1.89 2.49
3x3x2x2 = 36 possibilities in a full factorial design
Model can be estimated using dummy variable regression where the estimated beta weights are utility preferences
Establish the Dummy Variables

D1 = 1 if onion, 0 = otherwise D2 = 1 if chicken, 0 = otherwise D3 = 1 if 80 calories, 0 = otherwise D4 = 1 if 100 calories, 0 = otherwise
D5 = 1 if salt-free, 0 = otherwise
D6 = 1 if price $1.89, 0 = otherwise
Example: Onion, 80 calorie, Saltfree soup for $1.19 would be coded as ( 1 0 1 0 1 1)
Run Regressions for Each Individual

Y = B1 D1 + B2 D2 + B3 D3 + B4 D4 + B5 D5 + B6 D6 +
Card # 1
Pref 8
Dummy Coding 100110
2
3 . . 36
6
3 . . 5
011010
111000 ...... ...... 011111
Check the fit for each regression for each individual

Calculate for each individual Corr ( , Pref) for each individual This is a measure of internal consistency to see if there is a strong relationship between the revealed preference and the stated preference. Include individuals with high correlations.
Standardized Beta weights are the part worths

Attributes Flavor onion Part worth 3.50 Note the partworths can be rescaled relative to each other. For example if onion = -.08, chicken= -3.58 and Veg = 0 adding 3.58 to each changes the coding to make chicken 0.
Chicken
Vegetable 3.58 Calories 80 100 140 Salt Free Yes No
2.17 .67 0 1.89 0
Price
1.19
1.49
.67
0
Utility for an Alternative = sum of the utilities
Graphing Individual Part worths

Utility Flavor Utility Calories
0
Chicken Onion Vegetable
80
100
140
Utility Salt-Free
Utility Price
No
Yes
$1.89
$2.49
Importance Weights
Attributes Flavor Calories Salt Price Range 0 3.58 0 2.17 0 1.89 0 - .67 Percent 43% 26% 23% 8%
Total
8.30
100%

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Chapter 8 Conjoint Analysis

Copyright 2010 Pearson Education, Inc., publishing as Prentice-Hall.

Chapter 8 Conjoint Analysis

Chapter 8 Conjoint Analysis