Conjoint Analysis - Part 2/3

Class Outline

• Conjoint Demonstration

• Conjoint Analysis using Excel

• Needs-Based Market Segmentation

Conjoint Demonstration

http://www.dobney.com/Conjoint/CnjtDemo.htm

http://www.dobney.com/Conjoint/CnjtDemo.htm

More examples

• 1. Rank-based conjoint– http://www.sawtoothsoftware.com/products/ssiweb/ssiwebsamples

• 2. ACA Choice Based conjoint– http://www.sawtoothsoftware.com/products/ssiweb/ssiwebsamples

• 3. Pair-wise “choices”– http://www.dobney.com/Conjoint/CnjtDemo.htm

C o n j o i n t D e m o s

Conjoint Analysis using Excel

Group Exercise – Rating Based Conjoint

Brand Memory Price Rating

Apple 20 150 10

Apple 10 150 8

Apple 20 200 6

Samsung 20 150 7

Apple 10 200 4

Samsung 10 150 5

Samsung 20 200 3

Samsung 10 200 1

• 10=Most Preferred; 1=Least Preferred

Group Exercise #1 - WTP• $50 = ( 4 ) units• Apple > Samsung

• 20GB > 10GB

• Most important attribute: ( Price )• Least important attribute: ( Memory )

( 3 ) units = $( 37.5 )

( 2 ) units = $( 25 )

Brand Camera Price Rating

Samsung Yes 150 10

Samsung Yes 200 6

Samsung No 150 7

Samsung No 200 3

LG Yes 150 8

LG Yes 200 4

LG No 150 5

LG No 200 1

• 10=Most Preferred; 1=Least Preferred

Group Exercise #2 - WTP

• $50 = ( ) Rating• Brand: ( ) > ( )

• Camera: ( )> ( )

• Most important attribute: ( )• Least important attribute: ( )

( ) Util. = $( )

( ) Util. = $( )

Group Exercise #2 - Question

• $50 = ( 4 ) Rating• Brand: (Samsung) > (LG)

• Camera: ( Yes )> ( No )

• Most important attribute: (Price)• Least important attribute: (Brand)

( 2 ) Util. = $( 25 )

( 3 ) Util. = $(37.5)

Group Exercise #2 - Solution

Worth of Smartphone

Memory

Brand

Other factors

Price

Respondent1’s Rating Brand Memory Price10 Apple 20 1508 Apple 10 1506 Apple 20 2007 Samsung 20 1504 Apple 10 2005 Samsung 10 1503 Samsung 20 2001 Samsung 10 200

Dependent Variable

Discrete Independent

Variables

• DumApple = 1, Brand=Apple= 0, otherwise

• DumM20 = 1, Memory = 20 = 0, otherwise

• DumP150 = 1, Price = 150 = 0, otherwise

Brand DumApple Memory DumM20 Price DumP150 Apple 1 20 1 150 1Apple 1 10 0 150 1Apple 1 20 1 200 0

Samsung 0 20 1 150 1Apple 1 10 0 200 0

Samsung 0 10 0 150 1Samsung 0 20 1 200 0Samsung 0 10 0 200 0

Baseline category: Samsung

Baseline category: 10 GB

Baseline category: $200

Rating = 1 + 3 * DumApple + 2 * DumM20 + 4 * DumP150

Coeff Standard Error t Stat P-value L95% U95%Intercept 1 1.677E-16 5.964E+15 4.744E-63 1 1DumApple 3 1.677E-16 1.789E+16 5.857E-65 3 3DumM20 2 1.677E-16 1.193E+16 2.965E-64 2 2DumP150 4 1.677E-16 2.385E+16 1.853E-65 4 4

Respondent1’s Rating Brand Memory Price10 Apple 20 1508 Apple 10 1506 Apple 20 2007 Samsung 20 1504 Apple 10 2005 Samsung 10 1503 Samsung 20 2001 Samsung 10 200

Estimating Regression Coefficients Using “linest” function

1. Select 4 cells


2. =transpose((linest(B3:B10,C3:E10,1,0))

3. Ctrl + Shift + Enter (array formula)

Dependent Variable

Independent Variable


InterceptDumAppleDumM20DumP150

Group Exercise #3 - Estimation• Download the excel file: “Conjoint1.xlsx”

• Q1. Based on Brand, Memory, Price descriptions, finish dummy coding on “Sheet1.”

• Q2. On “Sheet2”, estimate partworths of respondent 1 and respondent 2.

• Q3. Make partworth tables for respondent 1 and 2.

• Q4. Describe how these two individuals are different in their preference.

Group Exercise #3 - Solution• Q1. Refer to the coding in “Sheet2”

• Q2. Partworth estimation Variable Respondent 1

DumP150 3.75

DumM20 0.75

DumApple 3.25

Intercept 0.00

Variable Respondent 1

DumP150 2.00

DumM20 2.00

DumApple 2.00

Intercept 0.00

Group Exercise #3 - Solution• Q3. Partworth tables

Respondent 1)

Respondent 2)

• Q4)• Respondent 1: Price-sensitive, brand-loyal, does not value memory• Respondent 2: equally values three attributes; Less brand loyal than

respondent 1, Values memory more than respondent 1

BrandApple 3.25Samsung 0.0

Memory

10 GB 0.0

20 GB 0.75

Price

$200 0.0

$150 3.75

BrandApple 2.00Samsung 0.0

Memory

10 GB 0.0

20 GB 2.00

Price

$200 0.0

$150 2.00

• From regression analysis of rating-based conjoint, we get a “partworth” for each level of each attribute:

• Q1) Calculate utility of the following profile.

User interfaceTouch screen 9.2Keyboard 0.0

Brand

Apple 59.5

Blackberry 20.5

Samsung 30.5

Motorola 0.0

Price

CAD199 40.1

CAD299 30.1

CAD399 20.1

CAD499 0.0

Group Exercise #4: Partworth Table Interpretation

User interface Brand Price Utility

Profile A Touch screen Blackberry CAD299 ?


• Q1) Calculate utility of the following profile.


Brand

Apple 59.5

Blackberry 20.5

Samsung 30.5

Motorola 0.0

Price

CAD199 40.1

CAD299 30.1

CAD399 20.1

CAD499 0.0

Group Exercise #4: Partworth Table Interpretation



• “Utility” is a measure of preference. Higher the utility, greater the likelihood of purchase.

• Given a product “profile” described in terms of the chosen attributes and attribute levels, we can compute its utility simply by adding up the partworths for the various elements of the profile

• Solution

– Utility of Profile A = 9.2 + 20.5 + 30.1 = 59.8 utils



Group Exercise #4 – Q1 Solution

• Q2) Suppose you are given the following three profiles. Given the three alternatives, which product is the consumer most likely to choose?


Profile C Touch screen Blackberry CAD299Profile D Keyboard Apple CAD399Profile E Touch screen Samsung CAD199

Group Exercise #4: Q2 Choice Prediction



Brand

Apple 59.5

Blackberry 20.5

Samsung 30.5

Motorola 0.0

Price

CAD199 40.1

CAD299 30.1

CAD399 20.1

CAD499 0.0

• Suppose you are given the following three profiles. Given the three alternatives, which product is the consumer most likely to choose?

• Profile E has the highest utility and so is the most likely to be chosen. Profile D is the next most likely and Profile C is the least likely.


Profile C Touch screen Blackberry CAD299 59.8Profile D Keyboard Apple CAD399 79.6Profile E Touch screen Samsung CAD199 79.8

Group Exercise #4: Q2 Solution

• The WTP for a certain attribute value change (within a certain attribute) is defined as the maximum dollar amount that the customer will pay for the change (provided the change represents an improvement).

• Q3) what is the WTP for the change from Brand=Samsung to Brand=Apple?

Group Exercise #4: Q3 Willingness-to-pay



Brand

Apple 59.5

Blackberry 20.5

Samsung 30.5

Motorola 0.0

Price

CAD199 40.1

CAD299 30.1

CAD399 20.1

CAD499 0.0

• The change represents an incremental value of 59.5-30.5=29.0 utilsWTP = 29 x Dollar value of 1 util

• The dollar value per util can be inferred by looking at the extremes of the partworths for the price attribute: (40.1 – 0.0) utils = $499 - $199

1 util = $300/40.1 = $7.481297

• Putting it all together WTP = 29 x Dollar value of 1 util

= 29 x $7.481297 = $216.9576

• If the profile with the more preferred attribute level is priced exactly WTP amount dollars higher, then the customer is exactly indifferent about the change in that attribute level.



• Q4) Calculate relative importance of each attribute in %.


Brand

Apple 59.5

Blackberry 20.5

Samsung 30.5

Motorola 0.0

Price

CAD199 40.1

CAD299 30.1

CAD399 20.1

CAD499 0.0

Group Exercise #4: Q4 Assessing Attribute Importance

• In conjoint analysis, the “importance” of each attribute is computed via the following 2 steps.

• Step 1: For each attribute, look at the partworths for all the attribute levels within that attribute and compute the difference between the largest and the smallest. This difference is the “partworth range” for that attribute.

• In our example, the partworth ranges are:

Attribute Partworth Range

User interface 9.2 – 0.0 = 9.2Brand 59.5 – 0.0 = 59.5Price 40.1 – 0.0 = 40.1


• Step 2: The importance (weights) are just partworth ranges normalized to add up to 1. To normalize, compute the sum of the partworth ranges. Divide each partworth ranges by the sum.

• In our example, the sum of the partworth ranges is: 9.2 + 59.5 + 40.1 = 108.8.

• So the importance for each attribute is:

Attribute Importance

User interface 9.2/108.8 =0.0846Brand 59.5/108.8 =0.5469Price 40.1/108.8 =0.3685


Segmentation Using Conjoint Analysis

Segmentation Using Conjoint Analysis

• A market segment is a sub-set of a market made up of people with one or more characteristics that cause them to demand similar product or services

• Why?

• $50 = 4 Units $12.5 = 1 Unit

• Apple > Samsung

• 20GB > 10GB4 Units = $50

1 Units = $12.5

Consumer A • $50 = 2 Units $25 = 1 Unit

• Samsung > Applg

• 20GB > 10GB0.5 Units = $12.2

4 Units = $100

Consumer F

• $50 = 2 Units $25 = 1 Unit

• Samsung > Apple

• 20GB > 10GB0.5 Units = $12.0

4 Units = $100

Consumer E

• $50 = 2 Units $25 = 1 Unit

• Samsung > Applg

• 20GB > 10GB0.5 Units = $12.0

4 Units = $100

Consumer D

• $50 = 2 Units $25 = 1 Unit

• Samsung > Apple

• 20GB > 10GB0.5 Units = $12.5

4 Units = $100

Consumer C

• $50 = 2 Units $25 = 1 Unit

• Samsung > Apple

• 20GB > 10GB0.5 Units = $12.5

4 Units = $100

Consumer B

……

$ Value of Memory

$ Value of AppleSegment 1

Segment 2

Marketing

Conjoint Analysis - Part 2/3