Conjoint Analysis – The Key to Predicting Real-World Buying Choices

If business people and marketers could really understand the trade-offs consumers would make, they could tailor their products and services more effectively – and profitably

CHICAGO – October, 1, 2009—We all make choices in our lives – what to buy, whether to take one job offer over another, where to invest our money, and many others. Often these choices involve trade-offs. Take for instance a car-buying decision: overall Car A is preferred, but Car B, which is a close second, has more of the desired features. Is an iPod port or a sunroof a deciding factor, a deal-maker or deal-breaker? What trade-offs are consumers most likely to make in the real world?

The problem for marketers and businesses which offer products and/or services is that, often, people will say they prefer one thing and then act differently when it comes to making the choice.

A business contemplating launching or changing a product or service or altering pricing or features requires business intelligence market research before acting. The same is true for a business finding itself losing market share—or job applicants—to a competitor. The business could greatly benefit from a better understanding of what consumers in the target audience would actually choose in the face of a real, and finite, list of options.

There is a way to make profitable decisions and avoid costly mistakes through scientific market intelligence. It starts with a proven technique called conjoint analysis.

In the simplest of terms, conjoint analysis breaks down a product or service into its component parts – its features – and through a series of questions or possible scenarios it can home in on each component and determine which is most powerful in a consumer buying decision. For a simple explanation, see this blog post.

For example, consider a company that produces and markets bottled water and is trying to decide what to do vis-à-vis the competition to increase its market share. The component parts of bottled water are “Brand,” “Price,” “Claim” (e.g. mineral water, spring water, etc.), “Type of bottle” (e.g. screw-top, flip-top, etc.).

A conjoint study starts with a determination of the range of features to include in the study. The conjoint analysis would then be constructed to determine which of the features drive the decision to purchase bottled water.

In a series of questions, different combinations of the various attributes of bottled water are presented, with people in the study group indicating their choice.

By analyzing the pattern of responses for each study participant, it can be determined what the underlying value system (“utility values”) is for that person for each feature included in the study. One outcome is an understanding of the product changes which can most drive increased volume and profit. In other words, conjoint predicts the trade-offs real consumers would make given the available choices.  In the case of the bottled water example, the company could have considered lowering the price to increase market share only to discover, through conjoint analysis, that the largest increase in market share could be achieved through offering a flip-top bottle.

“Through a series of questions we begin to understand the value of the features,” said Carol B. White, a Sawtooth Technologies Consulting Group partner with more than 20 years of experience in conducting market research on buyer preferences and needs. Sawtooth Technologies Consulting, based outside of Chicago, specializes in applying conjoint analysis, as well as other proven market intelligence techniques, to address real business problems.

Sawtooth Technologies Consulting Group Partner Carol B. White

“Conjoint analysis makes the most sense in categories where the decision to buy is defined as rational, and you can categorize the features,” White adds. “It doesn’t make sense for image products, like Coke vs. Pepsi, where the buying decision is most likely emotional. But for products and services such as medical devices, high-tech products like cell phones, automobiles, insurance and financial services – things where the features can be clarified – conjoint analysis done right is uncanny in its ability to predict consumer behavior.

“We have also worked with our clients’ HR (Human Resources) departments to determine what features of employee benefit would be best for employee retention and recruitment,” White notes. “Employees say they want more money, but often you find you can have better results in both retention and recruitment with other things, like enhanced healthcare benefits, more vacation, or offices instead of cubicles. Conjoint analysis is designed to go beyond what people think they know, and deliver real, quantifiable results.” Another example can be found here.

Sawtooth Technologies Consulting Group has conducted a myriad of simple and sophisticated conjoint analysis studies on behalf of clients, including: product strategies for a residential mortgage company that trimmed product offerings and increased market share; an identification of new products for a financial services company that resulted in a deeper relationship with high-value customers and increased profitability; an examination of product offerings for an online merchant firm which resulted in increased sales volume; and, a pricing and features study for a small kitchen appliance manufacturer that determined the strongest driver of purchase choice for a successful promotion push.

The Sawtooth Technologies Consulting Group staff employs a full spectrum of market research techniques in aiding its clients to achieve their goals. In addition to conjoint analysis, the firm specializes in target-market segmentation, market position perceptual mapping, customer satisfaction modeling, and Maximum Difference Scaling, or MaxDiff, which is another technique used to determine market preferences.

For more information on all of the market-changing research techniques from Sawtooth Technologies, visit www.sawtooth.com/consulting.


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