Using Conjoint Analysis in Your Market Research

iStock_000038576294_Small.jpgIn situations where businesses need help predicting how consumers make complex choices and what they value most, we often recommend using conjoint analysis. This powerful quantitative method for market research helps businesses determine how people value different attributes of a product or service in consumer and business-to-business markets.

The most powerful part of the data is that it can simulate what would happen in the marketplace in advance. For instance, it can help a business compare current products that are already in the market to one that the client is considering before launching it. This helps the business determine whether they could reasonably expect to have more of the market with a new product or service and how changes in price may affect market share. The research could also help predict if a new product would gain new revenue or customers or just cannibalize current sales.

Is Conjoint Analysis Right for My Market Research Needs?

These are a few scenarios where conjoint analysis would be appropriate:

  • To forecast the likely acceptance of a product brought to market
  • To price a product and see how that price will affect demand
  • To determine the best combination or bundle of features to offer
  • To determine if the market prefers your competitors’ products to your company’s products and why

Keep in mind that a product can be anything from a refrigerator to a restaurant experience. The products may change but the methods remain the same.

How Conjoint Analysis Works

First, we identify the essential features of the product. For instance, how will specific features influence their buying decision? For each feature, we also list out the possible levels that currently exist or that we could potentially offer.

For a refrigerator, the features (and levels) may be:

  1. Location of the freezer (on the left side, on the top, on the bottom)
  2. Size (5 cubic feet, 10 cubic feet, 20 cubic feet, 30 cubic feet)
  3. Ice maker (No, Yes)
  4. Water dispenser (No, Yes)
  5. Brand (LG, GE, Frigidaire, Whirlpool)

In the simplest conjoint exercise, respondents are shown 10 to 15 screens that contain three to four potential product bundles. The bundles have one level shown for each of the features, creating what could be a real product that is already available, one that may be available from our client or a competitor in the future, or one that is purely hypothetical. The software randomly selects which levels are displayed together.

From there, the participants choose which of the bundles they would most likely purchase. You can force the respondents to make a choice even if none of the bundles are exactly what the participants would buy, or you could give them an option to say that they wouldn’t buy any of them.

Conjoint Analysis for Product Pricing Market Research

With many of the products that we perform market research for, price is different for different levels. In the refrigerator example, the larger the refrigerator is, you would expect there to be a higher price. When we create these kinds of exercises, we have price as a summed variable, meaning it starts at a base price and can change depending on which options are available.

Continuing with the refrigerator example, you may expect the base price for a refrigerator with no water dispenser, no ice maker, only 5 cubic feet, and the freezer on top to start at just $200 per unit. If we increase the size to 20 cubic feet, we would add $400. If we add an icemaker, we would add another $340. With no other changes, we now have a price of $940 for the refrigerator.

The summed pricing makes the exercise more realistic. If the respondents are considering the products, weighing what they value against what the hard cost would be, and making concessions if the price is too high, that’s valuable information for a business to consider.

For example, if two consumers have a choice between two refrigerators that are identical except one has an ice maker and the other does not, and the one without the ice maker costs $340 less, the first consumer may buy the cheaper refrigerator because an ice maker is not worth $340 to that consumer. To the second consumer, it could be well worth the $340 difference.

Conjoint Analysis Results

Once respondents complete the exercise, their results, added to the results of other participants, will allow the analyst to see what features are more important to people and, within each feature, which levels were valued more highly. The results can be segmented to compare people according to the questions asked in the rest of the survey or if prior information about the participants is available that could be added to the dataset as well. You might see differences by gender, age, income, etc.

Vernon Research Group has a long history of using conjoint analysis to help companies, non-profit organizations and government agencies.  Get in touch if you’d like to discuss how market research can help your business.  For more information about your market research options, you can download our Free eBook, How Much Does Market Research Cost?