Conjoint Analysis 101
By Andy Willard
Conjoint analysis is an interactive and sophisticated research and analysis process allowing survey respondents the opportunity to choose specific options to model a product they prefer and would truly buy in the real world.
The goal of conjoint analysis is to quantify each product attribute (and various proposed attribute options) to assist development of better products, branding, and a sound pricing strategy.
Each W5 Conjoint study is customized based on brand, product/service, and strategic context, ensuring research results are actionable to specific business initiatives and marketing efforts.
So, what exactly is Conjoint Analysis and how can it help you? Let’s dive into the details…
What is Conjoint Analysis?
Conjoint analysis, also known as “trade-off” analysis, has become the primary tool in the marketing researcher’s arsenal for designing and pricing products and services. Conjoint analysis is a set of statistical tools used by market researchers to assess the value consumers place on products and their specific features or attributes.
The ultimate product yielded by conjoint analysis is a market simulator that can assist marketers, researchers, and/or managers in understanding the implications of new products, line extensions, product modifications, and price changes in the competitive marketplace.
The market simulator is a software program, similar to a spreadsheet, which allows users to conduct what-if analyses with data collected during conjoint fielding. Respondents can be asked to evaluate only a small fraction of concept profiles, yet still reveal how they would respond to any product offering. Therefore, it is possible to aggregate the preferences of all consumers to reveal how the market as a whole will respond to any product offering. Further, W5 can assess how the marketplace will respond to two or more competing products by calculating the market’s share of preference for every product of interest.
W5 can then vary the features of each product and observe how share of preference changes, holding market conditions constant. In essence, clients can estimate the results of innumerable product concepts based on data collection in a single survey.
Market Simulator
How is Conjoint Analysis Used?
Product Design
The use of the market simulator provides insight into the consumer mindset when designing new products. It allows for an understanding of the current marketplace as well as an assessment of the impact a new product may have on consumer preferences within that marketplace. By understanding which attributes are most important to consumers and what levels of that attribute are preferred, product concepts and their attributes can be fine-tuned to maximize the share of preference a product would likely hold if introduced.
However, share of preference must not be mistaken for market share. While conjoint analysis is able to capture a great deal of information about consumer preferences, it does not capture the potential effects of exogenous factors like product distribution, advertising, or unique product features introduced after the research is conducted. The market simulator works off the assumption that all products have similar positions within the market, and only calculates consumer preference for one product relative to others using the attributes tested.
Pricing Research
Conjoint analysis serves not only as a powerful tool for the development of products and services, but also in pricing those products and/or services. The ability to assess the marketplace and establish acceptable price points is often more important than developing product, since even an ideal product at the wrong price point is not likely to attract consumer purchase.
Conjoint analysis allows W5 the ability to calculate market demand curves (see below) which provide crucial information in pricing strategy. By developing an understanding of the price sensitivities of consumers and mapping those with a firm’s cost structure, the optimal price (or equilibrium) can be established and the product can be priced at a rate acceptable to the market.
Example of Demand Curve Analysis for Energy Bar Market
The calculated demand curves provide feedback like few other price measurements can. While other methodologies are subject to changes in market forces, conjoint analysis holds these external factors constant. A long as there are no dramatic changes in the market’s structure, the validity of these measurements is maintained. However, should there be changes (seen or unseen) within the market, follow-up waves of research can be conducted to assess impact on consumer demand. For more on W5’s tracking research, click here.
Brand Equity Measurement
Conjoint analysis can also be used to measure brand equity which is an especially critical issue for many companies today as products become differentiated more by the inherent brand than by product attributes. Choice-based conjoint analysis offers a reliable way to measure brand equity. As each brand is presented at various prices throughout the survey (the same as any other product attribute), respondents reveal their preference and price sensitivity to each brand individually.
Upon completion of analysis, W5 is able to determine the price premium (or discount) each brand within the study demands. While this will not provide a complete picture of a brand’s image within the marketplace, understanding consumer preference, consideration, and importance for the brand can supplement research that assesses other brand characteristics (e.g., awareness, familiarity, perceptions, etc.).
How to know if Conjoint is right for your project?
W5 reviews the objectives of each engagement to determine whether a conjoint study is the appropriate methodology. We’d be happy to speak with you to discuss your research needs to see if conjoint is the right approach. Ready to chat? Simply book a call.