What is conjoint analysis?
Wikipedia defines conjoint analysis as: //“a statistical technique used in market research to determine how people value different features that make up an individual product or service.
The objective of conjoint analysis is to determine what combination of a limited number of attributes is most influential on respondent choice or decision making. A controlled set of potential products or services is shown to respondents and by analyzing how they make preferences between these products, the implicit valuation of the individual elements making up the product or service can be determined. These implicit valuations (utilities or part-worths) can be used to create market models that estimate market share, revenue and even profitability of new designs.”//

What does conjoint analysis help you to achieve?

In its simplest form, conjoint analysis is a tool which lets your customers decide which product attributes they value most. Using sophisticated tools, you can then use this information to develop an understanding of what customers will be prepared to pay for your goods. It also helps you understand value features in your goods which may be missing but which the customer is prepared to pay for.

For example, you may produce a newsletter which features:
• Weekly digests of key news
• A daily alert to readers in-boxes
• An online archive of news stories
• A directory of suppliers
• A directory of senior board executives
• Daily statistical changes affecting the industry (e.g. KPIs)

You might find that a competitor has moved in on your territory and you are trying to find out what your readers value, what they are prepared to pay for and what they don’t really want.

The value of such analysis is that it can let you:
• Tailor your product to customer needs
• Price efficiently
• Remove underperforming areas of your product which have limited value
• Reduce costs
• Target sales and marketing staff more efficiently to help conversion of new customers and retention of old customers

Is there an alternative to conjoint analysis?

The beauty of conjoint analysis is that it is objective, and helps you avoid opinions by focusing on facts. Sales people are often keen to emphasise the need for reducing prices for example because lower prices helps them achieve targets. Conjoint analysis allows a calm-headed look at a product, its environment and pricing.

However, conjoint analysis is expensive. An alternative is to have expert panels within your company comprising sales, marketing, production plus to have the input of key account heads. This “expert” group will at least let you get a feel for what can be changed and what can be improved or dropped in the pursuit of efficient pricing.

The danger of internal experts is that they can carry internal baggage on pricing, production, delivery etc which could obstruct objective thinking and result in inappropriate pricing positions.

Can I find out more about conjoint analysis?

A simple, and very helpful, introduction to Conjoint Analysis can be found at Sawtooth Software by following this link.

Please note, we have no affiliation with Sawtooth but we point to these pages because of their practical utitlity.

There is also an excellent book called Getting Started with Conjoint Analysis although this is now getting hard to find.

Here is a very good video lecture about Conjoint Analysis from Video Lectures. This item provides a case study and how conjoint analysis was used to resolve a problem.

This article was written by Michael Smith, Director, Red Page Ltd.

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