Conjoint Price Experiments
MGMT 63800 - Pricing Strategy & Analysis
Federico Rossi
Purdue University
Daniels School of Business
Spring 2024
© Copyright Federico Rossi, 2024
Overview
• What is conjoint analysis
• Designing a conjoint study for the purposes of
pricing decisions-making
– It’s an experimental method for measuring EVC
– Broadly applicable (consumer goods, services,
B2B…)
• Applying conjoint output to pricing decisions
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Conjoint Analysis
• Multivariate technique used to understand a
consumer’s preferences.
• It helps evaluate how customers make tradeoffs
between various product attributes
• It is based on the premise that consumers evaluate a
product/service/idea (real or hypothetical) as a
bundle of attributes so that the value/utility
associated with it (“total worth”) is obtained by
combining the separate amounts of utility provided
by each attribute (“part-worths”)
Commercial Applications
• Technique is widely used by consumer and industrial
product companies, service companies, market
research, advertising and consulting firms.
• Types of applications include:
– Consumer durables: automobiles, refrigerators, car stereos,
condominiums, food processors, HDTV
– Consumer non-durables: bar soaps, hair shampoos,
disposable diapers.
– Industrial products: copying machines, forklift trucks,
computer software, aircraft.
– Services: car rentals, credit cards, hotels, performing art
series, rural health care systems, local transportation
– Other: MBA job choice, Online Dating, Job Search
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Conjoint Analysis (continued)
• Think of Conjoint as a means of calculating the
differentiation value in EVC (i.e. worth in $)
• The “raw output” of conjoint analysis is:
– The value (utility) provided to the customer by each
attribute level.
Conjoint Analysis: Basic Concepts
Total Worth for Product i = Part-worth of level i for factor 1 +
Part-worth of level j for factor 2 + …
Part-worth of level k for factor m
where product has m attributes, each having two or more levels.
EXAMPLE of attributes and levels for LAPTOPS:
Factor
Levels
1 Brand Name
Dell, Toshiba, Lenovo
2 Hard Drive
500Gb, 1Tb, 2Tb (e.g. 3 levels)
3 RAM
2Gb, 4Gb, 8Gb
4 Touch-Screen
Yes, No
5 Price
$800, $1200, $1600
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Conjoint Analysis: Raw Output
Brand
Hard Drive
RAM
Touch Screen
Price
Attribute
Coefficient
Intercept
Dell
Lenovo
Toshiba
HD-500 Gb
HD-1 Tb
HD-2 Tb
R-2Gb
R-4Gb
R-8Gb
TouchS Yes
TouchS No
$800
$1200
$1600
1.5
0.3
0.8
0
-0.9
-0.3
0
-0.8
-0.2
0
0.7
0
2.4
1.5
0
Managerial Use of Conjoint
After determining the contribution of each attribute to
the consumer’s overall evaluation, the marketing
researcher could apply the knowledge in the following
areas:
1. Product design
2. Forecast New Product Market Share
3. Segmentation and Targeting
4. Pricing
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Decomposition method
• Conjoint analysis is a decomposition method:
decompose a choice task over products into
values for single attributes
– Respondents perform a realistic task – that of
providing overall evaluations of products.
– These evaluations are used to infer the utilities of
individual attributes
– Respondents must simultaneously consider both
the “good” and the “bad” characteristics of the
product in making a judgment. That is, they must
make trade-offs.
Basic Steps in Conjoint
Product
–
–
Which attributes to test
How many levels for each attribute
Survey Design
–
–
–
–
Task: Rating, Choice, Rank, Pairwise Comparison, etc.
Which product configurations to show
Not a “one meeting” process. May require at least a month to
develop good design!
Professional consultants: e.g. Sawtooth Technologies Consulting Group
Collect and Analyze Responses
–
–
–
Collect trade-offs
Find values for each attribute level so that responses are “rationalized”
Make choice predictions
In practice, this is a very sophisticated area of marketing research.
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Example: Golf Balls
•
We need to determine what features the customer
values most, and then include these in the offer
•
•
•
Distance
Durability
Price
Example: Golf Balls
Attributes and Levels
Average Driving
Distance
275 yards
250 yards
225 yards
Average Ball Life
Price
54 holes
36 holes
18 holes
$1.25
$1.50
$1.75
Survey Design
•
Ask ranking of multiple combinations of levels for
the three attributes
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Example: Golf Balls
Analysis
•
The model finds the utility that captures each individual’s
trade-off
Average Driving
Distance
275 yards
100
250 yards
60
225 yards
0
•
Average Ball Life
54 holes
36 holes
18 holes
50
25
0
Price
$1.25
$1.50
$1.75
20
5
0
Now we can predict the total utility derived from any
potential product!
Product 1: Distance 275 + Life 18 + Price $1.50 = 100 + 0 + 5 = 105
Product 2: Distance 250 + Life 54 + Price $1.75 = 60 + 50 + 0 = 110
The Utility Model
• Utility from alternative j:
U
j
  D aj 1  1a  D
a
j2
Utility from
level 2 of
attribute “b”
Dummy for
level 2 of
attribute “b”
 2a  ...    D bj 1  1b  D bj 2  2b  ...   ...
Part-worth for attribute “a”
Part-worth for attribute “b”
• If j is preferred to i, then it must be Uj > Ui
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Conjoint Analysis Wrap-up
• It is a valuable method for computing the benefit of
an offer
• Similarly to EVA, measures the benefit of each
feature of the offer
• Key logic: observe consumers trading-off features to
learn their importance
• While you may never design a survey or run a
conjoint study, you need to understand its logic
Additional Resources on Conjoint Analysis
• Green, Keieger, Wind (2001), “Thirty Years of Conjoint
Analysis,” Interfaces
• Page and Rosenbaum (1987), “Redesigning Product Lines
With Conjoint Analysis,” J Product Innovation Mgmt
• Krieger, Green, Lodish, D’Arcangelo, Rothey, Thirty (2003),
“Consumer Evalutions of ‘Really New’ Services: The
TrafficPulse System,” Journal of Services Marketing
• A library of readable and technical papers at:
www.sawtoothsoftware.com
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