Conjoint and Segmentation
Market Intelligence
Julie Edell Britton
Session 8
September 26, 2009
Today’s Agenda
•Announcements
•Segmentation
•IBM Global Mobile Computing Case: The
Prometheus Project
Announcements
• Submit WEMBA C by 10pm on Thursday,
October 8. One solution per team. This is a
major case write-up
Agenda
•1st hour
•Market Segmentation
•Perceptual mapping
•Choosing basis for segmentation
•Segmentation analyses
•2nd hour – Kevin Clark
•Program Director, Program Director, Brand
and Values Experience
•IBM Global Mobile Computing
Segmentation case
4
Market Share of New or Changed
Products
•
Developing effective new product
introduction and product line strategies.
•
Estimating market shares for new product
introductions and improvements.
•
Estimate profitability associated with new
product introductions or improvements by
integrating price and cost information.
5
Selling Plexiglas Aquaria to Builders
John Wolf is a manufacturer of Plexiglas spas sold
to building contractors. He discovers that he has the
technology to make large Plexiglas fish tanks cheaply.
These tanks look very sharp and make it possible to
burnish attractive designs on the back wall. He wants to
manufacture Plexiglas tanks to sell into the commercial
construction market for installation into banks, restaurants,
and public places.
6
Examples of Acrylic Aquaria
7
7
Selling Plexiglas Aquaria to Builders
Plexiglas fish tanks have heretofore garnered a
small market share. Mr. Wolf assumes that this is due
to the high price ($30,000) relative to the price of similar
sized glass fish tanks ($10,000). Since he can produce
Plexiglas fish tanks cheaply enough to make a sizeable
profit based upon a price of $10,000, he thinks it can be
a good new product offering.
CALCULATING PART WORTHS AND INFERRING
THE VALUES OF UNMEASURED CELLS
STEP 1: Measure evaluations of a strategic subset of attribute combinations
Customer 1 (Data in 1st row of slide 35)
a1 =glass tank
c1 = plain
finish
b1 = $30K b2 = $10K b1 = $30K
b2 = $10K
Cell 1
Cell 4
Cell 2
Cell 3
1
c2 = design
on back
a2 = plexiglas tank
Cell 5
3
Cell 6
2
Cell 7
Cell 8
6
STEP 2: Decompose evaluation of each combo into a
grand mean plus the contribution of each attribute.
a1 = glass tank
c1 = plain finish
c2 = design on
back
u
a1
a2
b1
b2
c1
c2
a2 = plexiglass tank
b1 = $30 K
b2 = $10 K
b1 = $30 K
b2 = $10 K
u+a1+b1+c1
Cell 1
u+a1+b2+c1
Cell 2
u+a2+b2+c1
Cell 4
1
u+a2+b1+c1
Cell 3
2
u+a1+b2+c2
Cell 6
u+a2+b1+c2
Cell 7
u+a2+b2+c2
Cell 8
6
u+a1+b1+c2
Cell 5
3
= Grand Mean
= Mean of a1 cells – Grand Mean =
= Mean of a2 cells – Grand Mean =
= Mean of b1 cells – Grand Mean =
= Mean of b2 cells – Grand Mean =
= Mean of c1 cells – Grand Mean =
= Mean of c2 cells – Grand Mean =
a1 = glass tank
a2 = plexiglas tank
b1 = $30 K
b2 = $10 K
b1 = $30 K
b2 = $10 K
c1 = plain finish
u+a1+b1+c1
u+a1+b2+c1
Cell 2
C
u+a2+b1+c1
Cell 3
C
u+a2+b2+c1
Cell 4
?
c2 = design on
back
u+a1+b1+c2
u+a1+b2+c2
NOT
NOT
u+a2+b1+c2
Cell 7
?
u+a2+b2+c2
Cell 8
?
STEP 3: Apply assumptions about market
1. Representative sample of 10 customers
- Each customer represents 10% of market.
- We have calculated each customer’s partand product preferences.
worths
1. Cells with a “C” are existing Competitors.
2. Cells with a “?” are contemplated entries by Wolf.
3. Cells with “NOT” are technologically infeasible (though
customers would not know this).
4. Product ratings for cells 2, 3, 4, 7, and 8 are shown on
next page.
Scenario U: Status Quo
What is market shares for Cell 2 (Glass, $10K,
Plain) and Cell 3 (Plexi, $30K, Plain)? Existing
competitors.
Use the "U" to compute market shares.
Cell 2 (A1B2C1) =
Cell 3 (A2B1C1) =
13
Scenario U: Status Quo
What is market shares for Cell 2 (Glass, $10K,
Plain) and Cell 3 (Plexi, $30K, Plain)? Existing
competitors.
Use the "U" to compute market shares.
Cell 2 (A1B2C1) =
Cell 3 (A2B1C1) =
14
14
Cell 2
Cell 3
Cell 4
Cell 7
Cell 8
Customer A1B2C1 A2B1C1 A2B2C1 A2B1C2 A2B2C2
1
1
2
3
5
6
1
2
7
4
7
6
9
1
3
8
6
7
6
7
1
4
9
8
10
5
7
1
5
7
5
8
7
10
1
6
7
6
10
5
9
1
7
5
6
9
5
8
1
8
7
5
7
6
8
1
9
8
5
7
5
7
1
10
8
8
7
7
6
0.5
0.5
Total Votes 7.5
Share
75%
2.5
25%
15
Scenario V: Wolf Introduces Plexiglas, $10K, Plain (cell 4)
1. What are the market shares for Cell 2, Cell 3, Cell 4 (Wolf)?
Use the "V" to compute market shares.
Cell 2 (A1B2C1) =
Cell 3 (A2B1C1) =
Cell 4 (A2B2C1) =
2. Suppose it cost Wolf $7500 to produce the Cell 4 product. Also
suppose the market size is 1000 units. What is Wolf's expected profit?
3. How would you expect competition to respond?
4. How might Wolf respond to their response?
16
Cell 2
Cell 3
Cell 4
Cell 7
Cell 8
Customer A1B2C1 A2B1C1 A2B2C1 A2B1C2 A2B2C2
1
1
2
3
5
6
1
2
7
4
7
6
9
0.5
0.5
3
8
6
7
6
7
1
4
9
8
10
5
7
1
5
7
5
8
7
10
1
6
7
6
10
5
9
1
7
5
6
9
5
8
1
8
7
5
7
6
8
0.5
0.5
9
8
5
7
5
7
1
10
8
8
7
7
6
0.5
0.5
Total Votes 3.5
Share
35%
0.5
5%
6
60%
17
Scenario V: Wolf Introduces Plexi, $10K,
Plain
Cell ID #
2
3
Marginal Cost
4
7
8
$7,500
$8,000
$8,000
Wolf
Wolf
Wolf
Glass
Plexi
Plexi
Plexi
Plexi
$10,000 $30,000 $10,000 $30,000 $10,000
Scenario
Plain
Plain
Plain
Design Design
CompetitorCompetitor
U
V
U-V
75%
35%
40%
25%
5%
20%
60%
Wolf
Profit
$1,500,000
Scenario W: Introduce Plexiglass, $10K, Design
1. What are the market shares for Cell 2, Cell 3, Cell 8 (Wolf)?
Use the "W" to compute market shares.
Cell 2 (A1B2C1) =
Cell 3 (A2B1C1) =
Cell 8 A2B2C2) =
2. Suppose it cost Wolf $8000 to produce the Cell 8 product and that
the market size is 1000 units. What is Wolf's expected profit?
3. How would you expect Wolf's competitors to respond? Is this a
better strategy than Option V? Is there a more profitable Option?
What should Wolf be charging for their etched tank?
19
Cell 2 Cell 3 Cell 4 Cell 7 Cell 8
Customer A1B2C1 A2B1C1 A2B2C1 A2B1C2 A2B2C2
1
1
2
3
5
6
1
2
7
4
7
6
9
1
3
8
6
7
6
7
1
4
9
8
10
5
7
1
5
7
5
8
7
10
1
6
7
6
10
5
9
1
7
5
6
9
5
8
1
8
7
5
7
6
8
1
9
8
5
7
5
7
1
10
8
8
7
7
6
0.5
0.5
Total Votes 3.5
Share
35%
0.5
5%
6
60%
Scenario W: Wolf Introduces Plexi,
$10K, Design
Cell ID #
2
3
Marginal Cost
4
7
8
$7,500
$8,000
$8,000
Wolf
Wolf
Wolf
Glass
Plexi
Plexi
Plexi
Plexi
$10,000 $30,000 $10,000 $30,000 $10,000
Scenario
Plain
Plain
Plain
Design Design
CompetitorCompetitor
U
W
U-W
75%
35%
40%
25%
5%
20%
60%
Wolf
Profit
$1,200,000
Scenario X: Introduce Plexiglas, $30K, Design
1. What are the market shares for Cell 2, Cell 3, Cell 7 (Wolf)?
Use the "X" to compute market shares.
Cell 2 (A1B2C1)=
Cell 3 (A2B1C1) =
Cell 7 (A2B2C2) =
2. Suppose it cost Wolf $8000 to produce the Cell 7. Also suppose the
market size is 1000 units. What is Wolf's expected profit?
3. Is this strategy better than Scenario V and W?
4. Can you draw a demand curve for etched plexiglass tanks?
5. Is this the best scenario?
22
Cell 2
Cell 3
Cell 4
Cell 7
Cell 8
Customer A1B2C1 A2B1C1 A2B2C1 A2B1C2 A2B2C2
1
1
2
3
5
6
1
2
7
4
7
6
9
1
3
8
6
7
6
7
1
4
9
8
10
5
7
1
5
7
5
8
7
10
0.5
0.5
6
7
6
10
5
9
1
7
5
6
9
5
8
1
8
7
5
7
6
8
1
9
8
5
7
5
7
1
10
8
8
7
7
6
0.5
0.5
Total Votes 7
Share
70%
1.5
15%
1.5
15%
Scenario X: Wolf Introduces Plexi,
$30K Design
Cell ID #
2
3
Marginal Cost
4
7
8
$7,500
$8,000
$8,000
Wolf
Wolf
Wolf
Glass
Plexi
Plexi
Plexi
Plexi
$10,000 $30,000 $10,000 $30,000 $10,000
Scenario
Plain
Plain
Plain
Design Design
CompetitorCompetitor
U
X
U-X
75%
70%
5%
25%
15%
10%
15%
Wolf
Profit
$3,300,000
Demand for Design Tank
$40,000
$30,000
$20,000
$10,000
$0
0
200
400
600
Quantity
800
Conjoint Summary
•Experimental, so test threats to forecast validity
•Conjoint is useful for
•new & existing products
•pricing
•profit maximization when costs are incorporated
•Product line decisions
•Competition and cannibalization
•For really new products, requires modification because
people don’t have set tradeoffs
Perceptual Mapping
•Physical map of customer perceptions
•Measuring similarity between two brands:
•Ratings of similarity
•Observed brand switching (switch to similar)
•Correlation between brands in how they are rated on
perceptual attributes (high correlation = similar)
•Distance between two brands = f(dissimilarity)
•Reposition by reformulating product or advertising
•Expense = f(distance to be moved)
•Sustainability = f(who can do it cheaper?)
27
Rate whether you agree or disagree that this brand is described by this attribute
1 = Strongly Disagree
2 = Disagree
3 = Slightly Disagree
4 = Slightly Agree
5 = Agree
6 = Strongly Agree
Ma
l ty
Fu
ll
Bo
die
d
Po
p
Ru with
gg
Me ed
n
Th
irs
Qu t
e
g nchn
Fin
es
t
Brand
B
C
Hamms
Schlitz
A
D
Miller
Hamms
Schlitz
Bud
Din
in
Ou g
t
Person
Ex
pe
ns
iv
e
Chicago Beer Market
28
Perceptual Mapping: Factor Analysis
•Give consumers a list of brands (A, B, C, D, Miller,
Hamms, Schlitz, Bud)
•“With which are you familiar?”
•Rate each on n attributes (mild flavor, malty, etc)
•Factor analyze matrix of attribute ratings (use a separate
row for each brand for each respondent)
•Output shows
•a) number dimensions
•b) attributes most related to dimensions
•c) brand locations
29
30
Adding Customer Ideal Points
• Add in preference data to get each
consumer’s “ideal point.” Suppose ranking:
Hamms, Schlitz, Bud, Miller, C, B, D, A.
• Ideal closest to 1st ranked, 2nd closest to
2nd ranked, etc.
• Cluster ideal points in segments.
• Use to forecast shares.
31
32
Perceptual Map Summary
•Uses for Perceptual Maps:
•Identify your closest competitors
•Suggest repositioning strategies
•Suggest advertising themes supporting repositioning
•Identify brands that should be harvested
•Identify new product opportunities where some
segment not well served by current brands
33
Agenda
•1st hour
•Conjoint for product line extensions
•Market Segmentation
•Perceptual mapping (cont.)
•Choosing basis for segmentation
•Segmentation analyses
•2nd hour – Kevin Clark
•Program Director, Program Director, Brand
and Values Experience
•IBM Global Mobile Computing
Segmentation case
34
Criteria for “Useful” Segments
•
•
•
Homogeneity within segment, heterogeneity
between.
Systematic behaviors (Correlate segment
membership w/ purchase, redemption, etc)
Marketing mix efficiency potential
•
•
Cost-driven (e.g., media to reach) or different
elasticity with respect to some marketing mix
variable.
Make more money treating as segments than if we
treated market as unsegmented whole
35
Strategic v. Tactical
•Strategic segmentation -- what product
markets to serve? ESPN The Magazine, IBM
which segments to deselect / select?
•Tactical Segmentation -- should groups be
treated same or differently wrt specific
marketing decision variable?
•Dog Food: Size of Dog as Segmentation
•Hi Price, Meat & Cereal v. Lo Price, All Cereal
•Ad Theme: Love of Master v. Dog’s Active Life
36
Analysis for Segmentation
Interaction and tactical market
segmentation
A prior vs. clustering analytic approaches
in segmentation
37
Hi Price, Meat Lo Price, All
Owners of
& Cereal
Cereal
Small Dogs
9
4
Large Dogs
4
8
Column Average
6.5
6
Row
Average
6.5
6
Love Between Dog's Active
Owners of
Master & Dog
Life
Small Dogs
9
6
Large Dogs
7
4
Column Average
8
5
Row
Average
7.5
5.5
38
Implications of Contrast
•A variable that is an excellent basis for
segmentation wrt 1 decision about a
marketing mix element may be a poor basis
for segmentation wrt another mix element
•For any given mix element decision, when
evaluating alternative bases for segmentation,
look for ones with big differences in sensitivity
to mix variable.
39
Owners of
Small Dogs
Large Dogs
Column Average
Hi Price, Meat Lo Price, All
& Cereal
Cereal
9
4
4
8
6.5
6
Hi Price, Meat Lo Price, All
& Cereal
Cereal
Owner's Income
Hi
8
6
Lo
5
6
Column Average
6.5
6
Hi Price
Av - Lo
Price Av
5
-4
9
Difference of
Differences
Hi Price
Av - Lo
Price Av
2
-1
3
Difference of
Differences
40
Analysis: A Priori vs.
Clustering Approaches
•A priori -- Segments chosen by the analyst
before collecting data
•Gender (M,F), Age (20-39; 40-59;60+), Heavy v.
medium v. light user
•Clustering-based approaches (a posteriori)
•Ask battery of questions (lifestyle, benefits sought, etc).
•Find natural clusters/ segments. Approach taken in IBM
case.
•Don’t know going in how many segments
•Describe segments by their mean answers to battery of
usage situation questions
41
Summing Up
•Choosing a basis for segmentation
•3 Criteria for useful segments
•Strategic vs. Tactical Segmentation
•Analysis for segmentation
•Interaction and Tactical Segmentation…A
segmentation base that is useful for one tactical
decision may be useless for another
•A priori vs. clustering (a posteriori) approaches
to segmentation
42