When unveiling a new product or service, you need to know what your customers will value most about it. Products and services incorporate so many features these days that it can be challenging to ascertain what exactly draws customers to your offering. To better grasp customers’ wants and needs, many business leaders conduct a conjoint analysis.
Conjoint analysis is a statistical analysis and marketing research technique to measure what consumers value most about your products and services. For example, a TV manufacturer would want to know if customers value picture or sound quality more, or if they value low price more than picture quality. Conjoint analysis helps put a value on each feature, allowing you to tailor your products and services to what most consumers are seeking.
Let’s explore the conjoint analysis process – including how to conduct a conjoint analysis and how it benefits a business – and detail some conjoint analysis examples.
Conjoint analysis is a tool to help you make business decisions. In an article for the Pragmatic Institute, Brett Jarvis, former global director of product management for Oracle’s Advanced Customer Services, said conjoint analysis is essentially about features and trade-offs.
“Conjoint analysis is a set of market research techniques that measures the value the market places on each feature of your product and predicts the value of any combination of features,” he wrote.
With conjoint analysis, Jarvis said, businesses ask questions of their consumers that force them to make trade-offs between features to determine what goes through their heads when deciding which products to buy. It also allows companies to perform a market analysis to simulate how the market reacts to various feature trade-offs they’re considering.
According to marketing research and analytics firm Optimization Group, conjoint analysis is based on the principle that you can better measure the relative values of a product’s or service’s features when you consider them jointly instead of in isolation.
“In business, it’s important to understand how markets value different elements of your products and services,” according to Optimization Group guidance. “Identifying these elements of higher value will enable you to optimize product development and adjust your pricing structure around the customers’ willingness to pay for specific elements.”
In addition to determining which features consumers value most about a product or service, the best conjoint analysis processes help businesses predict consumer preferences on other items they currently offer or plan to release in the future.
“One of the most important strengths of conjoint analysis is the ability to develop market simulation models that can predict consumer behavior to product changes,” according to research firm QuestionPro. “With conjoint analysis, changes in markets or products can be incorporated into the simulation to predict how consumers would react to changes.”
Anytime you launch a new product, conduct a conjoint analysis to see how the market responds to it. That way, you can make any necessary changes as quickly as possible.
When conducting a conjoint analysis, you’ll determine the features you want to examine, figure out which customers to survey, and determine how to reach participants, such as by mail, over the phone, or online.
Then, place a value or ranking on each possible feature and conduct a business survey with the selected consumers, asking about the features and feature combinations they like best. The survey presents consumers with various combinations of all possibilities and asks them to rank each combination based on their preferences. Once consumers return the surveys, analyze the results to determine the optimal feature set for your needs.
Various services and software can help you set up and properly evaluate conjoint analysis data. Software solutions can help you write survey questions, set up feature combinations, and run statistical analyses on the data so you can understand the results. Popular vendors for conjoint analysis software include Sawtooth Software, Survey Analytics, Qualtrics and XLSTAT.
Conjoint analysis can benefit a company in numerous ways. Businesses need to know their customers as well as possible to support them with products and services. Through conjoint analysis, you can measure actual and perceived preferences to solidify your place in the market.
Conjoint analysis also allows you to divide your target market data into smaller chunks, segmenting customers based on survey results. This makes it easy to connect to your target customers with custom marketing campaigns that yield better results.
To better understand the use of conjoint analysis in business, it’s helpful to study some practical examples.
A simple example by Optimization Group centers on how consumers choose a restaurant for dinner. In this example, the features studied were distance to the restaurant, relative prices and the restaurant’s atmosphere. According to Optimization Group, diners make their decision by subconsciously weighing the different factors and choosing the restaurant that best meets their needs. In this example, the first restaurant is close to the diner and inexpensive but offers a subpar atmosphere. The second restaurant may be farther away and more expensive, but it has an excellent atmosphere.
“If you chose Restaurant No. 2, the atmosphere element obviously carried more weight in your eyes than the other two elements,” Optimization Group wrote.
For restaurants, this information is critical in determining how to design their spaces, what prices to charge, and where ideal locations are.
You can find several other examples online:
Crucial factors that conjoint analysis can help determine include product or service pricing, marketing direction, and research and development.
Sean Peek contributed to the writing and research in this article.