New way to measure consumers’ judgments

1. Group # 6 New way to measure consumers’ judgments By Paul E.Green and Yoram Wind

2. New way to measure consumers’ judgments Group 6: Team members Christopher Palfreyman Duy Pham Jan Sebastian Vigar OnnichaEkworamas WorasitTangmatikul

3. Agenda • Authors • What is conjoint measurement? • Potential uses of conjoint measurement • How conjoint measurement works? • Marketing strategy simulations • Prospects and limitations • Other techniques for quantifying consumers’ judgments

4. I. Authors

5. I. Authors Paul E. Green • S. S. Kresge Professor Emeritus of Marketing at Wharton School, University of Pennsylvania since 1962 to present. • Education: - Mathematics/Economics and Statistics. • Experience: - Market Analyst and Consultant - IBM, Paragon Research, GM, Marriott Hotels, MasterCard, etc. - Editorial Board of Journal of Classification (1984-present), Journal of Marketing Research (1965-present), etc.

6. I. Authors Paul E. Green • Researches: - Measurement and data analysis which apply to marketing behavior. • Awards: - Marketing Research Award and O’Dell Award from American Marketing Association - Distinguished Educator of the Year from Academy of Marketing Science

7. I. Authors Jerry (Yoram) Wind • Professor of Marketing atWharton School, University of Pennsylvania since 1967 to present. • Education: • - Marketing from Stanford University • Experience: • - Advisor about marketing, business strategy and marketing research – AT&T, Motorola, Citibank, ConvaTec, etc. • - The first editor who found Wharton School Publishing. • - A member of the editorial boards of the Journal of Marketing, the Journal of Business Research, and the major marketing journals.

8. I. Authors Jerry (Yoram) Wind • Researches: • - In the areas of consumer and industrial buyer behavior and market research. • Awards: • - Various awards in marketing such as MIT's Weaver Award in 2007. • - Was selected for inclusion in the Sage Legends of Marketing which will publish 8 books based on his various Publications in 2009.

9. II. What is conjoint measurement?

10. Which one do you choose for your business appointment ???

11. II. What is it? • One of research techniques • “A new measurement technique from the fields of mathematical psychology and psychometrics that can aid the marketing manager in sorting out the relative importance of a product’s multidimensional attributes” (Green and Wind). • Quantify how consumers trade off some of one attribute to get more of another. • Introduced by Luca & Tukey in the Journal of Mathematical Psychology in 1964.

12. III. Potential uses of conjoint measurement

13. CONJOINT MEASUREMENT PREDICTS: - Profitability , market share for new products - Impact of new competitor products on profits or market share • Potential analysis to aid Game Theory -Customers’ response to price change • Impact of situational variables on customer preference - Outcome of a new product : determine optimal design, specifications, price, promotion, and competitor reaction

14. IRISH SPRING PRODUCT DEVELOPMENT PRODUCT SPECIFICATION: - Weight - Size - Shape - Color - Fragrance - Intensity - Surface feel CUSTOMER PREFERENCE: - Moisturizing facial soap - Deep – cleaning soap for oil skin - Woman’s deodorant soap - Man’s deodorant soap ANALYZING DATA USING C.M. - Collect data - Analyze and develop psychophysical functions for each character

15. IRISH SPRING PRODUCT DEVELOPMENT (CONT.) RESULT: - Fragrance was the most important physical variable - Fragrance (medicinal) and color (Blue) best suited for man’s deodorant soap, which is also best for deep – cleaning soap. BUT: - Fragrance intensity is minor characteristic required by end-use customers. FEASIBILITY OF TRANSLATING CHANGES IN VARIOUS PHYSICAL VARIABLES INTO CHANGES IN PSYCHOLOGICAL VARIABLES

16. VERBALIZED DESCRIPTIONS OF NEW CONCEPTS WHY? - Too many possible factors - Expensive - Hard to accomplice - Ex: Automobiles, Houses, Office machines… RESULT - Report to verbalized descriptions of the principal factors of interest

17. VERBALIZED DESCRIPTIONS OF NEW CONCEPTS (cont.) ROGERS NATIONAL RESEARCH ON CAR OWNERS - Two at a time factor evaluation procedure - To see customers trade-off for Gas mileage, price, country of manufacture, maximum speed, roominess, and length. RESULT - Evaluation of attributes based on consumers experience on current car use, and type of cars desired in future. - Most important factors: Gas Mileage, and country of manufacturer. - Large cars owners are more concerned of gas economy

18. ORGANIZATIONS AS CONSUMERS ARGUMENTS: - Not limited to consumer applications - Supply alternatives by an organizational buyer is as important as consumer - Significant inputs to for industrial marketing strategy. ILLUSTRATION: - Goal: increase share of laboratory test business - Actions: Each physician given 16 profiles, each with different characteristics : reliability of test result, pick-up, convenience of location, price range of services, billing procedures… - Develop utility functions for each factors - Decision: based on the most preferred factor.

19. IV. How conjoint measurement works

20. Products Attributes • New product that is designed to handle tough, stubborn spots • 5 attributes or factors: • Package Design • Brand Name • Price • A Good Housekeeping seal of endorsement • A money-back guarantee 3 Level Factors 2 Level Factors

21. Product Attributes • Brand Name • K2R • Glory • Bissell • Price • $ 1.19 • $ 1.39 • $ 1.59 • Good Housekeeping Seal • Present • Not present • Money-back guarantee • Present • Not Present

22. Computing the utilities • Total alternatives • 3x3x3x2x2 = 108 alternatives • Cost of administering these alternatives would be prohibitive • Take advantage of a special experimental design, called an orthogonal array

23. Computing the utilities • Two problems of this approach: • Shows only 18 of 108 combinations • Only rank-order data are supplied to the algorithms • Provides an indication of each factor’s relative importance • More combinations will increase the accuracy of solutions

24. Computing the utilities • Package Design • Brand Name U (A) = 0.1 U (B) = 1.0 U (C) = 0.6 U (K2R) = 0.3 U (Glory) = 0.2 U (Bissell) = 0.5

25. Computing the utilities • Retail Price • Good Housekeeping U (1.19) = 1.0 U (1.39) = 0.7 U (1.59) = 0.1 U (No) = 0.2 U (Yes) = 0.3

26. Computing the utilities • Money-back Guarantee U (No) = 0.2 U (Yes) = 0.7 Highest evaluation of all 18 combinations  Combination 18 Total Utility = U (C) + U (Bissell) + U(1.19) + U(Yes) + U(Yes) = 0.6 + 0.5 + 1.0 + 0.3 + 0.7 = 3.1

27. Importance of attributes • Package Design • (1.0 – 0.1 = 0.9) • Brand Name • (0.5 – 0.2 = 0.3) • Price • (1.0 – 0.1 = 0.9) • Good Housekeeping Seal • (0.3 – 0.2 = 0.1) • Money-back Guarantee • (0.7 – 0.2 = 0.5)

28. Importance of attributes

29. Managerial Implications • Most desirable offering • Package design B with a money-back guarantee, a Good-Housekeeping seal, and a retail price of $1.19 • Money back guarantee can offset higher price • U (1.39) – U(1.19) = 0.3 • U (Money-back) = 0.5 • Good House-keeping Seal can add a little attractiveness to the product • Can measure the quantitative measure of the value of its own brand name compared with brand name of its competitors

30. The Air Carrier Study

31. The Air Carrier Study • Utility difference between the B-707 and the B-747 is very small • The main factors are departure time, punctuality of arrival, number of stops, attitudes of flight attendants • Replacement of older aircraft like B-707 would not result in major shift in consumer demand • Better to improve scheduling aspects of flights and the attitudes and demeanor of flight personnel

32. V. Marketing strategy simulations

33. V. How to apply Conjoint Analysis Able to “play in the design of strategic marketing simulators”(Green and Wind)

34. V. How to apply Example: Airline Services Study Scheduling Routing On-ground services Service Factors Price Decors Based on a route (city-pair) and purpose-of-trip basis

35. V. How to apply Ways to exploit this tool Marketing Strategy Simulations • To simulate the effect of assumed counteraction by company’s competitors • To see what might happen to market share • Developing new products or services • Repositioning an existing products or services • “Can be used in the ongoing monitoring of consumer imagery and evaluations over time” (Green and Wind)

36. VI. Prospect and Limitations

37. VI. Prospect Prospects • The technique is related to the flexibility in coping with consumers’ behavior in term of trade-off conditions

38. VI. Limitations Limitations • This new research technique is not commonly used at the present • Some products or services may not adequately be captured by a model of conjoint measurement • This tool alone cannot figure out the solutions

39. VII. Other techniques for quantifying consumers’ judgments

40. VII. Other techniques Factor Analysis • Became Practical with Computer • Participants Respond to Attributes • Examine Commonality & Geometric Picture

42. Perceptual Mapping • More Recent Technique • Became Practical with Computer • Respondent free to choose their Reference • Finds Similar Objects to Consumer Preference

44. Cluster Analysis • Uses Hierarchial Tree Structure • Groups Similar Words Together (Cluster) • All Words go Under one Cluster

46. Relationship with Conjoint Analysis • Tradeoff for Another Attribute • Measure Consumer Perceptions of Products • Measure Similarities of Various Objects • All Used in Same Study

47. Q & A