Conjoint analysis is one of the most popular tools used for market research purposes. It is an advanced exploratory technique used to determine how people make decisions and on what factors do they place real value in various products and services. It has been widely employed for product/services analysis purposes since 1970s. Alternatively, this technique is also used for discrete choice estimation.
The technique involves analysis of choices people make, and determination of reasons behind those choices. The tools does not only measure utility of decision made by consumers, but also helps managers answers questions such as, “What features should we add to our products, “What impact would changes have on sales and revenues”, “How will the intended changes give us an edge over competitors” and “What would be the impact of prices changes on sales”.
Consequently, the answers to these questions can be used to construct market models, enabling forecasting in different areas of business. The forecasting model could be invaluable help to organization as they would help them to plan ahead and allocate resources accordingly. The conjoint methodology decompositional approach helps evaluates consumer preference. Consumers are asked to give an overall rating or score to a particular product profile, which is created by putting in varying attributes for products and services under scrutiny.
When customers are about to make a purchase, they are faced with trade-offs in form of competing products and services. The product exhibited by the competitors may have varying attributes, which will lead the customer to make a choice based on those attributes. For example, will the consumers prefer high quality or low price, Product aesthetics or functionality? In order for businesses to better understand exactly how customers value various attributes of product and services, conjoint analysis is a helpful tool, since it provides insights into the market, which comprises of individual consumers. This technique helps businesses find the optimal balance between various attributes, the point where consumers’ value for products and services is the greatest. Conjoint analysis helps business decision makers determine and quantify the thought process consumers employ when they are faced with trade-offs between various products and services available in the market. This is done through quantification of different aspects or features of products or services. After the analysis is done, and consumer preferences are worked out, the business is well-equipped to determine the optimum point where consumer preference and cost to the company is balanced. At this point business will be able to generate maximum profit, which is the primary aim of any business.
Conjoint analysis is different from conventional marketing surveys since it does ask what products and services consumers prefer, but ask respondents to pinpoint features/attributes of particular products or services. In most cases, the respondents are asked to rank the attributes in reference to importance they attract to them. Hence, this approach offers a more realistic and insightful view of customers’ needs.
In summation, Conjoint analysis is market surveying technique in which respondents are required to make choice based on trade-offs between various attributes/features of product of services. This is usually done by assigning rating on a scale with upper and lower limits names as ‘Most Preferred’ and ‘Least Preferred.’