Conjoint Analysis
Conjoint Analysis
Before beginning an examination of the technique of conjoint analysis, we first will take a look at three examples of the kind of management problems for which conjoint analysis is extremely well suited:
1. Modifying a credit card
2. Identifying land-use attitudes
3. Revamping an industrial product line
Modifying a Credit Card
A firm wanted to improve the benefits of its credit card to retailers, to get more of them to honor the card. Changes could be made to any of the following attributes:
• Discount rate (percentage of billings deducted by credit card company for providing the service); the alternatives were 2.5 percent versus 6 percent
• Speed of payment after receipt of week's vouchers (one day versus 10 days)
• Whether card authorization was by computer terminal or toll-free billing number
• Extent of support payment for local advertising by retailer (either 1.0 percent pr 0.75 percent of billings)
• Provision of a rebate of 15 percent of charges on all billings in excess of the retailer's quota (which would be set at 25 percent more than the previous year's sales)
Because there are two levels for each of the five factors, there were 32 possible combinations of credit cards that could be offered. The best combination would be both attractive to the retailers and profitable to the company.
Identifying Residential Land-Use Attitudes
Most suburban land development follows a "spread" or "urban sprawl" pattern with large home lots and uniformly low population densities. Is this what home buyers want, or do they accept this alternative because it is the only one offered by land developers? Specifically, would buyers be willing tc sacrifice some elements of private space to gain a better view from their yard? More importantly, would they accept cluster developments—groups of small lots surrounded by large areas of open land that may be scenically valuable or ecologically vulnerable? The answer to these questions depends on the importance that potential home buyers attach to attributes such as the view from the back or front yard, versus measures of lot size such as back-yard size, distance between houses, and distance to the front sidewalk.
Revamping an Industrial Product Line
The Brazilian subsidiary of the Clark Equipment Company was considering the replacement of their largest-selling forklift truck with two new models
One new model was to have slightly less performance than the current model but sell at a 5 percent lower price. The other new model would offer an automatic transmission for the first time, plus better performance and reliability, but at a 5 percent higher price. For this move to be profitable the company would have to gain and hold an additional 3 percent of the market.
Before beginning an examination of the technique of conjoint analysis, we first will take a look at three examples of the kind of management problems for which conjoint analysis is extremely well suited:
1. Modifying a credit card
2. Identifying land-use attitudes
3. Revamping an industrial product line
Modifying a Credit Card
A firm wanted to improve the benefits of its credit card to retailers, to get more of them to honor the card. Changes could be made to any of the following attributes:
• Discount rate (percentage of billings deducted by credit card company for providing the service); the alternatives were 2.5 percent versus 6 percent
• Speed of payment after receipt of week's vouchers (one day versus 10 days)
• Whether card authorization was by computer terminal or toll-free billing number
• Extent of support payment for local advertising by retailer (either 1.0 percent pr 0.75 percent of billings)
• Provision of a rebate of 15 percent of charges on all billings in excess of the retailer's quota (which would be set at 25 percent more than the previous year's sales)
Because there are two levels for each of the five factors, there were 32 possible combinations of credit cards that could be offered. The best combination would be both attractive to the retailers and profitable to the company.
Identifying Residential Land-Use Attitudes
Most suburban land development follows a "spread" or "urban sprawl" pattern with large home lots and uniformly low population densities. Is this what home buyers want, or do they accept this alternative because it is the only one offered by land developers? Specifically, would buyers be willing tc sacrifice some elements of private space to gain a better view from their yard? More importantly, would they accept cluster developments—groups of small lots surrounded by large areas of open land that may be scenically valuable or ecologically vulnerable? The answer to these questions depends on the importance that potential home buyers attach to attributes such as the view from the back or front yard, versus measures of lot size such as back-yard size, distance between houses, and distance to the front sidewalk.
Revamping an Industrial Product Line
The Brazilian subsidiary of the Clark Equipment Company was considering the replacement of their largest-selling forklift truck with two new models
One new model was to have slightly less performance than the current model but sell at a 5 percent lower price. The other new model would offer an automatic transmission for the first time, plus better performance and reliability, but at a 5 percent higher price. For this move to be profitable the company would have to gain and hold an additional 3 percent of the market.
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