Transcript conjoint_analysis_exed98

New Product Design
 Role of design in
new product
development
 Conjoint Analysis
for product design
 Designing a hotel
exercise
 Xerox conjoint
study
Marketing Tools for Marketing Managers (May 1998). Penn State University 1
Arthur D. Little Worldwide Survey
Where companies want to put their efforts in new
product development:

Getting our new products to the market on time, as planned (76% of
companies interviewed).

Improving the appeal of our new products to customers (73%).

Developing our new products faster from concept to introduction
(68%).

Developing products that are easier to manufacture, sell, install, and
service (61%).

Reducing costs/investments related to new product development and
introduction (47%).

Reducing the payback period of our new products (47%).

Increasing the number of new products (44%)
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Breakdown of Success Factors:
Process versus Environment
Importance to
Success (rank
order)
1
2
3
4
5
6
7
8
9
10
Factors that portray
NPD process
Factors that describe
Project Setting
1. Product superiority as perceived by
customers
2. Early and sharp product definition
3. Quality of technological activities
1. Product Superiority as
perceived by customers
4. Technological Synergy
5. Quality of predevelopment activities
6. Marketing Synergy
7. Quality of marketing activities
8. Market attractiveness
9. Top management support
10. Competitive position
Source: Robert G. Cooper, Winning at New Products (1993)
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Success rate (%)
Impact of Product Superiority on
Product Success
Mkt Share
53.5%
100
Mkt Share
32.4%
50
0
Mkt Share
11.6%
98
58
18.4
Minimal
Moderate
Maximal
Product Superiority
Success measured using four factors: (1) whether it met or exceeded management’s
criteria for success, (2) the profitability level (1-10 scale), (3) market share at the end
of three years, and (4) whether it met company sales and profit objectives (1-10 scale).
Source: Robert G. Cooper, Winning at New Products (1993)
New Product Management (Spring 1998), Penn State University 4
Success rate (%)
Impact of Early Product Definition on
Product Success
Mkt Share
37.3%
100
50
Mkt Share
36.5
Mkt Share
22.9
85.4
64.2
26.2
0
Poor
Moderate
Strong
Product Definition
Source: Robert G. Cooper, Winning at New Products (1993)
New Product Management (Spring 1998), Penn State University 5
Success rate (%)
Impact of Market Attractiveness on
Product Success
100
Mkt Share
31.7
50
Mkt Share
36.5%
Mkt Share
33.7
73.9
61.5
42.5
0
Low
Moderate
High
Market Attractiveness
Source: Robert G. Cooper, Winning at New Products (1993)
New Product Management (Spring 1998), Penn State University 6
Resources Allocated at Each Stage of NPD
600
553.2
500
Mean Expenditure
($000K)
400
Mean Person-Days
435.9
315.3
300
203.8
200
100
148.4
57
0
Predevelopment
Activities
Product development Commercialization
& product testing
Source: Robert G. Cooper (1993)
New Product Management (Spring 1998), Penn State University 7
Value of Good Design
80% of a product’s manufacturing
costs are incurred during the first
20% of its design (Varies with
product category).
Marketing Tools for Marketing Managers (May 1998). Penn State University 8
What is Conjoint Analysis?
A way to understand and incorporate the structure of
customer preferences into the new product design process.
In particular, it enables one to evaluate how customers
make tradeoffs between various product
attributes.
The basic output of conjoint analysis are:
• A numerical assessment of the relative importance
that customers attach to attributes of a product
category
• The value (utility) provided to customers by each
potential feature of a product
Marketing Tools for Marketing Managers (May 1998). Penn State University 9
Why is Conjoint Analysis Useful?
 Designing new products that enhance customer
value
 Forecasting sales/market share of alternative
product concepts
 Identifying market segments for which a given
concept has high value
 Identifying the “best” concept for a target
segment
Marketing Tools for Marketing Managers (May 1998). Penn State University 10
Measuring Importance of Attributes
When ordering a computer, how important is…
Circle one
Not
Important
Very
Important
Price
1 2 3 4 5 6 7 8 9
Performance
1 2 3 4 5 6 7 8 9
Reliability
1 2 3 4 5 6 7 8 9
Delivery time
1 2 3 4 5 6 7 8 9
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How Do We Resolve These
“Design” Questions?
Should we offer our business travelers more room space or a
fax machine in their room?
Should we offer more leisure-time activities (sauna, exercise
room, tennis courts) or more food related services (several
dining options, vending machines, in-room kitchen facilities)?
Given a target cost for a product, should we enhance product
reliability or its performance?
Should we use a steel or aluminum casing to increase
customer preference for the new equipment?
Marketing Tools for Marketing Managers (May 1998). Penn State University 12
An Example Conjoint Study:
Air Pollution Control Equipment
Attributes
• Performance specs (4 options)
• Delivery time (4 options)
• Price (4 options)
• Delivery_terms (4 options)
Perf. specs
Delivery time
Price
Exceed by 20%
Exceed by 5%
Meet specs
Short by 5%
6 months
9 months
12 months
15 months
$600k
$700k
$800k
$900k
Delivery terms
Installed, 2-year guarantee
Installed, 1-year guarantee
Installed, service contract
FOB seller, service contract
A total of 256 (4x4x4x4) different offerings can be designed from these
options!
Marketing Tools for Marketing Managers (May 1998). Penn State University 13
Data for Conjoint Analysis:
Paired Comparisons
Performance specs
Delivery time
Price
Delivery terms
Deluxe
model
Mid-level
model
Exceed by 20%
12 months
700k
Installed, 1 year
Exceed by 5%
6 months
700k
Installed, service contract
Which do you prefer?
Which one would you buy?
Marketing Tools for Marketing Managers (May 1998). Penn State University 14
Data for Conjoint Analysis:
Full-Profile Ratings or Rankings
Product
bundle
number
Perf_spec
Del_time
Price
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Exceed_20%
Exceed_20%
Exceed_20%
Exceed_20%
Exceed_5%
Exceed_5%
Exceed_5%
Exceed_5%
Meet_specs
Meet_specs
Meet_specs
Meet_specs
Short_5%
Short_5%
Short_5%
Short_5%
6_months
9_months
12_months
15_months
6_months
9_months
12_months
15_months
6_months
9_months
12_months
15_months
6_months
9_months
12_months
15_months
$600k
$700k
$800k
$900k
$700k
$600k
$900k
$800k
$700k
$900k
$600k
$700k
$900k
$800k
$700k
$600k
Del_terms
Inst_2yr
Inst_ser
FOB_ser
Inst_1yr
Inst_1yr
FOB_ser
Inst_ser
Inst_2yr
Inst_ser
Inst_2yr
Inst_1yr
FOB_ser
FOB_ser
Inst_1yr
Inst_2yr
Inst_ser
Example
Preference
score
100
80
40
20
70
75
65
70
50
20
40
30
5
10
10
0
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Example Part Worth for Attributes
Marketing Tools for Marketing Managers (May 1998). Penn State University 16
Example Part Worths for
Attribute Options
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Conjoint Utility Computations
k
a
U(P) = S S aijxij
j=1
P:
i=1
A particular product/concept of interest
U(P): The utility associated with product P
aij:
Utility associated with th jth level (j = 1, 2,
3...kj) on the ith attribute
kj:
Number of levels of attribute i
m:
Number of attributes
xij:
1 if the jth level of the ith attribute is present
in product P 0 otherwise
Marketing Tools for Marketing Managers (May 1998). Penn State University 18
Market Share Forecasts
 The relevant market consists of products P1, P2,...PN. Some of
theses may be existing products and, others concepts being
evaluated.
 (Assume) Each consumer will prefer to buy the product with
the highest utility among those available
Then forecasted market share for products Pi is
given by:
K
Consumers who prefer i the most
MS ( Pi )  
K
k 1
Where K is the number of consumers who
participated in the study
Marketing Tools for Marketing Managers (May 1998). Penn State University 19
Market Share Computation
(Air Pollution Control Equipment)
 Market consists of three products and three customers
Product
Waste
watch
Performance specs Exceed 5%
Delivery time
9 months
Price
$800k
Delivery terms
FOB_ser
Thermatrix
Wahlco
Exceed 20%
9 months
$900k
Inst_1Yr
Meet Specs
6 months
$600k
Inst_ser
Marketing Tools for Marketing Managers (May 1998). Penn State University 20
Market Share Computation:
(Air Pollution Control Equipment)
Customer’s Utility
Base
Meet specs
Exceed 5%
Exceed 20%
12 months
9 months
6 months
$800k
$700K
$600K
Inst_ser
Inst_1Yr
Inst_2Yr
Sunoco
0
5
35
40
20
30
40
5
8
10
6
8
10
Mattel
0
10
0
0
5
20
10
20
35
50
5
10
20
ICI
0
10
40
50
3
8
10
2
5
10
10
20
30
Marketing Tools for Marketing Managers (May 1998). Penn State University 21
Market Share Computation:
(Air Pollution Control Equipment)
Computed Utility for Products
Waste
Watch
Thermatrix
Wahlco
Sunoco
70
78
61
Mattel
40
30
75
ICI
50
78
40

Maximum Utility Rule: If we assume customers will only buy the product
with the highest utility, the market share for Thermatrix is 2/3 and 1/3 for
Wahlco.

Share of preference rule: If we assume that each customer will buy each
product in proportion to its utility relative to the other products, then
market shares for the three products are:
Waste Watch: 30.3%
Thermatrix: 34.8
Wahlco: 34.9
Marketing Tools for Marketing Managers (May 1998). Penn State University 22
Situations Where Conjoint Analysis
Might Be Valuable

The new concept involves important tradeoffs affecting design,
production, marketing, or other operational variables.

Product/service is realistically decomposable into a set of basic
attributes.

Product/service choice tends to be high involvement.

Factorial combinations of basic attribute levels are believable.

Desirable new-product alternatives can be synthesized from
basic alternatives.

Product/service alternatives can be realistically described,
either verbally or pictorially. (Otherwise, actual product
formulations should be considered).

Perceptions of hypothetical combinations are reasonably
homogeneous across members of the target group.
Marketing Tools for Marketing Managers (May 1998). Penn State University 23
Conjoint Study at Xerox
Color Printer/Finisher Module Study
Purpose of Study
To determine the equipment capabilities
most needed in a digital production
printing/copying environment.
Marketing Tools for Marketing Managers (May 1998). Penn State University 24
Conjoint Study

Determine the “tradeoffs” individuals in production
management and supervisory positions were willing to make
with respect to Black & White digital production printing and
copying equipment.

Collected data via a PC-based interview.

Obtained additional information relating to respondents’
current environment through self-administered paper and
pencil survey.

Respondents were pre-recruited by telephone. Those
meeting the necessary qualifications and who agreed to
participate, were invited to a central location where the
interview was administered. Each respondent was paid $75
to participate.
Marketing Tools for Marketing Managers (May 1998). Penn State University 25
Sample Size/Composition
A total of 159 interviews were conducted among respondents
as follows:
Commercial Printer
48
CRD/In-Plant
47
Quick Printer
45
Service Bureau
9
Form Printer
5
Book Printer
4
Other
1
TOTAL
159
Marketing Tools for Marketing Managers (May 1998). Penn State University 26
Sample Size/Composition (Contd..)
All
Respondents were required to meet the following
qualifications:

Production/General Manager in charge of printing or copying

Extremely/Very familiar with work process in shop

Have primary/shared responsibility in purchase decision
process for new production printing or copying equipment

Print 800,000 or more impressions or pages in average month

Willing to participate in study
Marketing Tools for Marketing Managers (May 1998). Penn State University 27
Attributes and Options
PRINT QUALITY
1. Indigo (Sample K)
2. Xeikon (Sample L)
3. GTO-DI (Sample M)
4. Breakthrough (Sample N)
5. Tetra (Sample O)
EQUIPMENT PURCHASE PRICE
1. $200,000
2. $250,000
3. $300,000
4. $400,000
5. $500,000
SERVICE and SUPPLIES COST per
PAGE
1. $25 for 1,000 full color pages
2. $35 for 1,000 full color pages
3. $50 for 1,000 full color pages
4. $75 for 1,000 full color pages
5. $125 for 1,000 full color pages
SERVICE CONTRACT
1. Flat fee with unlimited print volume
2. Lower flat fee plus a fixed cost/page
3. Flat fee plus a graduated cost/page
4. None-Service billed on time &
materials basis
Marketing Tools for Marketing Managers (May 1998). Penn State University 28
Attributes and Options
OPERATOR vs. SERVICE
TECHNICIAN
1. 80% of service hrs by trained
operator/20% by service tech.
2. 50% of service by trained
operator/50% by service tech.
3. 0% of service hrs by trained
operator/100% by service tech.
SYSTEM CONFIGURATION
1. Printing device incorporates
on-line screening
2. Printing device incorporates
on-line finishing
3. Printing device incorporates
on-line scanning AND finishing
PRINT SPEED
1. 35 PPM Simplex (BW&C)/70 PPM
Duplex (BW&C)
2. 70 PPM Simplex and Duplex (BW&C)
3. 100 PPM Simplex (BW&C)/200 PPM
Duplex (BW&C)
4. 70 PPM Simplex (BW&C)/140 PPM
Duplex (BW&C)
5. 100 PPM Simplex and Duplex (BW&C)
SERVICE ACTIONS
1. 5 service actions/1,000,000 prints
2. 10 service actions/1,000,000 prints
3. 15 service actions/1,000,000 prints
4. 20 service actions/1,000,000 prints
Marketing Tools for Marketing Managers (May 1998). Penn State University 29
Attributes and Options
MAINTENANCE
1. 80% of service hours are
scheduled/20%unscheduled
2. 50% of service hours are
scheduled/50% unscheduled
3. 20% of service hours are
scheduled/80% unscheduled
OPERATOR TRAINING
1. Operator is fully skilled after one
month of full-time training
2. Operator is fully skilled after two
weeks of full-time training
3. Operator is fully skilled after one
week of full-time training
Marketing Tools for Marketing Managers (May 1998). Penn State University 30
Simulation Inputs - Competing Products
Attribute
Preferred Level
JADIS
XEIKON
Print Quality
BREAKTHROUGH
BREAKTHROUGH
XEIKON
Service and
Supplies/Cost per Page
Equipment Purchase
Price
$25 for 1,000 full color
pages
$35 for 1,000 full color
pages
$50 for 1,000 full color
pages
$200,000
Varies
$400,000
Lower flat fee plus a
fixed cost/page
50% trained operator/
50% service tech.
Flat fee with unlimited
print volume
80% trained operator/
20% service tech.
Flat fee with unlimited
print volume
Operator versus Service 80% trained operator/
Technician
20% service tech.
100 PPM Simplex
(B&W or Color); 200
Print Speed
PPM Duplex (B&W or
Color)
On-line scanning AND
System Configuration
finishing
Service Actions
5/1,000,000 prints
Service Contract
Maintenance
Operator Training
80% scheduled/20%
unscheduled
One week
70 PPM Simplex (B&W
70 PPM Simplex and
or Color); 140 PPM
Duplex (B&W or Color)
Duplex (B&W or Color)
On-line finishing
On-line finishing
15/1,000,000 prints
20/1,000,000 prints
50% scheduled/50%
unscheduled
One week
50% scheduled / 50%
unscheduled
Two weeks
Marketing Tools for Marketing Managers (May 1998). Penn State University 31
Some Resources for Tracking
Developments in Conjoint Analysis

http://www.nevada.edu/~huc/html/conj.html

http://www.sawtooth.com
Marketing Tools for Marketing Managers (May 1998). Penn State University 32
A Conjoint Application at Xerox

Early 1980’s: Running out of good sites for typical full-service
Marriott hotels.

Idea: new chain for dissatisfied travelers



Business travelers? (6+ trips/midweek)

Pleasure travelers? (2+ trips/stay in hotels/motels)
Hotel chain should:

Offer good value for the money

Have minimal cannibalization of Marriott’s other facilities

Offer market position with competitive advantages
Conjoint Analysis with 50 attributes (2-8 options/attribute)
Marketing Tools for Marketing Managers (May 1998). Penn State University 33
Some Hotel Design Features
 External factors




 Rooms



 Food-related
services




 Lounge facilities



building shape
landscape design
pool type and location
hotel size
room size &decor
type of heating & cooling
location/type of bathroom
type/location of restaurant
room service
vending services/stores
in-room kitchen
location
atmosphere
type of people (clientele)
Marketing Tools for Marketing Managers (May 1998). Penn State University 34
Some Hotel Design Features (Continued)
 Services








 Leisure facilities


sauna
exercise room
racquetball courts
tennis courts
game room
children’s playroom & yard

security guards

smoke detectors
24 hours video




 Security factors
reservations
registration/checkoutl
limo to airport
bellman
message center
secretarial service
car rental
maintenance

Marketing Tools for Marketing Managers (May 1998). Penn State University 35
Courtyard Marriott:
Implementation
 From 3 test hotels in 1983, by late 1988, 175 “Courtyard by
Marriott” hotels were opened.
 Fastest growing moderately priced hotel chain in U.S.
 Market share + 4% of that projected by conjoint simulation.
 Occupancy rate above industry average.
 Grew to 300 hotels by 1994, sales over $1 billion, 14,000 new jobs
 Created new market segment (5 new clone chains have been
developed).
Marketing Tools for Marketing Managers (May 1998). Penn State University 36
What do to After Conjoint Analyis?
(“The House of Quality” Concept)
Listening Enhancer
Customer
Benefits
Technical Aspects
1,000-4,000
Hz operation
Cheap (<$25)
L
Amplifies human
voice only
J
Standard
Batteries
J
L
Piezo-Electric
Speaker
J
J
L
Hands-free
operation
Multiple functions
Press-mold
Manufacture
L
L
Light weight
L
J
J
Durable
L
J
J
J Contributes to benefit
L Distracts from benefit
SAMPLE SIZE / COMPOSITION

Additional qualifications per segment were as follows:



COMMERCIAL PRINTER

Majority of prints produced consist of 4 or more colors

Produce at least some prints in black and white
QUICK PRINTER/CRD

Have 2 or more color copiers or use offset equipment to print in two or more colors

Produce at least some prints in black and white
BOOK PRINTER


FORM PRINTER


Produce at least some output in 2 or more colors
Produce 25% or more of output in 2 or more colors
SERVICE BUREAU

Offer services to outside customers or firms

Process color prints by offset press or color copier

Produce at least some output in 2 or more colors
Marketing Tools for Marketing Managers (May 1998). Penn State University 38
COMPUTER QUESTIONNAIRE
•
Conjoint Exercise
•
Importance Ratings (9-point scale)
 Type of Stock for Output
 Printer Capabilities for Full Process Color
 Printer Capabilities for In-Line Finishing
•
Scanning Location Preference
•
Likelihood to Purchase Ratings (5-point scale)
AM Multigraphics
Komori
Agfa
Ryobi
Canon
Scitex
Heidelberg
Xeikon
Indigo
Xerox
IBM / Pennant
Marketing Tools for Marketing Managers (May 1998). Penn State University 39