Conjoint analysis is an important tool in the marketer’s toolbox when it comes to understanding how customers value different components or features of their products or services, writes Brian Greene.
With Russian’s invasion of Ukraine and real concern about cost-of-living increases, it is no surprise that the most recent wave of RED C’s Consumer Mood Monitor conducted in April found that consumer sentiment was at one of its lowest points in the 12 years this has been tracked. Only 6% of Irish adults expect the Irish economy to improve in the next 6 months and a whopping 97% expect the cost-of-living to get worse in the same period. As such, consumers’ purchasing behaviour is likely to be highly influenced by price.
Brand owners on the other hand are continually facing the same challenge both in good times and bad – which products/services will consumers choose over competitor offerings, what are the specific attributes driving preference and what price point should be set to return the optimal level of purchase, where revenue and profit are maximised? Put even more simply, how can we win as many customers as possible when they are at the “Active Evaluation” stage prior to purchase?
Fortunately, marketers can confidently inform their decision making by utilising Conjoint Analysis – a market research methodology which models the consumer decision making process. This entails a very detailed set-up of “virtual shelves” where consumers are asked to choose what they would buy given a range of options. The total number of products in a specific category is frequently very extensive, and we want to gain additional insight of how consumer behaviour changes under a wide range of circumstances, so we ask participants to select what they would choose to buy from multiple shelves (typically between 10-12) where there are differences in every instance between what is available to choose from and how much each option on the shelf costs. If we have a sample of 500 shoppers each choosing from 10 virtual shelves, this gives us 5,000 product selections in total. This provides marketers with a very rich set of data, from which powerful insights can emerge.
Before discussing the powerful way this research tool can answer key questions, I will caveat that it does assume that shoppers have 100% brand awareness and full information of all options available to them, for them to make a comparison between options. While we know this is not the case in a real-world setting, learning what people report they would buy in this scenario still provide invaluable learnings to brand owners.
Conjoint Analysis can extrapolate to what extent your volume and value is likely to be impacted by any change in price in the market. Decision-makers learn what proportion of customers will switch away from us if our price raises by 10%, or if a competitor lowers their price? In addition, those who have multiple SKUs in their brand portfolio can model the impact of removing a product from the market – do those shoppers who would otherwise have selected this product migrate to another in our masterbrand or will we lose this volume to a rival?
With purchase decisions which are more involved, where multiple attributes are involved beyond price and brand (e.g. in the case of mobile phone networks, where length of contract, data allowances, cost of calling, handset on offer etc. may be relevant), conjoint analysis can also demonstrate which attributes are most influential in the customer decision process, and which specific bundle will convince the greatest number of shoppers at a specific pricepoint.
For marketers who particularly enjoy working with data to deepen their understanding of market dynamics, a key output of Conjoint is the Excel simulator. This is a user-friendly tool which can be used within your company for scenario testing – if our brand took a certain action, what would happen? If one of our competitors made this change, how might we best respond? As a result, many marketers in Ireland have already discovered that Conjoint Analysis provides actionable insights about the best path forward for their brand when it comes to making informed decisions about pricing, portfolio management and bundling attributes.
Brian Greene is an Associate Director at RED C Research