Purchasing decisions are a complex matter because many aspects play a role in the selection of products and services. But what are the critical factors? How can you improve your market position? Through more customer service, or even a lower price? Conjoint analysis combined with market modeling can answer questions like these. Goldmedia has already carried out numerous conjoint analyses for national and international clients.
Functions and Benefits
The following (fictional) example makes clear how conjoint analysis works and what benefits the customer can expect: A telecommunications company wants to grow and so wants to bring a new mobile phone tariff to the market. Among other things, it must answer the question of which price-performance mix can achieve the highest acceptance and what market share can be expected. In order to determine this, the company commissions a conjoint analysis.
Procedure: Phase 1
The first step is to identify the factors (features) that influence a customer's decision for or against a mobile phone tariff. There are:
- Provider (brand)
- Basic monthly fee
- Monthly free minutes
- Price per text message
- Price per extra minute
Procedure: Phase 2
Next, the properties of the individual features are defined, for example for “Price per text message” 5 cents, 9 cents, 15 cents and 19 cents. To be able to perform market simulations afterwards, we do not merely consider the alternatives to the offer in question alongside, but also the competitors' possibilities.
Procedure: Phase 3
A conjoint survey is prepared based on these data. Typically, the surveys can be carried out online. Respondents are asked to select products, deciding between them on repeated occasions.
Procedure: Phase 4
Based on the individual selection decisions, the influence of the individual features on the selection decision can be determined with mathematical modeling. For example, in this case it turns out that the monthly fee is the most important factor determining user choice.
Procedure: Phase 5
At the end, there are comprehensive data on both the features and the characteristic values. Then complex market simulations can be performed:
- What brings more value - reducing the cost per text message by 5 cents or reducing the price per minute by 5 cents?
- Does an increase in the basic charge lead to an increase in sales or does the concomitant loss of users outweigh the revenue gained?
- How does the inverse demand function look? What price gives sales, market share, and profitability the optimal ratio?
The market simulation based on the conjoint results provides answers to all these questions.