Conjoint Analysis is an advanced market research technique that gets under the skin of how people make decisions and what they really value in products and services. Conjoint analysis is perfect for answering questions such as “Which should we do, build in more features, or bring our prices down?” or “Which of these changes will hurt our competitors most?”

Every customer making choices between products and services is faced with trade-offs. Is high quality more important than a low price and quick delivery for instance? Or is good service more important than design and looks?
For businesses, understanding precisely how markets value different elements of the product and service mix means product development can be optimized and aspects such as pricing tuned to customer’s willingness to pay for specific features.

Conjoint Analysis is a technique developed since the 1970s that allows you to work out the hidden rules people use to make trade-offs between different products and services and the values they place on different features. By understanding precisely how people make decisions and what they value in your products and services, you can work out the optimum level of features and services that balance value to the customer against cost to the company.

The principle behind conjoint analysis is to break a product or service down into it’s constituent parts then to test combinations of these parts to look at what customers prefer. By designing the study appropriately it is then possible to use statistical analysis to work out the value of each part in driving the customers decision.

For example a computer may be described in terms of attributes such as processor type, hard disk size and amount of memory. Each of these attributes is broken down into levels – for instance levels of the attribute for memory size might be 1GB, 2GB, 3GB and 4GB.
These attributes and levels can be used to define different products or product profiles. The first stage in conjoint analysis is to create a set of product profiles which customers or respondents are then asked to compare and choose from. Obviously, the number of potential profiles increases rapid for every new attribute, so there are techniques to simplify both the number of profiles to be tested and the way in which preferences are discovered. Different flavors of conjoint analysis have different approaches and strengths and weaknesses.

By analyzing which items are chosen or preferred from the product profiles offered to the customer it is possible to work out statistically both what is driving the preference from the attributes and levels shown, but more importantly, give an implicit numerical valuation for each attribute and level.

The result is a detailed picture of how customers make decisions, a picture that can be used to build market models which can predict market share in new market conditions and test the impact of product or service changes on the market to see where and how you can gain the greatest improvements over your competitors. Not surprisingly conjoint analysis has become a key tool in building and developing market strategies.

By combining these market models with internal project costings, companies can evaluate decisions in terms of Return on Investment (ROI) before going to market. For example determining what resources to put into New Product Development and in what areas. conjoint analysis also forms the basis of much pricing research and powerful needs-based segmentation.

To help you understand more about what conjoint analysis tells you and how it works, there is a more detailed overview of conjoint analysis. At the heart of conjoint analysis is breaking a product or service down into attributes and levels, which provides an extremely powerful way of looking at what you offer.