For a business to run effectively, its leadership needs a firm understanding of the value its products or services bring to consumers. This understanding allows for a more informed strategy across the board—from long-term planning to pricing and sales.
In today’s business environment, most products and services include multiple features and functions by default. So, how do businesses go about learning which ones their customers value most? Is it possible to assign a specific value to each feature a product offers?
This is where conjoint analysis becomes an essential tool.
Here’s an overview of conjoint analysis, why it’s important, and steps you can take to analyze your products or services.
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DOWNLOAD NOWWhat Is Conjoint Analysis?
Conjoint analysis is a form of statistical analysis that firms use in market research to understand how customers value different components or features of their products or services. It’s based on the principle that any product can be broken down into a set of attributes that ultimately impact users’ perceived value of an item or service.
Conjoint analysis is typically conducted via a specialized survey that asks consumers to rank the importance of the specific features in question. Analyzing the results allows the firm to then assign a value to each one.
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Types of Conjoint Analysis
Conjoint analysis can take various forms. Some of the most common include:
- Choice-Based Conjoint (CBC) Analysis: This is one of the most common forms of conjoint analysis and is used to identify how a respondent values combinations of features.
- Adaptive Conjoint Analysis (ACA): This form of analysis customizes each respondent's survey experience based on their answers to early questions. It’s often leveraged in studies where several features or attributes are being evaluated to streamline the process and extract the most valuable insights from each respondent.
- Full-Profile Conjoint Analysis: This form of analysis presents the respondent with a series of full product descriptions and asks them to select the one they’d be most inclined to buy.
- MaxDiff Conjoint Analysis: This form of analysis presents multiple options to the respondent, which they’re asked to organize on a scale of “best” to “worst” (or “most likely to buy” to “least likely to buy”).
The type of conjoint analysis a company uses is determined by the goals driving its analysis (i.e., what does it hope to learn?) and, potentially, the type of product or service being evaluated. It’s possible to combine multiple conjoint analysis types into “hybrid models” to take advantage of the benefits of each.
What Is Conjoint Analysis Used For?
The insights a company gleans from conjoint analysis of its product features can be leveraged in several ways. Most often, conjoint analysis impacts pricing strategy, sales and marketing efforts, and research and development plans.
Conjoint Analysis in Pricing
Conjoint analysis works by asking users to directly compare different features to determine how they value each one. When a company understands how its customers value its products or services’ features, it can use the information to develop its pricing strategy.
For example, a software company hoping to take advantage of network effects to scale its business might pursue a “freemium” model wherein its users access its product at no charge. If the company determines through conjoint analysis that its users highly value one feature above the others, it might choose to place that feature behind a paywall.
As such, conjoint analysis is an excellent means of understanding what product attributes determine a customer’s willingness to pay. It’s a method of learning what features a customer is willing to pay for and whether they’d be willing to pay more.
Conjoint Analysis in Sales & Marketing
Conjoint analysis can inform more than just a company’s pricing strategy; it can also inform how it markets and sells its offerings. When a company knows which features its customers value most, it can lean into them in its advertisements, marketing copy, and promotions.
On the other hand, a company may find that its customers aren’t uniform in assigning value to different features. In such a case, conjoint analysis can be a powerful means of segmenting customers based on their interests and how they value features—allowing for more targeted communication.
For example, an online store selling chocolate may find through conjoint analysis that its customers primarily value two features: Quality and the fact that a portion of each sale goes toward funding environmental sustainability efforts. The company can then use that information to send different messaging and appeal to each segment's specific value.
Conjoint Analysis in Research & Development
Conjoint analysis can also inform a company’s research and development pipeline. The insights gleaned can help determine which new features are added to its products or services, along with whether there’s enough market demand for an entirely new product.
For example, consider a smartphone manufacturer that conducts a conjoint analysis and discovers its customers value larger screens over all other features. With this information, the company might logically conclude that the best use of its product development budget and resources would be to develop larger screens. If, however, future analyses reveal that customer value has shifted to a different feature—for example, audio quality—the company may use that information to pivot its product development plans.
Additionally, a company may use conjoint analysis to narrow down its product or service’s features. Returning to the smartphone example: There’s only so much space within a smartphone for components. How a phone manufacturer’s customers value different features can inform which components make it into the end product—and which are cut.
One example is Apple’s 2016 decision to remove the headphone jack from the iPhone to free up space for other components. It’s reasonable to assume this decision was reached after analysis revealed that customers valued other features above a headphone jack.
Leveraging Conjoint Analysis for Your Business
Conjoint analysis is an incredibly useful tool you can leverage at your company. By using it to understand which product or service features your customers value over others, you can make more informed decisions about pricing, product development, and sales and marketing activities.
Are you interested in learning more about how customers perceive and realize value from the products they buy, and how you can use that information to better inform your business? Explore Economics for Managers— one of our online strategy courses—and download our free e-book on how to formulate a successful business strategy.
