MBA MM II – Session 9

15th October 2019

Saravana Jaikumar
Indian Institute of Management Calcutta
Recap!
Cases

 SouthWest Airlines
 Ontela PicDeck (A)
 Virgin Mobiles
 Gaming the Gamers
 Scrub Daddy

 TruEarth – Estimating Demand

 Pilgrims Bank – Profitability
 Ontela PicDeck (B)
Recap!
Concepts covered
 Segmenting, Targeting and Positioning
 Customer-Centricity
 Integrated Marketing Strategy
 Core Value Proposition
 PoPs and PoDs
 Formulating an IMS (through market research)
 Educating the consumers on the value of the product
 Bridging the „Actual Value‟ and „Perceived Value‟ divide
 Consumer Habits
Core Values
Top Brands
 Emotional connect
 Difficult to establish
 Requires nurturing and investment
 Functional values
 Easier to get the message out
 But requires high level of innovation and R&D to sustain
Recap!
Market Research
 Research Design
 Exploratory (Qualitative )Research

 Personas
 Experience Maps

 Conclusive Research
 Descriptive (surveys) and Causal (experiments)
Recap!
Conditions for Causality
 Time precedence
 Correlation / Association
 Isolation
Recap!
 Simple Linear Regression

 Multiple Linear Regression

 Population and sample (sampling methods)

 Types of data
Recap!
 t-tests – Independent samples and paired sample

 ANOVA

 Regression

 Questionnaire Design
 Reliability and Validity
 Marketing Scales
Handouts
 t-test

 ANOVA

 Correlation

 Multiple Linear Regression

 Null and alternate hypotheses, statistical significance and interpretation

Recap!
 Cluster Analysis
 Hierarchical and k-means clustering
 Using dendograms (hierarchical clustering)  Identify the number of clusters
 Then use k-means clustering (with the identified number of clusters) to assign
data points to clusters

 Ontela PicDeck (B) – Questions to arrive at clusters

 Sources of dissatisfaction
 Preferences and behaviors
 Willingness to pay

 Once clusters were identified, demographics was used to define each cluster
How clusters are formed
 A dendogram shows the dissimilarity between clusters.

 In this example - clusters B and C being combined at a distance of 2 units,

and BC with A at 4 units.
Ontela PicDeck (B)
Ontela PicDeck (B)
Ontela PicDeck (B)
Recap!
 Consumers typically do not know what they want

 Focus groups and interviews do not always help in identifying unmet

consumer needs

 Embracing the importance of variety!!

 Importance of segmenting the market
 Specific products suit specific types of people

 Role of market research

 Incremental improvements vs. Radical innovations
Recap!
Sheena Iyengar
 Choice overload problem

 Methods to overcome choice overload

 Cut – reduce the number of choices (eg. Aldi)

 Concretize – make the choices vivid

 Categorize – magazine example (400mags/20cats >> 600mags/10cats)

 Complexity - gradually increase complexity (car options example)

Recap!
 Importance of variety

 Consumers are different

 Choice overload

 Too many choices may not be appropriate

 Find the balance – in terms of what is offered to the consumer

Recap!
Squirrels in the Marketplace
 Satisfaction and Loyalty
 Attitude and Behavior (Theory of Reasoned Action)
 Behavioral Intentions and Behavior (Theory of Planned Behavior)
 Bad measures
 Barriers (eg. availability)
 Deceptive answers
 Relationships and Loyalty
 Products/Varieties to overcome
Video
 Malcolm Galdwell – Pitfalls of Market Research

 Chair

 New Coke

 Consumers make up stories

 Perils of introspection
Conjoint Analysis
 Different Perspectives, Different Goals

 Buyers want all of the most desirable features at lowest possible price

 Sellers want to maximize profits by:

1) minimizing costs of providing features

2) providing products that offer greater overall value than the competition
Products/Services are Composed of
Features/Attributes

 Credit Card:

Interest Rate + Annual Fee + Credit Limit

 Mobile:

Screen size + Resolution + Camera + Processor + RAM + OS

Breaking the Problem Down
 If we learn how buyers value the components of a product, we are in a better
position to design those that improve profitability
How to Learn What Customers Want?
 Ask Direct Questions about preference:

 What Interest Rate would you like?

 What Annual Fee would you like?
 What Credit Limit would you like?

 Answers often trivial and unenlightening (e.g. respondents prefer low

fees to high fees, higher credit limits to low credit limits)
How to Learn What Is Important?
 Ask Direct Questions about importances

 How important is it that you get the <<brand, interest rate, annual fee, credit
limit>> that you want?
Stated Importances
 Importance Ratings often have low discrimination:

Average Importance Ratings

Brand 6.7

Interest Rate 7.2

Annual Fee 8.1

Credit Limit 7.5

0 5 10
Stated Importances
 Answers often have low discrimination, with most answers falling in
“very important” categories

 Answers sometimes useful for segmenting market, but still not as

actionable as could be
What is Conjoint Analysis?
 Research technique developed in early 70s

 Measures how buyers value components of a product/service bundle

 Dictionary definition-- “Conjoint: Joined together, combined.”

 Marketer‟s catch-phrase-- “Features CONsidered JOINTly”

What’s So Good about Conjoint?
 More realistic questions:

Would you prefer . . .

210 Horsepower or 140 Horsepower

17 MPG 28 MPG

 If choose left, you prefer Power. If choose right, you prefer Fuel Economy
 Rather than ask directly whether you prefer Power over Fuel Economy, we present
realistic tradeoff scenarios and infer preferences from your product choices
What’s So Good about Conjoint?
 When respondents are forced to make difficult tradeoffs, we learn what
they truly value
Conjoint Analysis

 Step 1: Select Attributes

 Step 2: Select „Levels‟ for each of these attributes

 Step 3: Create Product Profiles

First Step: Create Attribute List
 Attributes assumed to be independent (Brand, Speed, Color, Price, etc.)

 Each attribute has varying degrees, or “levels”

 Brand: Coke, Pepsi, Sprite

 Speed: 5 pages per minute, 10 pages per minute
 Color: Red, Blue, Green, Black

 Each level is assumed to be mutually exclusive of the others (a product has one
and only one level of that attribute)
Rules for Formulating Attribute Levels
 Levels are assumed to be mutually exclusive

Attribute: Add-on features

level 1: Sunroof
level 2: GPS System
level 3: Video Screen

 If levels are defined in this way, you cannot determine the value of providing
two or three of these features at the same time
Rules for Formulating Attribute Levels
 Levels should have concrete/unambiguous meaning

“Very expensive” vs. “Costs $575”

“Weight: 5 to 7 kilos” vs. “Weight 6 kilos”

 One description leaves meaning up to individual interpretation, while the

other does not
 Rules for Formulating Attribute Levels
 Don‟t include too many levels for any one attribute

 The usual number is about 3 to 5 levels per attribute

 Whenever possible, try to balance the number of levels across attributes

 There is a well-known bias in conjoint analysis called the “Number of Levels Effect”

 Holding all else constant, attributes defined on more levels than others will be biased
upwards in importance
 For example, price defined as ($10, $12, $14, $16, $18, $20) will receive higher relative
importance than when defined as ($10, $15, $20) even though the same range was measured
 The Number of Levels effect holds for quantitative (e.g. price, speed) and categorical (e.g.
brand, color) attributes
Conjoint Analysis

 Step 1: Select Attributes

 Step 2: Select „Levels‟ for each of these attributes

 Step 3: Create Product Profiles

Conjoint Analysis

 An airline wants to figure out the best snack bundle and price for its
consumers

 Attributes
 Drink
 Mini Candy
 Spread
 Salty Snack
 Price
Conjoint Analysis
 Levels
 Drink (Apple Juice, Coke, Fanta) - 3
 Mini Candy (M&Ms, Tobelrone) – 2
 Spread (Peanut butter, Nutella, Honey) - 3
 Salty Snack (Pretzels, Chips) - 2
 Price ($4, $5, $6) – 3
Conjoint Analysis

 Product Profiles

 3 x 2 x 3 x 2 x 3 – 108 profiles

 Every subject has to rate 108 profiles on a scale of 1 to 7

 Difficult task
Conjoint Analysis

 Product Profiles can be cut down using simple methods (under few
assumptions)

 Design – Conjoint Analysis (Excel File for creating product profiles)

Conjoint Analysis

 Step 1: Select Attributes

 Step 2: Select „Levels‟ for each of these attributes

 Step 3: Create Product Profiles

 Step 4: Collect Data

 Step 5: Estimate Partworths

Conjoint Analysis

 Enter data
 Eg. Drink – 3 Levels
 Categorical variable
 Create 2 dummy variables

 Similarly enter data for all attributes

 Excel sheet with data and regression

Conjoint Analysis

 Finally – Combine data from all customers

 Market Predictions – Excel Sheet

How Does Conjoint Analysis Work?
 We vary the product features (independent variables) to build many (usually 12 or more)
product concepts

 We ask respondents to rate/rank those product concepts (dependent variable)

 Based on the respondents‟ evaluations of the product concepts, we figure out how much
unique value (utility) each of the features added

 (Regress dependent variable on independent variables; betas equal part worth utilities.)