1. Concept Testing Conjoint Analysis February 15 & 20, 2007

2. Evaluating with Customers Concept Testing is used to help screen and refine new product ideas Conjoint Analysis used to determine the combination of attributes that maximizes appeal

3. Concept Testing A concept is composed of attributes and benefits for a particular usage situation Attributes incorporate a specific product form and technology DetermineCustomer Interest Interest see Page and Rosenbaum (1992), “Developing an Effective Concept Testing Program for Durables,” J Product Innovation Mgmt

4. Purposes of Concept Testing To identify very poor concepts so that they can be eliminated. To estimate (at least crudely) the sales or trial rate the product would enjoy (buying intentions, early projection of market share). To help develop the idea (e.g. make tradeoffs among attributes).

5. Procedure for a Concept Test Prepare concept statement Clarify specific purposes Decide format(s) Select commercialization Determine price(s) Select respondent type(s) Select response situation Define the interview Conduct trial interviews Interview, tabulate, analyze

6. Concept Testing Cautions and Concerns If the prime benefit is a personal sense (aroma, taste). If the concept involves new art and entertainment. If the concept embodies a new technology that users cannot visualize. If concept testing is mishandled by management, then blamed for product failure. If customers simply do not know what problems they have.

7. The Concept Statement The Customer Value Proposition: FOR {the ideal customer} WHO {have the following problem} MY PRODUCT IS A {product category} THAT {key differentiating benefit} UNLIKE {the major competitor} UsageSituation Customer Product

8. The Concept Statement Format Narrative

9. Here is a tasty, sparkling beverage that quenches thirst, refreshes, and makes the mouth tingle with a delightful flavor blend of orange, mint, and lime. It helps adults (and kids too) control weight by reducing the craving for sweets and between-meal snacks. And, best of all, it contains absolutely no calories. Comes in 12-ounce cans or bottles and costs 60 cents each. 1. How different, if at all, do you think this diet soft drink would be from other available products now on the market that might be compared with it? Very different ( ) ( ) ( ) ( ) Not at all different 2. Assuming you tried the product described above and liked it, about how often do you think you would buy it? More than once a week ( ) ( ) ( ) ( ) ( ) ( ) Would never buy it

10. The Concept Statement Narrative

11. The Concept Statement Format Narrative Drawing / Diagram

13. The Concept Statement Format Narrative Drawing / Diagram Model / Prototype Virtual Reality

14. Information Acceleration http://www.wharton.upenn.edu/learning/futureview/

15. Developing Concepts to Test Time to prepare test materials test materials Number of items tested tested 1More MostPreferred LeastPreferred Paper & Pencil Computer Prototype Working Model e.g., www.acupoll.comwww.acupoll.com

16. What is generally tested? BUYER Does it solve a “problem”? a “problem”? yes Is it “believable”? yes Is it “unique”? yes Would it be bought at one of several tested price points? yes Can measure potential customer reactions using: (1) 5-pt “definitely not” - “definitely” scales (2) sorting tasks

17. Considerations in the Concept Test Core Idea vs. Positioning/Commercial Concept Statement New Brand vs. Old Brand vs. No Brand Concept statement: narrative, drawing, model? Respondent group: Lead users? Large users? Response situation: Where? How? Purchase Measure Decisions: Buyer Intent Frequency Price Product Diagnostics Attribute Diagnostics

18. Ask the right people... time Sales The Chasm Early Market Mainstream Market TechnologyEnthusiastsVisionaries PragmatistsConservatives See (1) Rogers (1995) Diffusion of Innovations (2) Moore (1991) Crossing the Chasm (3) www.chasmgroup.comwww.chasmgroup.com Lead Users and Innovators vs. Mainstream Market

19. Ask the right questions... How important is the product “experience”? Does the customer have to “touch & feel” the product to understand the benefits offered? “Simulate” the Experience

20. How can concepts be tested? Focus Groups One-on-One Personal Interviews Mall Intercept Phone Interviews Postal Surveys Internet Surveys Hybrids (e.g., phone-mail-phone) Compare in terms of: sample control, concept flexibility, cost Compare in terms of: sample control, concept flexibility, cost see: (1) Pope (1993), Practical Marketing Research (2) McQuarrie (1996) The Market Research Toolbox

21. Typical Analysis Category or Industry Purchase Intent Concept Norm Definitely Would Buy 27% 20% Probably Would Buy 43 40 Top Two Box 70% 60% Might or Might Not Buy 22% Probably Would Not Buy 5 Definitely Would Not Buy 3

22. Summary of Concept Testing Advantages relatively easy to get customer input can be used as an early screen for new product ideas Limitations not that helpful for the design and development of specific product forms not as reliable for discontinuous innovations

23. Conjoint Analysis Primary benefit in addition to (or in lieu of) concept tests: forces a trade-off

24. Conjoint Analysis Can be used to quantify the relative importance of attributes Can be used to help determine the combination of attributes that maximizes appeal Relatively easy for incremental innovation Requires experts or information acceleration for discontinuous innovations see (1) Page and Rosenbaum (1987), “Redesigning Product Lines With Conjoint Analysis,” J Product Innovation Mgmt (2) www.sawtooth.com {Sawtooth Software}www.sawtooth.com

25. Major Assumptions An offering is a bundle of attributes and benefits. An offering can be decomposed into a bundle of “features” for which “utility values” can be calculated. The utility value of an offering is some simple function of the utilities of the offering’s “feature” levels. Customers prefer the offering with the highest utility value.

26. Conjoint: Steps 1 and 2 Identify Relevant Attributes Survey/Focus Group/Intuition Salsa Example (Thickness, Color, Spiciness) Identify Relevant Levels of Each Attribute Thickness: Regular, Thick, Extra-Thick Color: Red, Green Spiciness: Mild, Medium-Hot, Extra Hot

27. Create Profiles for each Combination 3 thickness (reg., thick, extra-thick) 2 color (red, green) 3 spiciness (mild, med/hot, extra hot) Leads to 3X2X3 = 18 Profiles

28. Conjoint: Step 3 Choose a Sample Considerations: Consumer Involvement Typicality Diversity (if multiple segments) Expertise (if complex or discontinuous)

29. Conjoint: Step 4 Obtain Customer Judgements Rank Order Sort into categories Rank the profiles within each category Pair-wise Comparisons Use a computer package to quickly hone in on important attributes

30. Conjoint: Step 4 - Example

31. Conjoint: Step 5 Compute Individual Value Systems Use MONANOVA for rank order data Output in the form of standardized utilities

32. Output Example

33. Conjoint: Step 6 Find the average utilities (part-worths) for each attribute Intuition: Find the attribute with the biggest range in utilities across the different levels Use graphs/calculations for importance measures Be careful with averages Segments may exist Cluster Analysis can tell you

34. Output Example

35. Let’s consider golf balls... distance and durability distance and durability durability and price durability and price distance and control distance and control

36. Conjoint Analysis Average Average Price Driving Ball Life Distance 250 yards 54 holes $3.00 220 yards 36 holes $4.00 200 yards 18 holes $5.00

37. Your “Optimal” Product Design $5/sleeve Driving Distance of 200 yards Average Ball Life of 54 holes See also Titleist’s Ball-Fitting andTitleist’s Ball-Fitting Wilson’s Custom Fit

38. How can conjoint analysis be conducted? One-on-One Personal Interviews written or verbal concept descriptions multimedia presentation of concepts RTI’s TradeOff VR; Sawtooth’s Sensus TradeOff; MIT’s Information Acceleration RTI’s TradeOff VRSawtooth’s Sensus TradeOff networked computer facilities Moskowitz Jacobs Mail written concept descriptions disk by mail Internet the future??

39. Summary of Conjoint Analysis Advantages the relative importance of product features can be quantified using customer input only need to test a relatively small number of actual product designs Limitations output is usually not directly linked to actual purchase