# Discover what they really want

Survey your market with sophisticated choice analytics tools. Understand people's preferences. Simulate their choices.

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### 5 Lectures / 5 Exercises, Plus Primary Research Project

This is a suggested curriculum for technically capable graduate students, appropriate for a graduate-level market research, econometrics, or multivariate methods course. The purpose is to introduce students to conjoint analysis and CBC and give them insight into the mechanics of experimental design. Each student may conduct a primary research project using Sawtooth Software’s Discover-CBC software service and market simulator. Each lecture is accompanied by a set of readings and subsequent exercises that should take about 2 hours each to complete. The primary research project (including software training, data collection, data analysis, and report) should take about 4-10 hours to complete.

### Day 1: Intro to Conjoint Analysis and Choice-Based Conjoint (CBC)

#### Student Exercises:

1. Access the sample CBC survey on food preferences at a baseball game (http://www.sawtoothsoftware.com/baseball) and complete the questionnaire. Answer the questions realistically, to reflect your opinions and preferences. At the end of the interview, the website displays how often you chose each food item, each wait time, and each price level. It also shows results for all respondents who have completed the survey to this point.
2. Which variable has more average impact on respondents’ choices, wait time or price? How did you come to this conclusion?
3. Examine the demand curve table (two-way counts, food item x price) and line chart displayed for the total sample, showing how often all respondents chose each food item at each price. Using the log-log regression method of estimating price elasticity, compute the price elasticity of demand for each food item.
4. Finally, referring to the two-way counts table (food item x price) and assuming that the prices of all other food items remain constant, which price should be set for each food item to maximize its relative revenue? (Hint: relative revenue is computed as relative demand x price). What other aspects would need to be considered if the goal were to set prices to maximize profit?

### Day 2: Choice-Based Conjoint (CBC)

#### Student Exercises:

1. Create a Choice-Based Conjoint (CBC) survey design by selecting two attributes, each with three levels. The first attribute should be three brands of a product or service (e.g. Coke, Pepsi, Sprite). The second attribute should have varying price levels (e.g. \$1.00, \$1.35, \$1.70). Choose a product category that interests you with realistic prices that cover a fairly wide range. Create an experimental design plan with nine choice tasks (questions), wherein each task offers the respondent two concepts (products) to choose from.
2. Create a written CBC questionnaire (either electronically, or using index cards). An example of a choice task is as follows:

First, create nine product concepts (all possible combinations of the two attributes). These nine concepts form the left-side concept within each choice task. Create the second (right-hand) concept for each of these nine tasks as a "shift" of the product concept on the left. For example, if the product on the left is represented as (2,1) (Level 2 of the first attribute and Level 1 of the second attribute), we shift (increment) the levels by 1, resulting in the new concept (3,2) (Level 3 of the first attribute and Level 2 of the second attribute) to display on the right. To shift level 3, we revert back to level 1.

Record the design using the table below, filling in the remaining cells (we have provided the first and last concept specifications).

3. Administer the questionnaire to a few individuals. Each person should choose one of the concepts in each of the nine choice tasks.
4. Use the table below to record the summary information for all interviews and estimate the choice probability for the brands and prices (main effects):

5. Chart the choice probabilities for each of the brands and prices. Interpret the results.
6. What would happen with the results with many more respondents? What would happen if you included a "None of these" selection in each choice task? How would the questionnaire and design be better or worse if you included all three brands in each choice question?

### Day 3: Conjoint Analysis: Motivation and Theory

#### Student Exercises:

1. Pick a product or service that interests you, then formulate attributes and levels to describe the essential characteristics of that product. Make sure that the levels are mutually exclusive within each attribute and that the attributes do not have overlap in meaning.
2. How many attributes and levels should a researcher include in a conjoint study? Is there any need to maintain the number of levels consistent across attributes?
3. Why should levels be mutually exclusive within each attribute?
4. Describe the differences between nominal (categorical), ordinal, and quantitative attributes. What implications do these distinctions have on analysis?
5. What danger is there in prohibiting certain attribute levels from ever appearing with other attribute levels in a conjoint study?

### Day 4: Market Simulations

#### Student Exercises:

1. Download the data set in the Excel file utilities.xls. This is an Excel spreadsheet containing hypothetical part worth utilities for a conjoint analysis problem. The conjoint design has three attributes: Brand, Color, and Price. Chart the average part worth utilities and importance scores.
2. Create a "First Choice" (Maximum Utility Rule) simulator using Excel or another program of your choice. The simulator should simulate shares of choice for product scenarios that include three products. The simulator should sum the total utility for each product, evaluate which product alternative each respondent would prefer, and summarize those product preferences as shares of preference summing to 100%.
3. Assume that you work for the company making Brand A. Further assume that there are two competitors in the market:

Product 1: Brand B, Red, \$100
Product 2: Brand C, Blue, \$150

What product could your company offer to maximize units sold? How many units are sold of that product? (Assume each respondent "purchases" one unit, and these respondents represent 1/1000 of the total market.)

What product could your company offer to maximize total revenue (#units x price). What is the total revenue for that product?

4. Should these findings bear out in the real world? What assumptions does the market simulator make?

### Day 5: MaxDiff (Maximum Difference Scaling)

#### Student Exercises:

1. Develop a list of 9 items that you wish to measure (in terms of relative preference or importance). The items could be political issues, musical groups, product features, or even flavors of ice cream. Randomize the list of items. Place the first three items (from the randomized list) into Set #1, the next three items (again from the randomized list) into Set #2, and the last three items into Set#3. Randomize the list again and using the same procedure, create sets 4-6. Randomize the list again and using the same procedure, create sets 7-9. Repeat the process one last time to create sets 10-12.
2. Create a paper or web-based MaxDiff questionnaire involving the 12 MaxDiff sets. Field this questionnaire among a few friends or family. For each set, ask respondents to indicate which item is best and which item is worst (or which item is most important and which item is least important).
3. Score the items for each respondent. Across the sets, each vote of “best” receives +1; each vote of “worst” receives -1; and each non-selected item receives +0. Plot the results overall and by respondent and interpret.

(Notes: the procedure above approximates the quality of using a formal experimental design for the MaxDiff questionnaire and of using HB to estimate the scores. This is prescribed as an intuitive learning exercise rather than a suggestion regarding best practices in industry.)

### Student Primary Research Project

The student uses Sawtooth Software’s Discover-CBC service to develop a web-based CBC interview, field the study among a small convenience sample, and analyze the results.

An academic license covering up to 50 users at a school can be obtained from Sawtooth Software at a price of \$1,000.

## Demonstrate CBC Using Only Basic Math

This survey will illustrate how Choice-Based Conjoint surveys work. It involves choosing food for dinner at a baseball game. You will take a quick 9-question CBC questionnaire, and then, using simple addition arithmetic, we will analyze your results and place the results into a "what-if" market simulator to see how your results stack up against others who have completed this survey.