Marketing Analytics: Conjoint Analysis for Curved TVs

This article explains how to use Conjoint Analysis to evaluate consumer preferences for curved TVs. It includes a case study of Samsung, LG, and SONY companies in the Australian market. The article covers the calculation of part-worth, utility, purchase probability, market share, and expected profits. It also provides insights on the importance of different TV attributes and product profiles.

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Introduction
There are no doubts the due to the improved technologies the market trends to changes
frequently. Thus, manufacture, business entities, and companies tend to introduce new products
to the market on regular intervals. As a result, it is important for any investor or company to
understand the demand, expectations, and the preferences of the consumers. However, it rare to
develop a program with a single feature or characteristic thus a product tends to have multiple
attributes to meet the customers’ specifications and demand.
As exhibited, there is a higher demand of curved TVs in the Australian market. As a
result, there are two companies, which include Samsung and LG that engage in the production
and distribution of curved TVs. Notably, since the product is it early phases of its lifecycles
SONY company seeks to introduce its product to the market. Therefore, the SONY company had
a survey among 20 respondents to evaluate the most preferred and profitable category of curved
TV. The table below exhibits the features and levels of the curved TV incorporated in the survey.
Attribute Levels
Brand Samsung / SONY / LG
Screen size 65 / 75 / 85 inches
Refresh rate 120 / 249 Hz
Resolution 2160 / 400 pixels
Price $4,000 / $6,000 / $9,000
Consequently, the respondent evaluated 18 product profiles using a 1-7 scale of
preference, whereby 7 exhibited the most preferred or likely TV whereas 1 exhibited the least
preferred or likely product. Notably, the companies produce unique products, whereby Samsung
manufactures (Size 85in 120Hz 4000 Pixel at a price of $9,000) whereas LG produces (Size 65in
120Hz 4000 Pixel at a price or $4,000). Despite SONY willingness to produce the product there

are two mandatory components the company has to offer, which include a refresh rate of 120Hz
and a resolution of 4000 Pixel; however, both the price and screen size can vary.
Methodology
Among various methods used to determine the consumer preference and needs, Conjoint
Analysis tends to produces efficient results. Conjoint Analysis is a mathematical method used to
evaluate how the consumers develop preferences for a particular product. Furthermore, the
technique aids in predicting how newly created or redesigned products will perform once
introduced to the market. Consequently, the method enables the manufacturers to identify the
appropriate features of a particular product and the affordable price that will not only generate
more profits but also pull more customers towards the product. Notably, the method incorporates
the consumers that evaluate various product profiles linked to a specific product. There are
various measures involved in a conjoint Analysis, such as level, factor, profile, part-worth,
utility, and factor.
One of the essential estimates of a conjoint analysis is the part-worth since it aids in
calculating other estimates, which include utilities, market share, and profits, among others.
There are three main methods of computing the part-worth, which include the multiple
regression model that uses the dummy variables 0 and 1, multinomial logit technique, and
Analysis of Variance model (ANOVA). The study will use the multiple regression model that
uses the dummy variables 0 and 1 technique to evaluate the part-worth whereby the respondent’s
raring for each product will be the response variable whereas the attributes for the products will
assume the explanatory variable. Notably, there are some attributes that were not included in the
regression analysis thus assumed the reference level part-worth, they include 85, LG brand,
refresh rate 240, resolution 2160 pixel, and price $9,000.

Multiple Regression
Null hypothesis: There is no relationship between the attributes of a TV and the
respondent’s rating
Alternative Hypothesis: There is a relationship between the attributes of a TV and the
respondent’s rating
The regression output comprises of three categories, which include the regression
statistics, ANOVA, and coefficients. The regression statistics, which incorporated the R square,
Multiple R, and observations, among others. The R square represents the rate at which the
changes or shift in the respondents rating of the TV products is influenced by the features or
attributes of the TV. Besides, the ANOVA results, incorporates the Regression, Residuals, and
Total. If the significance F or p-value is less than the significance level (0.05) thus we reject the
null hypothesis and conclude that the model is adequate is explaining the relationship between
the attributes of a TV and the respondent’s rating otherwise the model is not adequate. The
coefficients exhibit the weight (increase or decrease of respective attributes to the respondent’s
rating). Notably, in normal circumstances the coefficients will develop a regression model as
follows
Y = B0 + B1X1 + B2X2 + B3X3+ . . . . . . . . + BnXn + e
Whereby B represent the coefficient, X represent the independent variables (the attributes
of the TV), Y exhibits the dependent variable (respondents’ rating), and e represents the error.
However, the coefficient in this scenario represent the part-worth for each attribute.
Notably, the range for any set of values is computed by getting the difference between the
largest and the smallest values. Similarly, the part-worth range is calculated by subtracting the
smallest part-worth from the largest part-worth for a given attribute. Consequently, the sum

range is computed by adding all the part-worth ranges for a given respondent. The importance of
an attribute is computed by evaluating the number of times a part-worth range is
“accommodated” sum range, whereby a specific range is divided by the sum. Therefore, the
following table showcases the Importance of each TV attributed in relation a specific respondent.
The highest value represents greatest importance or consideration when the respondent is buying
a curved TV.
Notably, it is essential to understand the consumer’s subjective preference thus to exhibit
the preference the utility value is used. As evident, each respondent has a unique part-worth for
each attribute thus to compute the utility for a specific product the part-worth for a give
respondent are summed together. Besides, it is important to exhibit the probability that the
consumer or the respondent will purchase a particular product. Therefore, to calculate the
purchase probability the study used the multinomial logit model (MNL) whereby the exponential
of the new product’s utility is divided by the sum of exponential utilities of the existing products
of Samsung and LG and the new product utility. The formula used in the computation of
purchase probabilities is as shown below
Purchase probability P . P= eNU∗C
( eNU∗C ) + ( eEU 1∗C ) + ( eEU 2∗C )
Whereby;
C: Confidence parameter = 0.1
NU: New product utility
EU1: existing product utility (product 1)
EU2: Existing product utility (Product 2)

Consequently, the purchase probability of each respondents aids in evaluating the expect
market share of the new products whereby the market share is computed by find the average
value of the purchase probabilities of a particular product profile
Market Share=∑ PP
N
Whereby PP = purchase probabilities
N = number of respondents (consumers)
Furthermore, to estimate the expected profits from the new product there are various
factors to consider, which include sale, price, total variable cost, fixed cost, market share, market
size, base variable cost, and any additional variable cost. As exhibited, SONY company
estimates that the potential size of its market in Australia is approximately 100,000 customers
whereby each consumer purchase on single unit on average. Besides, the fixed cost of production
is approximately $2,000,000 with a base variable cost of $800 per TV. Besides, both size 75in
and 85in attract an additional variable cost of $600 and $1000 respectively. The following
functions exhibits the computation of expected profits.
Profit=Sales∗( Price – total variable cost )– ¿ cost
Sales=Market Share∗Market ¿ ¿
Total variable cost =Base variable cost +additional variable cost
Interpretation
i. Importance of different TV attributes
The needs of a customer tend to differ for one person to another thus to meet the all the
needs it is essential for a manufacturer to produce products that incorporate numerous features or
develop numerous products that meet the expectations of different consumers. Therefore, to meet
the consumer’s choice about the TV to buy it is essential to the manufacturers (LG, SONY, and

Samsung) to incorporate different TV attributes. As evident, approximately 75% of the
respondents (15) tend to value the price of the product more than other attributes. For instance,
respondent 9 tends to consider the price of a TV highly (77.6%) compared other attributes;
however, respondent4 recorded the least importance of price at a rate of 11.1%. Consequently, it
is evident that the customer rarely values the level of resolution of the TV since approximately
60% of the respondents (12) recorded resolution as the least valued feature. Generally, each
consumer has different order of importance when purchasing a curved TV; however, the
attributes that tend to cut across all consumers.
ii. Product Profile
As exhibited, SONY company is willing and able to manufacture any type of curved TV;
however, there are two conditions that the TV must meet, which include resolution 4000 pixel
and a refresh rate of 12Hz. Therefore, the following table showcase the product profiles that
SONY can offer to the consumers.
1 SONY 65in 120HZ 4000 pixels $4000
2 SONY 65in 120HZ 4000 pixels $6000
3 SONY 65in 120HZ 4000 pixels $9000
4 SONY 75in 120HZ 4000 pixels $4000
5 SONY 75in 120HZ 4000 pixels $6000
6 SONY 75in 120HZ 4000 pixels $9000
7 SONY 85in 120HZ 4000 pixels $4000
8 SONY 85in 120HZ 4000 pixels $6000
9 SONY 85in 120HZ 4000 pixels $9000
iii. Market Share
The graph below showcases the expected market share for each product

1 2 3 4 5 6 7 8 9
0%
10%
20%
30%
40%
50%
60%
Market share
The column graph above exhibits that product 4 (SONY 75in 120HZ 4000 pixels $4000
) recorded the highest market share at the rate of 50% which may be attributed to the price of the
product, since the 75% of the consumers tend to prefer cheaper products. On the other side,
product 3 (SONY 65in 120HZ 4000 pixels $9000) had the least market share at the rate of 9%,
which is still linked to price, whereby the product had a higher price of $9000.
iv. Profitability
The following table shows the expected profits for the 9 products
Product profile Market share Profit
SONY 65in 120HZ 4000 pixels $4000 40% $124,836,864
SONY 65in 120HZ 4000 pixels $6000 21% $108,030,505
SONY 65in 120HZ 4000 pixels $9000 9% $70,946,708
SONY 75in 120HZ 4000 pixels $4000 50% $127,399,754
SONY 75in 120HZ 4000 pixels $6000 31% $138,518,557
SONY 75in 120HZ 4000 pixels $9000 15% $108,360,397
SONY 85in 120HZ 4000 pixels $4000 46% $99,692,744
SONY 85in 120HZ 4000 pixels $6000 26% $107,981,015
SONY 85in 120HZ 4000 pixels $9000 11% $76,022,522

As exhibited (SONY 75in 120HZ 4000 pixels $6000) recorded the highest profit of
$138,518,557 whereas (SONY 65in 120HZ 4000 pixels $9000) recorded the least profit of
$70,946,708.
Recommendations
As exhibited, among the above products the (SONY 75in 120HZ 4000 pixels $6000)
highest profit of $138,518,557 thus, it is recommendable for the company to manufacture and
promote this product. However, the product has a low market share 31%, which may be attribute
to price ($6000) thus it may generate more profit but it will not attract many customers. On the
other side, (SONY 75in 120HZ 4000 pixels $4000) recorded the highest market share of 50%;
besides it recorded the second highest profit of $127,399,754 thus since the company is
introducing a new product to the market it is important for the company to develop the later
product since its more preferred in the market. Consequently, once the consumers have adopted
the product (brand) the company can increase the price to $6000 to meet the profit of
$138,518,557.