MARKETING ANALYTICS
Choice-Based Conjoint Analysis
09 / 16 / 2022
This was an individual assignment completed for Marketing Analytics I in order to understand understand consumer behavior through choice based conjoint data on consumer preferences.
Assignment
As noted in the popular press government policies, the labeling of food products as “genetically modified” is a controversial topic. Little is understood in terms of consumer behavior with regards to such labels. To help us understand consumer behavior in this space, I have collected a choice based conjoint data on consumer preferences. The attributes and levels for the study are as follows:
A fractional factorial design was used to develop 9 profiles to be evaluated by consumers. Consumers offered a binary yes/no decision to the question of would they buy each profile. A sample of 109 consumers completed the study.
Analysis
First, I specificied a binary logit model of consumer choice. For this model, I treated “salmon” as the baseline type and “farm raised/genetically modified” as the baseline production method. I let price enter the utility function linearly in tens of dollars and included an intercept term in the model. Using Excel, I built the total log-likelihood function and used solver to find the parameter values that maximize the log-likelihood. Below are the estimated parameters.
Also in the snapshot above, I used the estimates of the model parameters to compute the predicted probabilities for each individual.
Next, I computed the derived importance of each attribute. We can see that "method" is collectively the most important attribute.
Next, holding production method constant, I estimated the dollar value of tuna relative to salmon and halibut relative to salmon:
Similarly, holding type constant, I estimated the dollar value of Wild relative to Farm/GMO and Farm relative to Farm/GMO:
For the next part of this analysis, I assumed the following market with four products and a “None” option:
I used the logit rule to compute the share of respondents predicted to choose each option at the given prices.
Research Question: What happens to the share of Farm Raised Salmon (Product 4) if it becomes Farm Raised and Genetically Modified (still priced at $13.99)?
Result: We find that if Product 4 becomes Farm Raised and Genetically Modified, the share of Product 4 would decrease by 7% (from 11% market share to 4% market share).
Keeping Product 4 as Farm/GMO Salmon at $13.99 and holding the price of Product 1, Product 2 and Product 4 constant, I predicted the product shares when the price of Product 3 (the Wild Salmon) varies from $13.99 to $19.99 in increments of $3.00.
Below, I have computed own and cross price elasticities of the product shares using the simple arc elasticity formula (i.e. the ratio of the % change in share from $13.99-$19.99 to the % change in price from $13.99 to $19.99 using the midpoint formula to compute the % changes ).
Result: When Product 3's price goes up by 35%, it's market share drops by 38%. Given that the elasticity is exactly equal for all other options, it is not a sensible pattern of price competition. It is highly unlikely that the products are perfect substitutes for one another. Additionally, it is even more unlikely that the "none" open is a perfect substitute for Product 3. This model assumes that consumers are homogeneous.
