Let's remind ourselves, why we're doing a conjoint analysis? We're doing a conjoint analysis because asking people questions about preferences often leads to unenlightening answers. For example, what load would you like to pay on your mutual fund? What annual fee would you like? I bet you know, don't you? Would you like online access for your fund? Of course, you would. People want everything and they want it for free! They want to pay zero load. They want to pay zero management fee and of course they want all the features. But here's the basic problem, you can't give that to them if you actually want to make money in these markets. You can't give them all the best attributes and charge them little or nothing for them. So that's where conjoint analysis really comes in. Because as a business person you are charged with increase in profits. And to do that you have to provide cost effective products to the market. Cost effective in the sense that people like them. But, of course, you can spend tons of money and create products that people just really love and lose a lot of money doing it. You have to provide cost effect to products that people really like and the first step in that process is to really understand what are the trade offs people are willing to make. And in so doing, you find out this is really important to them, or this is not really important to them. So it's not really important to them, I don't want to spend a lot of money on that particular attribute. And conversely, if it is really important, that's where I've got to put my resources. That's where I've got to put my money. Now, does conjoint work for everything? It doesn't. It works for certain types of products and certain types of services and in particular the products or services are one's that can be reasonably decomposed into attributes. So what does that mean? We'll take our mutual fund example. If you're evaluating a mutual fund, what are you looking at? For those of you who are not familiar with mutual funds, don't worry about it. it's a financial product, I imagine some of you are familiar with it and some of you aren't. I will certainly have a non-financial example in just a minute. But a mutual fund has a lot of different attributes. You can look at past returns, investment returns and people do look at that. They look at fees like that load or that annual management fee, the brand name, whether they've heard of the fund before that might be important. It might make them feel safe about investing in the fund and whether or not they have online, very convenient online access to their fund. So a mutual fund is a product that's recently described by a set of attributes. Better important in the decision process. Commercial aircraft so this is not just the business consumer space, commercial aircraft is a B2B, or Business to Business, purchase and a large one of that right. So when Singapore Airlines or American Airlines decides to buy an aircraft from let say, Airbus or Boeing which are two with a major manufactures, what are they looking at? Well, they're looking at the attribute of the product. What's the capacity of the plane? What's the maximum range to the plane? How fuel efficient is it? If it's more fuel efficient, it costs them less for jet fuel. What's the price going to be? What's the cost of the service contract? Because a lot of the manufacturers make a lot of money on. Service and many other attributes probably a long list of attributes that the individual airline might be considering. So this is another product in a very different kind of environment that's reasonably described by a set of attributes. Conversely, think about something like clothing, yes, it has some attributes my coat has a lapel on it, my shirt has some buttons on it, those are in fact attributes to the product but really think about in a realistic way. When you go to buy clothes, you are really not balancing attributes against each other, you are looking at a shirt and say I really like that shirt. I think that shirt would look good on me. It's more of an emotional gut reaction. Yes, you look at the price but it's not a stack up of the attributes in the same way that a mutual fund or a commercial aircraft would be. So for a category like clothing or maybe a restaurant that you like to attend which is a more of an emotional play, conjoint analysis really isn't appropriate because it doesn't give us a lot of information.
