Creating and Measuring Brand Equity

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Creating and Measuring Brand Equity Intel
Inside

• EWMBA 206
• Fall 2007

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If you were Andy Grove what do you want to know
before deciding to take IBM and Compaq to the
wall on Intel inside?
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IBMs Problem

• How much do consumers value Intel Inside?
• Is it profitable for IBM to offer Intel Inside?

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The Conjoint IdeaProducts are Composed of
Attributes

• ComputerBrand Processor RAM Hard Disk
  Monitor Price

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Breaking Down IBMs Problem

• If IBM learns how buyers value the components
  (i.e. attributes) of a computer, they are in a
  better position to assess whether the Intel
  Inside attribute will be profitable.
• Similarly for Intel, they want to know what the
  relative value of the components are for the
  OEMs.

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How to Learn What Customers Want?

• Ask Direct Questions about preference
• What brand do you prefer?
• What processor do you prefer?
• How much RAM do you prefer?
• How much hard disk space do you prefer?
• What type of monitor do you prefer?
• What price do you prefer?
• What is the problem with this?

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Problems with Direct Questioning

• Answers are often trivial and unenlightening
• I prefer more processor speed to less
• I prefer more RAM to less
• I prefer more hard disk space to less
• I prefer a lower price to a higher price

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How to Learn What Is Important?

• Ask Direct Questions about Importances
• How important is it that you get the Brand /
  Processor / RAM / Hard Disk / Monitor / Price
  that you want?
• What is the problem with this?

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Stated Importances

• Importance Ratings often have low discrimination
  with most responses falling in most important
  categories

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What is Conjoint Analysis?

• Technique developed in early 1970s to measure how
  buyers value components of a product bundle and
  refined into the 2000s.
• Dictionary definition-- Conjoint Joined
  together, combined. Features CONsidered
  JOINTly
• Important Original Summary
• Green, Paul and V. Srinivasan (1978), Conjoint
  Analysis in Marketing New Development with
  Implications for Research and Practice, Journal
  of Marketing, 54 (Oct), 3-19.

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How Does Conjoint Analysis Work?

• We vary the product features (independent
  variables) to build many (usually 12 or more)
  product concepts
• We ask respondents to rate/rank those product
  concepts (dependent variable)
• Based on the respondents evaluations of the
  product concepts, we figure out how much unique
  value (utility) each of the features added
• Regress dependent variable on independent
  variables betas equal part worth utilities.

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How does Conjoint Analysis Work?

• More realistic questions
• Would you prefer . . .486 or
  386 DXAMD
  Intel
• If choose left, you prefer _______. If choose
  right, you prefer _______.
• Rather than ask directly whether you prefer
  Processor speed over Processor brand, we present
  realistic tradeoff scenarios and infer
  preferences from your product choices.
• When respondents are forced to make difficult
  tradeoffs, we learn what they truly value

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First Step Create Attribute List

• Attributes assumed to be independent (Brand,
  Processor Speed, Processor Brand, Price)
• Each attribute has varying degrees, or levels
• Brand Compaq, IBM, Acer
• Processor Speed 486, 386DX, 386SX
• Processor Brand Intel, AMD, Cyrix
• Price 1500, 2000, 2500
• Each level is assumed to be mutually exclusive of
  the others (a product has one and only one level
  of that attribute)

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Traditional Conjoint Card-Sort Method

• Using a 100-pt scale where 0 means definitely
• would NOT and 100 means definitely WOULD
• How likely are you to purchase
• Compaq
• Intel
• 486
• 2,900
• Your Answer___________

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Conjoint Importances

• Measure of how much influence each attribute has
  on peoples choices
• Best minus worst level of each attribute,
  percentaged486 386DX (2.5 - 1.8)
  0.7 15.21500 - 2500 (5.3 - 1.4)
  3.9 84.8 ----- -------- Totals 4.6 100
  .0
• Importances are directly affected by the range
  and number of levels you choose for each
  attribute

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Conjoint Design81 Product Concepts Challenging

• For a conjoint study with
• 3 brands
• 3 processor speeds
• 3 processor brands
• 3 prices
• There are 3x3x3x381 possible product
  combinations in a full-factorial design.
• What respondent would want to evaluate all 81 in
  a survey?
• Hence fractional factorial designs are used.

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Conjoint DesignsFull-Factorial versus
Fractional-Factorial

• Full Factorial (a design in which all possible
  product combinations are shown) 3x3x3x381
• Fractional Factorial (a design in which only a
  subset of all possible product combinations are
  shown)
• e.g., a subset of 9 appropriately chosen product
  combinations

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Fractional Factorial Designs

• Properties of appropriate fractional designs
• Balanced (each level is displayed an equal number
  of times)
• Orthogonal (no correlation between any pairs of
  attributes)
• How to get these designs?
• Design catalogs
• Software programs
• Commercial Conjoint Market Research companies
• http//www.sawtoothsoftware.com/

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Market Simulations

• Make competitive market scenarios and predict
  which products respondents would choose
• Accumulate (aggregate) respondent predictions to
  make Shares of Preference (some refer to them
  as market shares)

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Market Simulation Example

• Predicting market shares for existing computers
• Compaq 486 AMD chip 2500IBM 486 AMD
  chip 2000 Acer 386D AMD chip 1500
• Respondent 1 chooses computer 1!
• Repeat for rest of respondents. . .

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Market Simulation Results - I

• Base Case
• Acer 33.7
• Compaq 32.1
• IBM 34.2
• Acer first adopts Intel Inside

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Market Simulation Results - II

• Base Case Acer
• Acer 37.7 4
• Compaq 30.2 - 2
• IBM 32.0 - 2
• Compaq next adopts Intel Inside

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Market Simulation Results - III

• Base Case Acer Compaq
• Acer 35.6 4 2
• Compaq 34.2 - 2 2
• IBM 30.2 - 2 - 4
• IBM next adopts Intel Inside

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Market Simulation Results - IV

• Base Case Acer Compaq IBM
• Acer 33.6 4 2 0
• Compaq 32.3 - 2 2 0
• IBM 34.0 - 2 - 4 0
• Prisoners Dilemma!

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Strategic Source of Brand EquityPrisoners
Dilemma
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Question How to Perform Conjoint with Actual
DataUsing Regression Analysis

• In actual research the company may conduct a
  survey to collect data from a large sample of
  consumers from the target audience, say n200.
• Multiple regression analysis (Intel Example)
• Where Y is the preference of the individual. And
  b1,,b4 are the part-worth utilities.
• MS Excel offers a simple multiple regression tool
  (Tools Data Analysis Regression with the
  Analysis Toolpak add-in installed).
• Using the tool,
• Specify the preference score (column Y) as the
  dependent variable
• Four dummy-coded attribute columns as independent
  variables (Input X range).