PURDUE UNIVERSITY

PRICING STRATEGY & ANALYSIS

LABORATORY CLASS I

This assignment will take you through a detailed conjoint analysis exercise. You will analyze data collected in a conjoint experiment,
interpret the results to understand consumer preferences, and use the results to segment the market. You will also construct a simulator
to predict market share for new product concepts in a competitive market.

ProPhone.com
To stay ahead in the highly competitive smartphones market, ProPhone.com is committed to continuous market research to monitor
the preferences of consumers. A conjoint experiment was conducted to help ProPhone.com design and test new concepts. To identify
relevant attributes and their levels a series of focus groups were conducted with current owners of PDA’s and cell-phones.

Five attributes were short-listed as the key determinants of consumers’ choices in the IP market. These factors are:
1) Brand Name/Model
2) Memory
3) Integrated Cell-Phone
4) Price
5) Built-in Projector (attribute on which ProPhone.com wants to differentiate itself on)
An analysis of competing products currently available in the market helped establish the levels of each of these attributes.

100 respondents were recruited from the target market to participate in the conjoint experiment. Respondents were screened based on
current ownership, or having an intention to purchase a smartphone in the next six months. Respondents were given 22 profile cards,
each containing a description of a smartphone concept in terms of the five attributes. The task given to the respondent was to rate each
concept on a seven-point scale ranging from "Not Likely to Buy" to "Certain to Buy". 18 of the 22 profiles were used to estimate the
conjoint model, while the last 4 were “held out” to validate the model.

Data
The data from the conjoint experiment are in an Excel file called “lab1_data.xls.” The 22 profiles are described in terms of their
attributes and levels. Also provided are the ratings of each of the 22 profiles on the seven-point scale, for each respondent.
Assignment Questions
1. Estimate the part-worth functions for each of the respondents using the first 18 profiles. Use the Excel function "linest".
(1 point)
2. Use bar charts to depict the average (across respondents) part-worth for each attribute-level separately. From
a managerial standpoint, what can we conclude from the generated bar graph? (1 point)
3. Compute the relative importance of the attributes for each respondent separately. Then, use bar charts to depict the average
(across respondents) importance graphically. From a managerial standpoint, using the generated bar chart comment briefly on
what you learn about the preferences of this sample of consumers. (2 point)

4. Market Segmentation
At the time when the conjoint exercise was done, the built-in projector was not available in current products in the market.
ProPhone.com's research and development team was on the verge of a breakthrough in providing a digital built-in projector
in smartphones. A key marketing question was whether there was a segment of the market that placed high preference on a
built-in projector, and what they would be willing to pay for this feature.
You have been summoned to the office of the Director of Pricing. All he wants to know is for the folks who have high
importance for the built-in projector, what are they willing-to-pay for this feature? Simply group your sample of 100
consumers into the top 25 consumers in terms of importance of a built-in projector, versus the rest. Graphically depict the
average attribute importance (of all attributes) of the segment with high preference for the projector and contrast this with the
segment with low preference for the projector. What do you learn about the difference between these two segments?
Compute a rough estimate of the willingness to pay for the projector for the high-projector-preference segment, and for the
low-projector-preference segment. Comment in one sentence on the difference. (4 points)

Market Simulation
5. We will now simulate choices of each respondent in a hypothetical market consisting of three competing smartphones:
• ProPhone.com’s two current models (Hand I, Hand II), and
• Its primary competitor (Link)
The three profiles are provided in the spreadsheet under the tab Market Simulation. Two alternative rules, discussed in class,
may be used to translate preferences into consumer choices – the first choice rule, and the share of preference rule. Compute
predicted market shares in this hypothetical market under each rule. Comment in two sentences on the difference between the
rules. (4 points)
6. Next we will examine the impact of enhancing ProPhone.com's Hand II by adding a built-in projector, holding constant the
price and all other features. Compute the new market shares using the first choice rule. Comment on the predicted gains and
losses in market shares relative to what you found in question 10 above. Focus on gains from competition versus
cannibalization. (2 points)
7. If the marginal costs of adding a built-in projector is $65, and fixed cost is zero, how much incremental profit does
ProPhone.com realize by including Hand II with and without a built-in projector? (Treat the market for ProPhone.com being
the 100 survey respondents). (2 points)

THE PAGE LIMIT FOR THIS ASSIGNMENT IS FOUR PAGES, INCLUDING ALL TABLES AND GRAPHS. PLEASE SUBMIT
ONLY A COPY PER TEAM. BE PREPARED TO SUBMIT A SPREADSHEET IF I ASK FOR IT.