Conjoint analysis is a technique that allows managers to analyze how customers make trade-offs. It can be used to understand how customers make trade-offs in benefits (and thereby can be used to ultimately segment a market) or understand how customers make trade-offs in attributes, and this can be highly useful in designing products (say, for helping to calibrate the precise level of an attribute that customers desire), understanding price sensitivity, and other practical issues.

What makes conjoint so useful from a practical sense is that the data you require is ranking data. That is, you just need to know how customers would rank various product configurations, rather than asking them for their specific preferences (e.g., how much do they care about a various benefit or attribute). As a result, this is known as an "unfolding" technique since preferences unfold from customer rankings.

There are many caveats to using this technique, but let me assure you that even with various limitations this is powerful. Among the limitations include the fact that key benefits or attributes must be known in advance, rather than uncovered through the process. Focus groups and other qualitative research can be used prior to the conjoint. Also, since the technique is based on rankings, specific product configurations must be constructed and the analysis is done on these a priori configurations. Thus, the analysis provides information for only those configurations that are used, and not on other alternative configurations. Again, this limitation can be addressed through understanding consumers and the limitations in product development (like R&D limitations).

There are many useful books for understanding conjoint analysis, and for those interested I would suggest the book by Urban and Hauser in Books. There are also several software packages that now allow you to do a conjoint study (Sawtooth software is an example). Read a good practical overview here.

For our purposes, let me show you a simple example of how conjoint works. We will do this with what is known as a "full profile" presentation (taking all benefits or attributes at the same time). In contrast, the practical overview noted above does an alternative presentation known as "trade-off matrices" (or taking two benefits or attributes at a time). Click here to give it a try.