Toy Horse Conjoint Experiment

Case Assignment

MSBA Cohort 2 Group 22

Pin Li, Jiawen Liang, Ruiling Shen, Chenxi Tao, Khanh Tran
Benefit Segmentation
Decision-oriented Analysis Product Profiles
❏ Context
Price Height Motion Style
Underperforming product set
4 attributes
Fierce competition $139.99 18’’ Rocking Glamorous
Undefined consumers
16 profiles
❏ Tool $119.99 26’’ Bouncing Racing
Conjoint Analysis
❏ Analytical Goals Demographic Information of Respondents
Benefit segmentation
Product revitalization
❏ Data
Survey data 2 yrs old 3~4 yrs old Male Female
- 200 respondents 50.5% 49.5% 54.0% 46.0%
❏ Method
A priori segmentation
- Demographic information
Post-hoc segmentation
· A quota sample
- Individual part-utilities · Equal weight on the age range
· Can represent the population of buyers Source: respondentData
Market Segmentation
Priori Segmentation

Age & Gender Gender Findings:

1. Age & Gender Segmentation

insignificant.
2. Age Segmentation insignificant.
3. Gender Segmentation is
significant.

Age

Gender Segmentation
Market Segmentation
Benefit Segmentation

Optimal Number of Segments: 3

highest average silhouette width
three clear, discrete group
Market Segmentation
Conclusion

Priori Segmentation Benefit Segmentation

Motion Price Size Style Motion Price Size Style

Ideal Product: Ideal Product:

4 & 16 4 & 14 & 16

The optimal product set from two segmentation are mostly consistent.
These products are recommended inputs for the scenarios in Market Simulation.
Market Simulation Market Share

Methodologies
Simulate market share and profitability in 4
scenarios, in which we launch product:
(1) 5 and 13 (current market)
(2) 4, 14 and 16 (ideal products from post-hoc analysis)
(3) 4 and 16 (ideal products from priori segmentation)
(4) 14 and 16

Competitor’s response: lower their price to Scenario 1 Scenario 2

$119.99 to keep market share.

Findings:
In Scenario 2 with product 4, 14 and 16, we yield
the largest market share.

Scenario 3 Scenario 4
Market Simulation
Scenario 1 (current market) Profitability over 10 years
Our Products:
profile 5: 18” Glamorous Rocking Horse at $139.99
profile 13: 18” Racing Rocking Horse at $139.99

Competitor’s Product:
profile 7: 26” Racing Rocking Horse at $139.99

Findings:

1. Competitor currently takes up the largest

proportion of market share (57%).
2. Profile 5 and profile 13 has an annual margin of
Market Share Annual Margin
$69,512 and $66,353 respectively.
Market Simulation
Scenario 2 (ideal products from post-hoc analysis) Profitability over 10 years
Our Products:
profile 4: 26” Racing Bouncing Horse at $119.99
profile 14: 18” Racing Bouncing Horse at $119.99
profile 16: 18” Glamorous Rocking Horse at $119.99

Competitor’s Product:
profile 8: 26” Racing Rocking Horse at $119.99

Findings:

Profile 4 accounts for the largest market share (35.5%),

Market Share Annual Margin and the greatest proportion of profit annually, with a total
margin of $95,127.
Market Simulation
Scenario 3 (ideal products from priori segmentation) Profitability over 10 years
Our Products:
profile 4: 26” Racing Bouncing Horse at $119.99
profile 16: 18” Glamorous Rocking Horse at $119.99

Competitor’s Product:
profile 8: 26” Racing Rocking Horse at $119.99

Findings:
Profile 16 accounts for the largest market share(46.5%),
Market Share Annual Margin and the greatest proportion of profit annually, with a total
margin of $102,285.
Market Simulation
Scenario 4: Profitability over 10 years
Our Products:
profile 14: 18” Racing Bouncing Horse at $119.99
profile 16: 18” Glamorous Rocking Horse at $119.99

Competitor’s Product:
profile 8: 26” Racing Rocking Horse at $119.99

Findings:
1. Competitor’s product takes up the largest proportion
Market Share Annual Margin of market share (40.5%).
2. Profile 16 and profile 14 has an annual margin of
$80,288 and $57,953 respectively.
 Comparison for Profitability
Scenarios

Offering profile 4, 14 and 16 yields the highest profitability!

 SUMMARY Recommended
Market
Segmentation Product Line
Priori Segmentation Most Profitable
Market
2 Customer Segments Scenario
Simulation Competitor: 8
Preferred Product:
4 &16 Our Products:
Scenario Combination
4 & 14 & 16
Competitor Response
Benefit Segmentation $119.99
26” Racing Bouncing Horse
3 Customer Segments Market Share $119.99
Preferred Product: Profitability 18” Racing Bouncing Horse
4 & 14 & 16 (short-run, long-run) $119.99
18” Glamorous Rocking Horse
 GBA424: Analytics Design - Assignment 3
Pin Li, Jiawen Liang, Ruiling Shen, Chenxi Tao, Khanh Tran
2/2/2020

Setup

rm(list = ls())

# Set up environment and load datasets

dir="E:/Studying/Simon/Classes/GBA424 - Analytics Design/Assignments/Assignment 3"
setwd(dir)
load("GBA424 - Toy Horse Case Data.Rdata")
require("cluster")

## Loading required package: cluster

require("fpc")

## Loading required package: fpc

## Warning: package 'fpc' was built under R version 3.6.2

require("factoextra")

## Loading required package: factoextra

## Warning: package 'factoextra' was built under R version 3.6.2

## Loading required package: ggplot2

## Warning: package 'ggplot2' was built under R version 3.6.2

## Welcome! Want to learn more? See two factoextra-related books at https://goo.gl/ve3WBa

require("gridExtra")

## Loading required package: gridExtra

## Warning: package 'gridExtra' was built under R version 3.6.2

library(cluster)
library(fpc)
library(factoextra)
library(gridExtra)
library(reshape)

Part A

1
################################
# PART A #
################################

## Use regression to estimate the conjoint model at the individual level

# Create new dataset for part A

indi_data = conjointData

# Subset the data to train the model

indi_training = indi_data[!(is.na(indi_data$ratings)),]
indi_missing = indi_data[is.na(indi_data$ratings),]

# Store the coefficients

numIDs = length(unique(conjointData$ID)) # Number of respondents
partworths1 = data.frame(ID = 1:numIDs, intercept = NA, price = NA,
size = NA, motion = NA, style = NA)
indi_pred = list() # List that saves predicted ratings of missing profiles
for (num in 1:numIDs){
data.training.sub = subset(indi_training, ID == num)
data.missing.sub = subset(indi_missing, ID == num)
lm = lm(ratings~price+size+motion+style,data = data.training.sub)
partworths1[num, 2:6] = lm$coefficients
indi_pred = append(indi_pred,predict(lm,data.missing.sub))
}

# Replace NA ratings with predicted ratings for missing profiles

indi_data$ratings[is.na(indi_data$ratings)] = unlist(indi_pred)

Part-utilities of the conjoint model at the individual level are stored in the ‘partworths1’. The NAs in the
survey data are replaced by the predictions for missing profiles.

Part B

################################
# PART B #
################################
source("ConjointCode.R")

## Evaluate number of clusters to use on data with visualizations

checkClust = clustTest(partworths1[,2:6],print=TRUE,scale=TRUE,maxClusts=10,
seed=12345,nstart=20,iter.max=100)

2
 Optimal number of clusters Optimal number of clusters
1000

0.6
Total Within Sum of Square

Average silhouette width

750

0.4

500

0.2

250

0.0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Number of clusters k Number of clusters k

clusts = runClusts(partworths1[,2:6],c(2,3,4,5),print=TRUE,maxClusts=4,
seed=12345,nstart=20,iter.max=100)

3
 page 1 of 1
k=2 k=4
1 1 cluster
Dim2 (22.4%)

Dim2 (22.4%)
cluster 1
0 0
1 2
−1 −1
2 3

−2 −2 4

−3 −2 −1 0 1 2 3 −3 −2 −1 0 1 2 3
Dim1 (68.1%) Dim1 (68.1%)

k=3 k=5
cluster
1 1
Dim2 (22.4%)

Dim2 (22.4%)
cluster 1
0 1 0 2

−1 2 −1 3
3 4
−2 −2
5
−3 −2 −1 0 1 2 3 −3 −2 −1 0 1 2 3
Dim1 (68.1%) Dim1 (68.1%)

The optimal number of clusters is 3, where the average silhouette width is the highest, and the customer
can be separated in to 3 non-overlapped groups of people with different preferences.

## Plot clusters with nClusters = 3

plotClust(clusts[[1]][[2]],partworths1)

4
 1 = 40%
2 = 26%
3 = 34%

CLUSPLOT( toClust )
Component 2

12058
94
31
41 194
140
71 2 2 150
187
186
168 180
188163
199189
172
16 52
166
42 88
117
127
1214 51
92
76 110
84
96
167
177
74
60178972
105
113
65
111
61 152
162
103
6181
98 85 159
3190
193 195 33 28 165 164
146197
179122192
183
25
124
174
118
148
136 1
191
184
11 185
178198
128 145
126 69
170 46 86
116
155123
157 175 10990 141
182 99
18 133
80 153
119
63 93 139
176
70
107
95
138
154
156 147
142
114 196
78 144
160
81 171
173 50 4169
40 200
134 48
56125
37
132
1073
875
100 158
35
4591
5 108
79
53115
−1

661298727323 22
101 20
38 135
130149 143
13
67 161
49 104 15
68
44 24
39 54
83112
10697
64
121
29 32 77
43 36
55
21
19
62
597
30 110282151
57 131
47
137 34926

−3 −2 −1 0 1 2 3

Component 1
These two components explain 75.88 % of the point variability.

Cluster Means
−10 50

46.1
31.5 40.9 22.5 11.6
8.9 5.3 16.6 10.0 7.0 11.0
−6.6 −9.4 −6.6 0.5

intercept price size motion style

# Cluster means
partworths1_seg = as.data.frame(clusts[[1]][[2]]$centers)
partworths1_seg

## intercept price size motion style

## 1 31.50291 22.474947 5.348628 -9.434120 -6.6285255
## 2 40.88116 11.564861 -6.561319 10.038882 0.4726337
## 3 46.13706 8.938311 16.593109 6.965209 10.9539010

In the post-hoc segmentation, we use 3 clusters. The sign and magnitude of attribute coefficients indicate
the preference of consumers within certain attributes, with positive sign meaning consumers prefer that
attribute. We can use this result to support our product line decision.
Ideal product for each segment
Segment 1: prefer lower price, bigger size, bouncing motion and racing style. → Profile 4
Segment 2: preder lower price, smaller size, rocking motion and glamour style. → Profile 14
Segment 3: preder lower price, bigger size, rocking motion and glamour style. → Profile 16

Part C

################################
# PART C #
################################

5
# Create new dataset for part C
seg_data = conjointData

## Conduct a priori segmentation using the variabkes gender and age

demo = as.data.frame(lapply(respondentData,as.factor)) # demographic info

# Create 3 segmentations by age, by gender, and by age & gender

demo_seg1 = kmeans(x=demo[,2:3], centers = 4, nstart = 1000) # age & gender (4 clusters)
demo_seg2 = kmeans(x=demo[,2], centers = 2, nstart = 1000) # age (2 clusters)
demo_seg3 = kmeans(x=demo[,3], centers = 2, nstart = 1000) # gender (2 clusters)

# Merge cluster id with the original conjoint data

cluster_id = data.frame(ID = demo$ID,
seg1=factor(demo_seg1$cluster),
seg2=factor(demo_seg2$cluster),
seg3=factor(demo_seg3$cluster))
seg_data = merge(seg_data, cluster_id,by = "ID", all.x = T)

# Subset training and missing data

seg_training = seg_data[!(is.na(seg_data$ratings)),]
seg_missing = seg_data[is.na(seg_data$ratings),]

To test whether priori segmentations affect part-utilities, we run regressions with interactions of the segment
dummies with each attribute.
Segmentation 1: By age and gender

# Segmentation 1 by age and gender

summary(lm(ratings~price+size+motion+style+
price*seg1+size*seg1+
motion*seg1+style*seg1,
data=seg_training))[[4]]

## Estimate Std. Error t value Pr(>|t|)

## (Intercept) 40.3828391 1.310593 30.8126462 9.855947e-176
## price 13.6446118 1.228081 11.1105104 5.374151e-28
## size 9.4914412 1.175798 8.0723367 1.083173e-15
## motion 2.0536536 1.175798 1.7466034 8.083515e-02
## style 3.8353065 1.175798 3.2618740 1.122419e-03
## seg12 -5.3905360 2.082565 -2.5884120 9.700640e-03
## seg13 -2.6048124 1.931992 -1.3482519 1.777057e-01
## seg14 1.1196003 1.986693 0.5635497 5.731137e-01
## price:seg12 5.1194739 1.951452 2.6234178 8.760826e-03
## price:seg13 1.7460060 1.810359 0.9644529 3.349169e-01
## price:seg14 -0.3126248 1.861616 -0.1679319 8.666511e-01
## size:seg12 -3.7054922 1.868373 -1.9832722 4.745179e-02
## size:seg13 -7.1289830 1.733287 -4.1129851 4.038368e-05
## size:seg14 -3.9889956 1.782362 -2.2380394 2.531065e-02
## motion:seg12 -6.0030956 1.868373 -3.2130070 1.331076e-03
## motion:seg13 -0.3604476 1.733287 -0.2079561 8.352810e-01
## motion:seg14 1.9603507 1.782362 1.0998613 2.715038e-01
## style:seg12 -6.9041865 1.868373 -3.6952935 2.245875e-04
## style:seg13 -4.8176418 1.733287 -2.7794833 5.487330e-03
## style:seg14 -0.2488841 1.782362 -0.1396373 8.889584e-01

6
The interaction coefficients between segmentations and attributes are not entirely significant, so we consider
testing whether gender or age is meaningful for business segmentation.
Segmentation 2: By age

# Segmentation 2 by age
summary(lm(ratings~price+size+motion+style+
price*seg2+size*seg2+
motion*seg2+style*seg2,
data=seg_training))[[4]]

## Estimate Std. Error t value Pr(>|t|)

## (Intercept) 39.54618223 1.0867243 36.39026357 4.223074e-231
## price 14.41328802 1.0183069 14.15416914 9.781338e-44
## size 3.85315922 0.9749546 3.95214210 7.970172e-05
## motion 2.79499918 0.9749546 2.86679924 4.182755e-03
## style 1.18667087 0.9749546 1.21715497 2.236654e-01
## seg22 -1.29820883 1.5292330 -0.84892805 3.960063e-01
## price:seg22 1.25883815 1.4329565 0.87849016 3.797661e-01
## size:seg22 4.17076027 1.3719514 3.04002051 2.391276e-03
## motion:seg22 -3.11880912 1.3719514 -2.27326508 2.309859e-02
## style:seg22 -0.08569567 1.3719514 -0.06246261 9.501997e-01

The segmentation here only affects part-utilities of size attribute.

Segmentation 3: By gender

# Segmentation 3 by gender
summary(lm(ratings~price+size+motion+style+
price*seg3+size*seg3+
motion*seg3+style*seg3,
data=seg_training))[[4]]

## Estimate Std. Error t value Pr(>|t|)

## (Intercept) 36.5668426 1.0739178 34.0499449 1.606196e-207
## price 16.8573429 1.0063067 16.7516948 1.215027e-59
## size 3.8509324 0.9634653 3.9969600 6.610460e-05
## motion -0.7601191 0.9634653 -0.7889429 4.302236e-01
## style -1.8895287 0.9634653 -1.9611797 4.997401e-02
## seg32 4.3032300 1.4614170 2.9445599 3.265352e-03
## price:seg32 -3.3487809 1.3694100 -2.4454188 1.454011e-02
## size:seg32 3.9045569 1.3111102 2.9780539 2.930023e-03
## motion:seg32 3.6668883 1.3111102 2.7967811 5.202755e-03
## style:seg32 5.6165245 1.3111102 4.2837927 1.910028e-05

The interation coefficients are significant in segmentations by gender.

Conclusion
From the significant effect of gender segmentation to all the four attributes, we can safely conclude that
gender is the most meaningful factor to use for a priori segmentation. Meanwhile, age does not play such an
important role as gender with insignificant effects to price and style.
We will use only gender to do priori demographic segmentation.

7
## Segment-level regressions
partworths2_seg = data.frame(cluster = 1:2, intercept = NA, price = NA,
size = NA, motion = NA, style = NA)
for (seg in 1:2){
data.sub = subset(seg_training, seg3 == seg)
lm = lm(ratings~price+size+motion+style, data=data.sub)
partworths2_seg[seg, 2:6] = lm$coefficients
}
partworths2_seg

## cluster intercept price size motion style

## 1 1 36.56684 16.85734 3.850932 -0.7601191 -1.889529
## 2 2 40.87007 13.50856 7.755489 2.9067692 3.726996

We’ll only get 2 sets of part-utilities instead of 200. But at least one set of part-utilities for attributes varies
significantly across segments, and can be used for target different optimal products.
Ideal product for each segment
Segment 1: prefer lower price, bigger size, bouncing motion and racing style. → Profile 4
Segment 2: preder lower price, bigger size, rocking motion and glamour style. → Profile 16

Part D

#################################
# PART D #
#################################

# Prepare data for analysis

ratingData = cast(indi_data, ID ~ profile, value="ratings")
ratingData = ratingData[, -1] # Remove the ID column

# Function to calculate market share and deal with tie decisions

simFCSharesTie = function(scen,data,ascend=FALSE){
inmkt = data[,scen]
if(ascend){
bestOpts = apply(inmkt,1,min)
} else {
bestOpts = apply(inmkt,1,max)
}

decisions = inmkt == bestOpts

decisionsTie = decisions / rowSums(decisions)
mkShare = colSums(decisionsTie)/sum(decisionsTie)
mkShare
}

Set up scenarios
Our current products’ profile IDs are 5 and 13, and the competitor’s profile ID is 7. We will simulate the
scenarios in which we launch ideal products from part B and part C, considering the competitor’s reponse
by reducing his price.
Senarios:

8
 Scenario Our Products Competitor’s Product
1 (Original) 5, 13 7
2 (Part B) 4, 14, 16 7
3 (Part B) 4, 14, 16 8
4 (Part C) 4, 16 7
5 (Part C) 4, 16 8
6 14, 16 7
7 14, 16 8

## Set up scenarios
scens = list()
scens[[1]]=c(5,13,7)
scens[[2]]=c(4,14,16,7)
scens[[3]]=c(4,14,16,8)
scens[[4]]=c(4,16,7)
scens[[5]]=c(4,16,8)
scens[[6]]=c(14,16,7)
scens[[7]]=c(14,16,8)

## Market Share
sapply(scens,simFCSharesTie,data=ratingData, ascend=FALSE)

## [[1]]
## 5 13 7
## 0.22 0.21 0.57
##
## [[2]]
## 4 14 16 7
## 0.40 0.25 0.35 0.00
##
## [[3]]
## 4 14 16 8
## 0.355 0.220 0.340 0.085
##
## [[4]]
## 4 16 7
## 0.405 0.595 0.000
##
## [[5]]
## 4 16 8
## 0.355 0.465 0.180
##
## [[6]]
## 14 16 7
## 0.300 0.695 0.005
##
## [[7]]
## 14 16 8
## 0.230 0.365 0.405

In scenario 2, 4, 6, the competitor’s share decreases tremendously so we assume that he will decrease his price
in response (i.e., changing from profile 7 to profile 8). Hence we remove these scenarios and move forward

9
with scenario 1, 3, 5, 7. After simulating the market share, we will simulate short-term and long-term
profitability.

## Simulate profitability
# Variable cost
variableCost = profilesData
variableCost$varCost[variableCost$size==0 & variableCost$motion==1] = 33 # 18" Rocking
variableCost$varCost[variableCost$size==1 & variableCost$motion==1] = 41 # 26" Rocking
variableCost$varCost[variableCost$size==0 & variableCost$motion==0] = 21 # 18" Bouncing
variableCost$varCost[variableCost$size==1 & variableCost$motion==0] = 29 # 26" Bouncing

# Function to calculate profitability over years

profitFunc = function(scen, data, year=1) {
marketShares = simFCSharesTie(scen, data, ascend=FALSE)

ourProducts = scen[-length(scen)] # exclude competitor's share

ourMarketShare = marketShares[1:length(ourProducts)]

quantity = ourMarketShare*4000
price = profilesData$priceLabel[profilesData$profile %in% ourProducts]*100/125
varCost = variableCost$varCost[variableCost$profile %in% ourProducts]
fixCost = 20000*length(ourProducts)*year +
sum(!(ourProducts %in% c(5, 13, 6, 14)))*1/3*20000

margin = (price-varCost)*quantity
profit = sum(margin)*year - fixCost
results = list(profit, margin)
results
}

First we calculate annual margin for each product in each scenario.

# Annual margin for each product

productMargin = lapply(scens[c(1, 3, 5, 7)],
function (x) profitFunc(x,
data=ratingData,
year=1)[[2]])
productMargin

## [[1]]
## 5 13
## 69512.96 66353.28
##
## [[2]]
## 4 14 16
## 95128.64 55432.96 74789.12
##
## [[3]]
## 4 16
## 95128.64 102285.12
##
## [[4]]
## 14 16
## 57952.64 80288.32

10
Then we look at overall profitability of the company over years.

# Calculate overall profit

profitData = matrix(nrow=10, ncol=4)
colnames(profitData) = c("'5,13,7'", "'4,14,16,8'", "'4,16,8'", "'14,16,8'")
rownames(profitData) = paste("Year", 1:10)

for (year in 1:10) {

profitData[year, ] = sapply(scens[c(1, 3, 5, 7)],
function (x) profitFunc(x,
data=ratingData,
year=year)[[1]])
}

profitData

## '5,13,7' '4,14,16,8' '4,16,8' '14,16,8'

## Year 1 95866.24 152017.4 144080.4 91574.29
## Year 2 191732.48 317368.1 301494.2 189815.25
## Year 3 287598.72 482718.8 458907.9 288056.21
## Year 4 383464.96 648069.5 616321.7 386297.17
## Year 5 479331.20 813420.3 773735.5 484538.13
## Year 6 575197.44 978771.0 931149.2 582779.09
## Year 7 671063.68 1144121.7 1088563.0 681020.05
## Year 8 766929.92 1309472.4 1245976.7 779261.01
## Year 9 862796.16 1474823.1 1403390.5 877501.97
## Year 10 958662.40 1640173.9 1560804.3 975742.93

Scenario 3 (2nd column), in which we sell profile 4, 14, 16 and the competitor sell profile 8, yields the highest
profit both in short term and long term.

apply(profitData, 1, which.max)

## Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

## 2 2 2 2 2 2 2 2 2
## Year 10
## 2

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