Jones.Zak Conjoint Analysis Tool Summary

Conjoint Analysis Consulting Report

April 25

2015

This report is based on a conjoint analysis study pertaining to the cell phone industry. The recommendations and analysis to follow have significant strategic importance and should be taken into careful consideration by Samsung management.

Zak JonesMKT 534Analytical Tools for Marketers

Conjoint Analysis Consulting Report 2015

TABLE OF CONTENTS

Executive Summary 3

What Is Conjoint Analysis? 4

Why Use Conjoint Analysis? 4

What assumptions must we make? 4

How Is a Conjoint Analysis Research Study Conducted? 5

Step 1: Define the core product and identify relevant features and levels: 5

Step 2: Define the nature of stimuli and create product profiles. 5

Step 3: Choose and list relevant subsets of product combinations 6

Step 4: Present profiles by obtaining preferences data and feilding a large-sample survey 6

Step 5: Analyze Data and Interpret Output 7

Creating the conjoint anlaysis bar chart: 7

Managerial outputs from conjoint analysis 7

Determine Feature Importance: 7

Better understand the customer value structure: 8

Find the best product based on total utility: 8

Calculate market share: 8

Simulate market share and profitability: 8

Identify Barrier to Entry: 9

Strengths and weaknesses of conjoint analysis 9

Recommendations for Samsung Galaxy S6: 9

Appendix: 10

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EXECUTIVE SUMMARY

A CONJOINT ANALYSIS STUDY HAS BEEN CONDUCTED ON THE CELL PHONE INDUSTRY. THIS STUDY USED A SERIES OF FEATURES, LEVELS, AND PROFILES TO IDENTIFY THE IDEAL PRODUCT CONSUMERS ARE LOOKING FOR. WHILE SAMSUNG IS ONE OF THE INDUSTRY LEADERS IN THE TELECOMUNICATIONS INDUSTRY THERE ARE SEVERAL KEY FACTORS THAT THEY COULD IMPLIMENT IN ORDER TO GAIN MORE MARKET SHARE. THE CELL PHONE INDUSTRY IS A MATURE INDUSTRY THAT IS GROWING AT A RAPID PACE DUE TO THE EMERGENCE OF NEW TECHNOLOGY, A SATURATED MARKET, AND THE EVER INCREASING NEED FOR INDIVIDUALS TO STAY CONNECTED.

WITH CONSUMERS UTILIZING THEIR PHONES FOR MORE INFORMATION AND REASONS BATTERY LIFE HAS BECOME A PIVITAL FEATURE FOR MOST PEOPLE. INDUSTRY STANDARDS FOR EXPECTED “TALK TIME” OF A BATTERY ARE ABOUT SIX HOURS, BUT CONSUMERS WOULD PREFER IF THEIR PHONES WOULD ENDURE NINE HOURS OF TALK TIME ON A SINGLE CHARGE.

NETWORK PROVIDERS ARE ALSO A KEY FEATURE FOR MOST PEOPLE. THE EMERGENCE OF DATA, DOWNLOADING, AND GPS ON PHONES HAS INCREASED OUR NEED FOR FASTER AND MORE RELIABLE NETWORKS. MANY PHONES ARE ONLY AVAVIALBE ON SPECIFIC NETWORKS AND THIS CAN GREATLY INFLUENCE THE PURCHASE DECISIONS OF CONSUMERS.

IT IS NOT SURPRISING THAT MANY CONSUMERS ARE PRICE SENSITIVE TO PHONES AS WELL. THIS STUDY USED SEVERAL LEVELS OF PHONE PRICES COMBINED WITH CONTRACT TERMS AS WELL AS PURCHASING A PHONE OUTRIGHT WITHOUT A BINDING CONTRACT. IT SHOULD BE KNOWN THAT MANY PEOPLE FEEL THAT THE STANDARD TWO-YEAR CONTRACT IN BETWEEN PHONE UPGRADES IS VIEWED AS RESTRICTIVE AND PROBLEMATIC FOR MANY PEOPLE.

PHONES SERVE MORE FUNCTIONS THAN SENDING TEXTS, EMAILS, AND MAKING PHONE CALLS THESE DAYS. PEOPLE USE THEM AS PORTABLE MUSIC PLAYERS, DAILY PLANNERS, ENTERTAINMENT, AND SOCIAL DEVICES AS WELL. THIS REQUIRES INCREASED ON BOARD STORAGE. THE TRADITIONAL 16 TO 32 GIGABITS OF STORAGE IS VIEWED AS A BARE MINIMUM, AND CONSUMERS WOULD LIKE TO SEE PHONES INCREASE THEIR CAPACITY.

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WHAT IS CONJOINT ANALYSIS?

CONJOINT ANALYSIS IS A DATA-DRIVEN CONSUMER INSIGHT TOOL THAT SHOWS THE RELATIVE VALUE THAT CONSUMERS ASSIGN TO VARIOUS FEATURES AND LEVELS OF A PRODUCT OR SERVICE. SIMPLY STATED CONJOINT ANALYSIS BREAKS PRODUCTS DOWN INTO INDIVIDUAL FEATURES TO DETERMINE THE UTILITY OR “HAPPINESS” THAT CONSUMERS RECEIVE FROM THAT FEATURE. FOR THE PURPOSE OF CONJOINT ANALYSIS IT IS IMPORTANT THAT YOU VIEW PRODUCTS AS A CONGLOMORATE OF FEATURES.

WHY USE CONJOINT ANALYSIS?

CONJOINT ANALYSIS IS A VERY HELPFUL MARKETING TOOL IN A VARIETY OF SITUATIONS. ONE OF THE FIRST REASONS CONJOINT ANALYSIS SHOULD BE CONSIDERED IS TO LAUNCH NEW PRODUCTS OR SERVICES. A CONJOINT STUDY CAN IDENTIFY THE APPROPRIATE FEATURE SET TO ATTRACT CONSUMERS PRIOR TO DEVELOPMENT AND RELEASE. IT WILL ALSO HELP CALCULATE PRICE SENSITIVITY AND TARGET PRICE FOR A NEW PRODUCT OR LINE EXTENSION. FURTHERMORE; CONJOINT ANALYSIS CAN ASSIST IN TAKING THE APPROPRIATE REACTIONARY MESSURES TO A COMPETITORS PRODUCT/LAUNCH STRATEGY. AND LASTYLY IT CAN HELP IDENTIFY THE BREAK EVEN NUMBERS IN ORDER TO JUSTIFY THE CREATION, MANUFATURING, AND LAUNCH OF A NEW PRODUCT OR SERVICE. MANY INDUDSTRY PROFESSIONALS BELIVE THAT CONJOINT ANALYSIS IS ONE OF THE MOST POWERFUL MARKTING TOOLS CURRENTLY AVAILABLE TO COMPANIES.

WHAT ASSUMPTIONS MUST WE MAKE?

IN ORDER TO PROPERLY CONDUCT A CONJOINT ANALYSIS RESEARCH STUDY THERE ARE THREE ASSUMTIONS YOU NEED TO MAKE.

EVERY PRODUCT IS A BUNDLE OF FEATURES AND NOTHING MORE THAN THAT. THIS ASSUMPTION IS IMPORTANT BECAUSE PEOPLE DON’T BUY PRODUCTS; THEY BUY A JOB THAT NEEDS TO BE DONE. THE OVERALL QUALITY OF THAT JOB IS CREATED BY THE FEATURES AND LEVELS OF FEATURES AVAILABLE IN THE PRODUCT. “WE DON’T BUY A DRILL, WE BUY THE HOLE THAT IT MAKES”

BY CHANGING A SINGLE FEATURE OR FEATURE LEVEL YOU CREATE AN ENTIRELY NEW PRODUCT. A GOLD IPHONE IS NOT THE SAME AS A GREY IPHONE. WHILE THEY SERVE THE EXACT SAME FUNCTION AND MAY BE IDENTICAL IN ALL OTHER FEATURE LEVELS THEY ARE ENTIRELY DIFFERENT PRODUCTS.

SIMILAR TO THE SECOND ASSUMPTION, A CHANGE IN A SINGLE PRODUCT FEATURE OR LEVEL COMPLETELY CHANGES CONSUMER PREFERENCES. USING CELL AS AN EXAMPLE AGAIN, A SAMSUNG GALAXY NOTE WITH 16 GIGABITS OF STORAGE MAY BE APPEALING TO ONE PERSON WHILE ANOTHER PERSON IS ONLY INTERESTED IN THE SAME PHONE WITH 64 GIGABITS OF STORAGE. A CHANGE IN FEATURE LEVEL CAN CHANGE THE JOB TO BE DONE AND THE CONSUMER PREFERENCE TOWARDS THAT PRODUCT.

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HOW IS A CONJOINT ANALYSIS RESEARCH STUDY CONDUCTED?

CONJOINT ANALYSIS IS CONDUCTED IN A SERIES OF FIVE STEPS THAT ARE CLEARLY DESCRIBED BELOW, AS WELL AS REFERENCED IN THE APPENDIX SECTION OF THE REPORT.

STEP 1: DEFINE THE CORE PRODUCT AND IDENTIFY RELEVANT FEATURES AND LEVELS:

DEFINING THE CORE PRODUCT IS THE FIRST STEP IN CONDUCTING A CONJOINT ANALYSIS RESEARCH STUDY. AS STATED IN THE ASSUMPTIONS SECTION, A PRODUCT IS A SET OF FEATURES AT SPECIFIC LEVELS. WITH THAT BEING SAID, DEFINING THE CORE PRODUCT RELIES ON OUR ABILITY TO IDENTIFY THE RELEVANT FEATURES AND LEVELS. AN IMPORTANT ASPECT IN IDENTIFIYING THE RELEVANT FEATURES IS THAT THEY SHOULD BE DIFFERENTIATING. TEST THE FEATURES THAT SET YOUR PRODUCT/SERVICE APART FROM YOUR COMPETITORS. BY TESTING THESE FEATURES YOU WILL BE ABLE TO IDENTIFY WHERE YOU HAVE A COMPETITIVE ADVANTAGE AND HOW TO LEVERAGE YOUR CORE COMPENTISIES.

WHEN SELECTING THE FEATURES YOU WISH TO TEST BE SURE TO LIMIT THE NUMBER TO AROUND SEVEN. PSYCHOLOGY HAS PROVEN THAT HUMANS CAN ONLY HOLD ABOUT FIVE (PLUS OR MINUS TWO) PIECES OF INFORMATION IN THEIR BRAIN AT ONE TIME. OVER COMPLICATING THE PRODUCT WITH DOZENS OF FEATURES WILL CONFUSE RESPONDANTS AND HINDER THE QUALITY OF THE RESEARCH. GIVE EACH FEATURE THREE LEVELS; MAXIMUM, MINIMUM, AND MIDPOINT. THIS WILL ALLOW FOCUS GROUPS AND SURVEY RESPONDANTS TO TELL YOU WHAT FEATURES AND LEVELS WOULD MOST INSPIRE THEM TO SWITCH BRANDS, SERVICES, OR CATEGORIES. Refer to Exhibit 1

STEP 2: DEFINE THE NATURE OF STIMULI AND CREATE PRODUCT PROFILES.

WE CREATE PRODUCT PROFILES USING THE FEATURES AND LEVELS DEFINED IN STEP ONE. HOWEVER, WITH SEVEN FEATURES AND THREE LEVELS OF EACH FEATURE THE TOTAL NUMBER OF POSSIBLE PROFILE COMBINATIONS IS EQUAL TO 2187 (THREE TO THE POWER OF 7). ASKING SURVEY RESPONDANTS TO RATE/RANK THIS NUMBER OF PROFILES IS COSTLY AND WOULD RESULT IN POOR DATA. IN ORDER TO SIMPLIFY THE PROCESS WE USE A TOOL CALLED THE ORTHOGONAL EXPERIMENTAL DESIGN. THIS SIMPLE MATRIX OF ZEROS AND ONES HELPS US CREATE 18 PRODUCT PROFILES THAT WILL SIMULATE ALL 2187 POSSIBLE COMBINATIONS.

PROFILES CAN REPRESENT PRODUCTS IN ANY PHAZE OF THE PRODUCTION PROCESS, FROM ACTUAL FINAL PRODUCTS TO PROTOTYPES AND CONCEPTS. THE FURTHER ALONG THE PRODUCT IS IN THIS PROCESS THE MORE TIME, MONEY, AND RESOURCES WILL HAVE BEEN USED. A CONJOINT STUDY OF A FINAL PRODUCT

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WILL RESULT IN VERY ACCURATE SURVEY RESULTS, BUT IT MAY ALSO PROVE THAT CONSUMERS ARE NOT KEEN ON THE FEATURES AVAILABLE.

FINALLY, THERE ARE TWO WAYS IN WHICH YOU CAN ASK INDIVIDUALS TO EVALUATE PRODUCT PROFILES. IF THERE ARE LESS THAN TEN PROFILES YOU CAN USE A RANKING SYSTEM AND HAVE THEM SIMPLY RANK EACH PROFILE FROM 1 TO 10. IF THERE ARE MORE THAN TEN PROILES IT IS MORE EFFICIENT TO ASK THEM TO RATE THE PROFILES BASED ON THEIR “INTENT TO PURCHASE”. USING THIS METHOD PROVIDES BETTER RESULTS WITH LARGER NUMBER OF PROFILES BECAUSE RESPONDANTS DO NOT NEED TO REMEMBER EVERY PROFILE AS THEY CONTINUE THE SURVEY. Refer to exhibit 2

STEP 3: CHOOSE AND LIST RELEVANT SUBSETS OF PRODUCT COMBINATIONS

IN ORDER TO CREATE THE 18 PROFILES NEEDED TO SIMULATE THE 2187 POSSIBLE COMBINATIONS WE USE THE ORTHOGONAL EXPERIMENTAL DESIGN (OED). THE DESIGN IS A 14 X 18 MATRIX THAT USES A SPECIFIC CODE TO IDENTIFY THE PRODUCT COMBINATIONS NEEDED FOR EVALUATION. ONE ATTRIBUTE IS DROPPED FROM EACH FEATURE TO SIMPLIFY THE CODING, BUT WILL BE ACCOUNTED FOR BY A 0,0 CODE FOR THAT INDIVIDUAL FEATURE. IN THIS SPECIFIC SURVEY X1 = PRICE OF PHONE = $250 AND X2 = PRICE OF PHONE = 500. EACH FEATURE LEVEL TAKES A VALUE OF EITHER 0 OR 1. X1 = 1 MEANS THAT THE PRICE OF THE PHONE IS $250. X2 = 1 MEANS THE PRICE OF THE PHONE EQUALS $500. A CODE OF X1 =0 AND X2 = 0 MEANS THE PRICE OF THE PHONE IS $750 (THE MISSING FEATURE LEVEL). USING THIS CODE EACH OF THE 18 PROFILES ARE CREATED TO BE TESTED BY CONSUMERS. For a more detailed look at the orthogonal experimental design, the interpretation of the code, and a sample profile please refer to exhibits 2, 3, and 4

STEP 4: PRESENT PROFILES BY OBTAINING PREFERENCES DATA AND FEILDING A LARGE-SAMPLE SURVEY

AFTER GAINING AN UNDERSTANDING OF THE OED AND THE CODE INTERPRETATION IT IS NOW TIME TO CREATE ALL 18 PROFILES. UNFORTUNATELY THIS MUST BE DONE BY HAND, AND IT IS VERY TIME CONSUMING. BE VERY CAREFUL TO ACCURATELY READ THE OED BECAUSE, ONE MISPLACED FEATURE LEVEL WILL DISTURB THE FINDINGS OF THE SURVEY.

HAVE EACH RESPONDANT RATE THE PROFILES ON A SCALE OF 1 TO 7. ONE (1) WILL REPRESENT “DEFFINITLY NEVER PURCHASE” AND SEVEN (7) WILL BE THE OPPOSITE “DEFFINITLY WILL PURCHASE”. Refer to exhibit 2 for more information on rating and to view a sample profile

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STEP 5: ANALYZE DATA AND INTERPRET OUTPUT

THE FIRST STEP IN ANALYZING THE DATA IS TO RUN A REGRESSION REPORT USING MICROSOFT EXCEL. (IF YOU ARE USING AN APPLE COMPUTER YOU WILL NEED TO DOWNLOAD THIRD PARTY SOFTWARE TO PREFORM THIS TASK).

THERE ARE THREE MAIN NUMBERS THAT YOU NEED TO PAY ATTENTION TO AFTER RUNNING YOUR REGRESSION REPORT. THE FIRST IS THE “SIGNIFICANCE OF F” VALUE. THIS IS THE CONFIDENCE INTERVAL, OR THE PRECENTAGE OF TIMES YOUR DATA WILL BE INCORRECT. A SIGNIFICANCE LEVEL OF .05 IS IDEAL, THIS WOULD MEAN THAT 95% OF THE TIME YOUR DATA WILL ACCURATLY REPRESENT THE POPULATION. THE NEXT IMPORTANT VALUE IS THE “ADJUSTED R SQUARED” FIGURE. ADJUSTED R SQURED REPRESENTS THE TOTAL AMOUNT OF VARIANCE EXPLAINED BY YOUR DATA. THE CLOSER THIS NUMBER IS TO ONE (1) THE MORE RELIABLE YOUR DATA IS. LASTLY YOU NEED TO PAY ATTENTION TO YOUR “COEFFICIENTS AND INTERCEPT” NUMBERS. THESE ARE THE UTILITY/HAPPINESS VALUES ATTRIBUTED TO EACH FEATURE LEVEL TESTED IN THE SURVEY.

AFTER IDENTIFYING THE IMPORTANT NUMBERS WE NEED TO RESCALE THE COEFFICIENTS. AS YOU MAY NOTICE THERE ARE NEGATIVE AND POSITIVE NUMBERS IN THE REGRESSION OUTPUT. NEGATIVE NUMBERS ARE NOT USER FRIENDLY SO WE RESCALE TO A ZERO TO ONE MODEL. IN ORDER TO RESCALE USE THE FORMULA BELOW.

RESCALED COEFFICIENT = (ORIGNIAL COEFF - LOWEST COEFF.) / (HIGHEST COEFF –LOWEST COEFF)Refer to exhibits 5, 6, 7, and 8 for more detailed information on the analysis process

CREATING THE CONJOINT ANLAYSIS BAR CHART:

USE A COMBINATION OF MICROSOFT EXCEL AND POWERPOINT TO CREATE A BAR CHART OF FEATURE LEVEL AND IMPORTANCE.Refer to exhibit 9

MANAGERIAL OUTPUTS FROM CONJOINT ANALYSIS

DETERMINE FEATURE IMPORTANCE:

ORGANIZING THE BAR CHART BY FEATURE IMPORTANCE IS KEY TO UNDERSTANDING CUSTOMER UTILITY OR “HAPPINESS” ASSOCIATED WITH THE FEATURES AND LEVELS WITHIN THOSE FEATURES. ON A SCALE FROM ZERO TO ONE, ONE BEING TOTALLY HAPPY AND ZERO BEING NOT HAPPY AT ALL, IT IS EASY TO IDENTIFY WHICH FEATURES CUSTOMERS PRIORITIZE WHEN MAKING PURCHASE DECISIONS. A detailed account on how to calculate feature importance is described in the bottom portion of exhibit 9

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BETTER UNDERSTAND THE CUSTOMER VALUE STRUCTURE:

THE DISTANCE EACH BAR ON THE CHART TRAVELS TO THE RIGHT IS SIGNIFICANT. THE FURTHER TO THE RIGHT THE MORE THAT LEVEL OF THAT SPECIFIC FEATURE IS VALUED. WITHIN EACH FEATURE YOU CAN SEE BOTH LINEARITY AND NON-LINEARITYS. LINEARITY REFERES TO THE RANGE BETWEEN FEATURE LEVELS. IF THE ENDS OF BARS CAN BE CONNECTED WITH A STRIAGHT LINE IT SHOWS THAT THE CUSTOMERS PERCEPTION OF VALUE DECLINES PROPORTIONALY WITH THE LEVEL OF THE FEATURE. NON-LINEARITY OCCURS WHEN THERE IS NO STRAIGHT LINE BETWEEN FEATURE LEVELS, AND THIS REPRESENTS A STRONG CUSTOMER OPINION, OR PREFERENCE, TO THAT SPECIFIC FEATURE LEVEL. Refer to exhibit 10 for more detail

FIND THE BEST PRODUCT BASED ON TOTAL UTILITY:

THE FEATURE COMBINATION RESULTING IN THE CUSTOMERS OPTIMAL PRODUCT IS THE ONE WITH THE HIGHEST TPU, OR TOTAL PRODUCT UTILITY. THIS PRODUCT CAN BE IDENTIFIED BY SELECTING THE LEVEL OF EACH FEATURE WITH THE HIGHEST COEFFIECIENT. GENERALLY THIS PRODUCT WILL NOT BE PRACTICAL FOR THE COMPANY TO MAKE BASED ON COST, RESOURCES, AND EFFICIENCY RESTRICTIONS, BUT IT PROVIDES AN EXCELLENT STARTING POINT TO CREATE A PRODUCT THAT IS BOTH PROFITABLE AND DESIREABLE. See exhibit 13 for calculation of the highest and lowest TPU products

CALCULATE MARKET SHARE:

AFTER IDENTIFYING THE CUSTOMERS OPTIMAL PRODUCT YOU WILL NEED TO CREATE YOUR OWN “REALISTIC OPTIMAL PRODUCT”. USING THIS NEW TPU AND THE TPU FOR YOUR CURRENT PRODUCT (IF THERE IS ONE) YOU CAN CREATE MARKET SHARE INFORMATION BASED ON THE CUSTOMERS WILLINGNESS TO PURCHASE. THE FORMULA FOR CALCULATING MARKET SHARE IS DIAGRAMED BELOW

MARKET SHARE = E^(TPU OF YOUR PRODUCT)/ (E^TPU OF YOUR PRODUCT + E^TPU COMPETITORS)See exhibit 14, 15 and 16 for more information on market share calculations

SIMULATE MARKET SHARE AND PROFITABILITY:

AFTER CALCULATING MARKETSHARE FOR YOURSELF AND YOUR COMPETITORS IT IS HELPFUL TO CREATE A PIE CHART IN ORDER TO GET A VISUAL REPRESENTAION OF THE MARKET PLACE. ALSO, BY USING POWERPOINT AND EXCEL, IT BECOMES EASY TO RECALCULATE MARKETSHARE BASED ON CHANGES IN YOUR PRODUCT OR COMPETITORS PRODUCTS. WHILE THIS IS JUST AN ESTIMATE OF ACTUALL MARKET SHARE, STATISTICS AND REAL WORLD APPLICATION HAVE PROVEN IT TO BE EXTREMELY ACCURATE. See exhibit 15 and 16 for more information

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IDENTIFY BARRIER TO ENTRY:

ON YOUR REGRESSION REPORT YOU MAY HAVE NOTICED A NUMBER THAT WE HAVE NOT YET SPOKEN ABOUT, THE INTERCEPT. THE INTERCEPT REPRESENTS THE MINIMUM TPU LEVEL OF THE INDUSTRY, AND CAN BE REFERED TO AS THE BARRIER TO ENTRY. THE HIGHER THE INTERCEPT THE MORE MATURE AN INDUSTRY IS WHICH DRIVES THE BARRIER TO ENTRY UP AS WELL.

STRENGTHS AND WEAKNESSES OF CONJOINT ANALYSIS

CONJOINT ANALYSIS IS A VERY POWERFUL AND ACCURATE TOOL. IT CAN BE USED TO IDENTIFY KEY PRODUCT FEATURES THAT CUSTOMERS FIND MOST IMPORTANT, POSITION A PRODUCT FAVORABLY IN CUSTOMER PERCEPTIONS, AND CALCUATE MARKET SHARE, AMOUNG OTHER THINGS. IDENTIFYING WHAT DRIVES PURCHSAE BEHAVIOR AND CREATES CUSTOMER HAPPINESS IS KEY TO ANY SUSTAINABLE BUSINESS MODEL.

ONE DOWNFALL OF CONJOINT ANALYSIS IS THAT IT CANNOT BE USED TO EVALUATE BRAND NEW PRODUCTS OR SERVICES. THERE HAS TO BE A BENCH MARK OR PRE-EXISTING PRODUCT FOR CONJOINT TO ACCURATLY ASSESS THE FEATURES ASSOCIATED WITH IT. ALSO CONJOINT ANLYSIS RELIES HEAVILY ON THE ACCURACY OF FOCUS GROUPS AND LARGE SAMPLE SURVEYS. ANY MISREPRESENTATION OR MISINTERPRETATION CAN LEAD TO INACCURATE DATA.

RECOMMENDATIONS FOR SAMSUNG GALAXY S6:

BASED ON THE CONJOINT ANALYSIS RESEARCH STUDY PREFORMED AS WELL AS THE MARKETSHARE AND PROFITABILITY SIMULATIONS IT IS MY RECOMMENDATION THAT SAMSUNG TAKES FOUR ACTIONS TO INCREASE PROFITABILITY AND MARKET SHARE.

INCREASE THE OVERALL BATTERY LIFE OF THE PHONE. CUSTOMERS WANT PHONES THAT HAVE A “CALL TIME” BATTERY LIFE OF NINE OR MORE HOURS. INCREASING BATTERY LIFE SIGNIFICANLY INCREASES CUSTOMER HAPPINESS AND UTILITY

MAKE THE SAMSUNG GALAXY S6 AVAILABLE ON ALL SERVICE PROVIDERS. LIMITING THE PROVIDERS THAT CAN CARRY THIS PHONE IS LIMITING THE NUMBER OF POTENTIAL CUSTOMERS. MANY CUSTOMERS ARE TIED INTO LENGHTY CONTRACTS, AND THE COST TO LEAVE OUTWEIGHS THE BENEFITS GAINED FROM THE PHONE.

INCREASE THE AMOUNT OF ON BOARD STORAGE AVAILABLE ON THE PHONE. PEOPLE ARE USING THEIR PHONES FOR MORE THAN MAKING CALLS AND SENDING TEXTS THIS REQUIRES ADDITIONAL STORAGE SPACE.

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REDUCE THE PRICE. THE CELLPHONE MARKET IS FLOODED WITH COMPETITION AND SPECIAL OFFERS. WHILE WE UNDERSTAND PROFITABILITY IS THE MOST IMPORTANT ASPECT TO A THRIVING BUSINESS, WE BELIEVE THAT THE INCREASE IN MARKET SHARE WILL MAKE UP FOR THE DECREASE IN PRICE. See exhibit 16 for recalculation of market share information

APPENDIX:

EXHIBIT 1: 7 FEATURES 3 LEVELS

1 PRICE $250/2YEAR $500/1YEAR $750/NO CONTRACT

2 CAMERA 8 MEGAPIXELS 12 MEGAPIXELS 16 MEGAPIXELS

3 BATTERY LIFE (CALL TIME)

3 HOURS 6 HOURS 9 HOURS

4 STORAGE 16 GIGABITS 32 GIGABITS 64 GIGABITS

5 SCREEN SIZE 4.3 INCHES 4.7 INCHES 5.5 INCHES

6 DISTRIBUTION ONLINE RETAIL OUTLET CARRIER STORE

7 NETWORK CARRIER AT&T VERIZON T-MOBILE

THIS BASIC TEMPLATE GIVES US THE FEATURES AND LEVELS OF EACH FEATURE THAT WILL MAKE UP THE PROFILES THAT CONSUMERS WILL JUDGE. USING THIS TEMPLATE AND THE ORTHOGONAL EXPERIMENTAL DESIGN WE ARE ABLE TO EVALUATE ALL 2187 PROFILE COMBINATIONS USING ONLY 18 VARIATIONS. THIS ALLOWS FOR SURVEY TAKERS TO SPEND LESS TIME AND GIVE MORE ACCURATE RESPONSES.

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EXHIBIT 2: THE BASIC PROFILE

PRICE $750/NO CONTRACT

CAMERA 16 MEGAPIXEL

BATTER LIFE (CALL TIME) 9 HOURS

STORAGE 64 GIGABITS

SCREEN SIZE 5.5 INCHES

DISTRIBUTION NETWORK CARRIER

NETWORK T-MOBILE

THIS PROFILE IS A VISUAL REPRESENTATION OF WHAT CONSUMERS SAW IN THE SURVEY. IT IS IDENTICAL TO THE FIRST PROFILE MAPPED OUT BY THE ORTHOGONAL EXPERIMENTAL DESIGN TEMPLATE. CONSUMERS WILL RATE THIS PROFILE ON A SCALE OF 1-7 (1 BEING “DEFINITELY WILL NOT PURCHASE AND 7 BEING “DEFINITELY WILL PURCHASE”)

EXHIBIT 3: HOW TO READ THE CODE

PRICE

X1 = 0,1 (0 = NOT “$250/2YEAR”, 1 = “$250/2YEAR”)

X2 = 0,1 (0 = NOT “$250/2YEAR”, 1 = “$500/1YEAR”)

CAMERA

X3 = 0,1 (0 = NOT “8 MEGAPIXELS”, 1 = “8 MEGAPIXELS”)

X4 = 0,1 (0 = NOT “12 MEGAPIXELS”, 1 = “12 MEGAPIXELS”)

BATTERY LIFE (CALL TIME)

X5 = 0,1 (0 = NOT “3 HOURS”, 1 = “3 HOURS”)

X6 = 0,1 (0 = NOT “6 HOURS”, 1 = “6 HOURS”)

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STORAGE

X7 = 0,1 (0 = NOT “16 GIGABITS”, 1 = “16 GIGABITS”)

X8 = 0,1 (0 = NOT “32 GIGABITS”, 1 = “32 GIGABITS”)

SCREEN SIZE

X9 = 0,1 (0 = NOT “4.3 INCHES”, 1 = “4.3 INCHES”)

X10 = 0,1 (0 = NOT “4.7 INCHES”, 1 = “4.7 INCHES”)

DISTRIBUTION

X11 =0,1 (0 = NOT “ONLINE”, 1 = “ONLINE”)

X12 = 0,1 (0 = NOT “RETAIL”, 1 = “RETAIL”)

NETWORK CARRIER

X13 = 0,1 (0 = NOT “AT&T”, 1 = “AT&T”)

X14 = 0,1 (0 = NOT “VERIZON”, 1 = “VERIZON”)

NOTE: YOU MAY NOTICE THAT THERE ARE ONLY 14 OF THE 21 ATTRIBUTE LEVELS LISTED IN THIS EXAMPLE. A CODE WITH 0,0 AS THE INPUT REPRESENTS THE MISSING FEATURE LEVEL FOR EACH OF THE 7 ATTRIBUTES.

EXAMPLE: IF BOTH THE X1 AND X2 (PRICE) VALUES WERE 0 THAT PROFILE WOULD REPRESENT A PHONE WITH THE PRICE OF $750/NO CONTRACT.

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EXHIBIT 4: THE ORTHOGONAL EXPERIMENTAL DESIGN CODE SHEET

THIS PRE-WRITTEN CODE SHEET IS THE KEY TO CREATING THE EXACT PROFILES THAT ENABLES US TO EVALUATE ALL 2187 FEATURE COMBINATIONS USING ONLY 18 PROFILES. BY UTILIZING THIS TOOL WE INCREASE THE NUMBER OF WILLING SURVEY PARTICIPANTS. IT ALSO ALLOWS US TO CUT COST AND MAXIMIZE OPERATIONAL EFFICIENCY.

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EXHIBIT 5: ENTERING THE DATA

AS YOU RECEIVE FEEDBACK/RESULTS FROM YOUR SURVEY YOU WILL NEED TO ENTER THE DATA INTO EXCEL. AS YOU CAN SEE COLUMN A IS LIKELIHOOD OF PURCHASE FOR EACH OF THE 18 PROFILES CREATED ON A 1 TO 7 SCALE. THE NEXT 14 COLUMNS REPRESENT FEATURE LEVELS AND THE CODE FROM THE ORTHOGONAL EXPERIMENTAL DESIGN. THIS IS THE PROPER FORMAT REQUIRED TO RUN THE REGRESSION REPORT OUTLINED IN THE NEXT EXHIBIT.

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EXHIBIT 6: REGRESSION REPORT AND KEY FACTORS

WHEN YOU RUN THE REGRESSION REPORT THERE ARE A FEW KEY STEPS YOU MUST TAKE TO INSURE QUALITY OUTPUT. WHEN ASKED TO INPUT THE Y AND X RANGE BE SURE THAT YOU USE THE CORRECT DATA. THE “Y” RANGE IS THE FIRST COLUMN CONSISTING OF THE INDIVIDUAL RATINGS FROM THE SURVEY PARTICIPANTS. ALSO BE SURE TO INCLUDE THE TITLE “RATINGS” ALONG WITH THE DATA. THE “X” RANGE IS THE REST OF DATA INCLUDING THE HEADINGS OF X1, X2, X… LASTLY MAKE SURE THAT YOU CHECK THE BOX

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TITLED “LABELS”, AND “NEW WORKSHEET IS SELECTED IN THE OUTPUT OPTIONS SECTION OF THE REGRESSION WINDOW.

WHEN READING YOUR REGRESSION OUTPUT THERE ARE THREE NUMBERS THAT YOU SHOULD PAY CLOSE ATTENTION TO. THE FIRST, AND MOST IMPORTANT, IS THE “SIGNIFICANCE OF F” NUMBER THAT IS HIGHLIGHTED ON THE ABOVE DIAGRAM. THIS REPRESENTS THE CONFIDENCE LEVEL OF THE SURVEY. IN SIMPLE TERMS FOR THIS EXHIBIT, THE NUMBER .209 SAYS THAT YOU CAN BE CONFIDENT THIS DATA IS ACCURATE 79% OF THE TIME. (1-.209 = .791 OR 79.1%) TYPICALLY YOU WOULD LIKE A SIGNIFICANCE OF F LEVEL TO BE BELOW .05, WHICH WOULD REPRESENT A CONFIDENCE LEVEL OF 95%

THE ADJUSTED R SQUARED NUMBER IS THE SECOND OUTPUT YOU SHOULD LOOK AT. THIS NUMBER TELLS YOU HOW WELL THE VARIABLES IN THE ANALYSIS FIT THE REGRESSION MODEL. SIMPLY STATED IT TELLS YOU HOW WELL THEY FIT ONTO THE REGRESSION LINE. GENERALLY A LOW R SQUARED NUMBER IS BETTER.

LASTLY YOU NEED TO LOOK AT YOUR COEFFICIENTS. THESE ARE THE NUMBERS THAT WILL ULTIMATELY BE USED TO PLOT THE BAR CHART THAT INDICATES CONSUMERS’ LEVEL OF HAPPINESS OR IMPORTANCE WHEN PURCHASING YOUR PRODUCT OR SERVICE.

NOTE: TO RUN THE REGRESSION REPORT YOU WILL NEED TO ACTIVATE THE “ANALYSIS TOOL PACK” IN MICROSOFT EXCEL, OR DOWNLOAD ADDITIONAL THIRD PARTY DATA FOR APPLE PRODUCTS.

ALSO PLEASE REALIZE THAT THE SAMPLE SIZE OF THIS SURVEY THE NUMBERS IN THE ANALYSIS DO NOT REPRESENT THE POPULATIONS BELIEF TOWARD THIS PRODUCT/SERVICE. UPON GATHERING MORE DATA THE NUMBERS WILL BE MORE ACCURATE AND THE SIGNIFICANCE LEVEL WILL BE WITHIN THE STATISTICAL NORM.

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EXHIBIT 7: RESCALING THE COEFFICIENTS

IN ORDER TO MAKE YOUR BAR GRAPH IT IS IMPORTANT TO RESCALE AND REORDER YOUR COEFFICIENTS. IN ORDER TO DO THIS YOU WILL NEED TO MANUALLY INPUT THE SEVEN FACTOR LEVELS THAT WERE OMITTED FROM THE REGRESSION ANALYSIS. LABEL THESE X15 – X21 AND GIVE THEM COEFFICIENT LEVELS OF 0. (THIS WILL NOT AFFECT THE QUALITY OF YOUR DATA)

THE FORMULA FOR RESCALING IS SIMPLE. FIRST YOU CALCULATE THE RANGE BY IDENTIFYING THE HIGHEST AND LOWEST COEFFICIENT LEVELS. IN OUR EXAMPLE THAT IS THE INTERCEPT AT A VALUE OF 3.56 AND X5 AT A VALUE OF -1.06. THE RANGE IS THEN EQUAL TO (3.56 - -1.06) = 4.63.

AFTER IDENTIFYING THE RANGE THE FORMULA FOR RESCALING IS AS FOLLOWS. (ORIGINAL COEFFICIENT – LOWEST COEFFICIENT) / RANGE. BY APPLYING THIS TECHNIQUE YOU WILL ELIMINATE NEGATIVE COEFFICIENTS AND CREATE A UTILITY SCALE BETWEEN 0 AND 1. THIS MAKES THE BAR CHART MUCH MORE USER FRIENDLY FOR CLIENTS AND PRESENTERS.

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EXHIBIT 8: RENAMING AND ORGANIZING COEFFICIENTS

IN ORDER TO BUILD THE BAR CHART IT IS IMPORTANT TO RENAME THE COEFFICIENTS SO THAT THEY REPRESENT THE FEATURE LEVEL ASSIGNED TO THEM. AFTER COMPLETING THE RENAMING PROCESS, REGROUP THE FEATURES INTO THEIR RESPECTIVE GROUPS. THIS WILL ALLOW YOU TO MORE EASILY MAKE THE BAR CHART AS WELL AS SEE THE RELATIONSHIPS BETWEEN FEATURE LEVELS AND THE CONSUMER UTILITY ASSIGNED TO EACH OF THEM.

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EXHIBIT 9: CREATING THE BAR CHART

CREATE THE BAR CHART USING MICROSOFT POWER POINT AND EXCEL. IT IS ALSO HELPFUL TO COLOR CODE YOUR FEATURES AND ARRANGE THEM BASED ON UTILITY LEVEL TO THE CUSTOMERS. IN ORDER TO FIND THE MOST IMPORTANT FEATURES YOU WILL NEED TO FOLLOW THESE STEPS

CALCULATE EACH FEATURES RANGE (HIGHEST UTILITY – LOWEST UTILITY)

FIND THE SUM OFF ALL FEATURE RANGES.

THIS IS REFERRED TO AS THE SUPER SUM

DIVIDE INDIVIDUAL FEATURE RANGES BY THE SUPER RANGE

THIS GIVES YOU THE IMPORTANCE OF EACH FEATURE BASED ON CUSTOMER ATTITUDES.

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NOTE: THIS CAN BE EASILY DONE IN EXCEL. REFER TO THE CHART ON THE NEXT PAGE FOR AN EXAMPLE.

EXHIBIT 10: LINEARITY V. NON-LINEARITY

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LINEARITY REFERS TO THE CONSUMER PERCEPTION OF THE FEATURE LEVELS. AS YOU CAN SEE, CONSUMERS ATTITUDES TOWARDS THE AMOUNT OF STORAGE AVAILABLE ON A PHONE FOLLOWS A STRAIGHT LINE. THIS IMPLIES THAT THE AMOUNT OF HAPPINESS/UTILITY INCREASES OR DECREASES PROPORTIONALLY THROUGH THE LEVELS OF THAT ATTRIBUTE. IN OTHER WORDS, THEIR FEELINGS ABOUT STORAGE ARE RATIONAL.

THE NON-LINEARITY SEEN IN THE PRICE COLUMN SUGGESTS THAT CONSUMERS’ BELIEFS AND ATTITUDES TOWARDS PRICE ARE NOT RATIONAL. THE TRADE OFF BETWEEN $250 AND $500 FOR A PHONE IS SIGNIFICANTLY LESS THAN THE TRADE OFF BETWEEN $500 AND $750. THIS ALSO SUGGESTS THAT CONSUMERS ARE PRICE SENSITIVE, AND THIS WILL HAVE AN IMPACT ON THEIR PURCHASE BEHAVIOR.

EXHIBIT 11: SWEET SPOTS

A SWEET SPOT REPRESENTS AN AREA WHERE THE BUSINESS IS AT A SIGNIFICANT ADVANTAGE. THEY VISUALLY SHOW WHERE THE CONSUMER IS WILLING TO PAY MORE MONEY FOR LESS SERVICE OR PRODUCT FEATURES. IN THIS CASE THE SURVEY RESPONDENTS HAVE IDENTIFIED THAT THEY PREFER PHONES WITH “MEDIUM” SIZED SCREENS TO THOSE WITH LARGER SCREENS. USING THIS INFORMATION WE CAN CUT COSTS FROM MATERIALS, PRODUCTION, AND EVEN PRODUCT LINES. UNDERSTANDING THE CONSUMER

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PREFERENCES AND THE “JOBS TO BE DONE” THEY ARE TRYING TO ACCOMPLISH IS VITAL TO COMPANY GROWTH.

EXHIBIT 12: TRADEOFFS

TRADE OFFS EXIST WHEN TWO FEATURE LEVELS PROVIDE THE SAME AMOUNT OF UTILITY TO A CUSTOMER. THE GENERAL RULE IS THAT THEY SHOULD BE WITHIN A .1 MARGIN OF EACH OTHER. IN THIS EXAMPLE THE CUSTOMER UTILITY FOR A 5.5-INCH SCREEN, 64 GIGABITS OR STORAGE, AND PURCHASING FROM A CARRIER OPERATED STORE ALL HAVE THE SAME AMOUNT OF VALUE TO THE CUSTOMER. THIS MEANS THAT THEY CAN BE INTERCHANGED WITH EACH OTHER WITHOUT DISRUPTING THE CONSUMERS’ HAPPINESS.

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EXHIBIT 13: HIGH AND LOW TPU:

TPU STANDS FOR TOTAL PRODUCT UTILITY. THE PRODUCT WITH THE HIGHEST POSSIBLE TPU GIVEN THE FEATURES AND LEVELS IS THE CONSUMERS’ IDEAL PRODUCT. GENERALLY THIS IS AN UNREALISTIC PRODUCT BECAUSE THE CONSUMER WANTS MORE THAN THE COMPANY CAN DELIVER WHILE STILL MAKING A PROFIT. THE PRODUCT WITH THE LOWEST TPU IS THE EXACT OPPOSITE. IT IS THE WORST COMBINATION OF FEATURES AND LEVELS. THIS IS A PRODUCT THAT THE CONSUMER WOULD NOT PURCHASE UNLESS IT WAS THE ONLY OPTION AVAILABLE.

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EXHIBIT 14: COMPARING COMPETITORS

BASED ON WHAT WE KNOW ABOUT CUSTOMER PREFERENCES FOR EACH FEATURE LEVEL WE CAN SIMULATE THEIR PREFERENCES FOR COMPETING PRODUCTS USING SIMPLE ARITHMETIC. AS INDICATED PRIOR, THE PRODUCT WITH THE HIGHEST TPU GIVES THE CUSTOMERS THE MOST HAPPINESS. IN THIS EXAMPLE THE IPHONE 6 IS THE MOST IDEAL PRODUCT OUT OF THESE FOUR.

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EXHIBIT 15: CALCULATE MARKET SHARE

TO CALCULATE MARKET SHARE YOU USE THE TPU OF EACH INDIVIDUAL COMPANY DIVIDED BY THE TOTAL TPU OF THE GROUP. THIS GIVES YOU AN ACCURATE ESTIMATE OF WHAT MARKET SHARE IN THIS INDUSTRY SHOULD LOOK LIKE. AS YOU CAN SEE THE IPHONE 6 (HIGHEST TPU) ALSO HAS THE HIGHEST PERCENTAGE OF MARKET SHARE.

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EXHIBIT 16: MARKET SHARE POST CHANGES

AS YOU CAN SEE BY CHANGING THE CONFIGURATION OF THE SAMSUNG GALAXY S6 WE HAVE INCREASED OUR MARKET SHARE BY ALMOST 2%. THE RECONFIGURATION WAS A COMBINATION OF SLIGHTLY EXTENDING BATTERY LIFE, CHANGING THE SERVICE PROVIDER (CARRIER), INCREASING ON BOARD STORAGE CAPACITY, AND DECREASING PRICE. THIS COMBINATION WILL ALLOW SAMSUNG TO GENERATE A PROFIT WHILE INCREASING CUSTOMER SATISFACTION WITH THE PRODUCT CONFIGURATION.

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Jones.Zak Conjoint Analysis Tool Summary

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