You are serving as a marketing research consultant, conducting a conjoint analysis for a relatively small toy company, EarlyRiders, that specializes in the manufacture of quality toy horses. The primary sales channel for the company is direct to local toy retailers. Consumers that buy in these stores generally do not shop elsewhere and the local retailers generally carry only two firms products, EarlyRiders' and the competition. However, the toy horses are a pull product, and orders are driven entirely by customer demand. Thus, the firm is primarily interested in researching the opinions of consumers directly.
EarlyRiders has commissioned a conjoint study of 1000 individuals. These individuals are made up of parents of 2-4 year old kids who planned to purchase a toy horse from the local retailers. In the study, each parent had only one child in the desired age range. This sample was determined to be representative of the market that buys these toy horses from the local retailers.
Each kid-parent pair was brought into a play location and given the opportunity to ride different prototype horses. After the kids played on the different horses for 30 minutes, the parents were asked to complete a short conjoint ratings study conducted via paper and pencil. Each parent rated a total of 12 profiles. They were told to get their children's input as if they were going to make this purchase for their child. The study was conducted at a play location that normally charges for use of their facilities. The parents were given access to the location for the afternoon following the study (at a cost to the company of less than $3 per parent because of the bulk purchase), but otherwise were not paid.
The conjoint study examined four attributes: price, height, motion, and style. From previous research, these four attributes appeared to capture the most important aspects of the decision that the firm is considering. Other important attributes included stability, total floor footprint, quality of construction, and color/colorfulness. All of these other attributes were made the same in the study, both in the horses the kids played with and in the ratings task. Each factor was manipulated to take on two factor levels. The levels for retail price are $119.99 and $139.99, for height are 18" and 26", for motion are rocking or bouncing, and for style are glamorous or racing. Not all possible combinations of attributes (profiles) were shown to the parents.
In addition to the conjoint data, the gender and age of the child was recorded (GenderD=1 if Female, 0 if Male; AgeD=1 if 2 years old, 0 if 3-4). Management had previously noted differences in styling preferences based on gender and age, and both wanted to confirm and quantify these differences. Further, they wondered whether there might be other differences
However, EarlyRiders' management primary interest was in understanding market preferences in order to develop a broader product line. If profitable, they would like to take advantage of differences across people to target new products or modify existing products to better target segments. The company would like to forecast profits under different product line scenarios using the conjoint analysis. That is, they would like to know the expected profits with their current products as compared to the situation in which they add or modify products in order to target the segments or otherwise improve their profits.
Currently, the firm offers two products: an 18" Glamorous Rocking Horse and an 18" Racing Rocking Horse. Both products are priced at $139.99 in the retail channel. Their competition is owned by an older gentleman who is very unlikely to expand or change his product offering, but could possibly lower his price. The competition offers a 26" Racing Rocking Horse at $139.99. For this analysis, assume that the total annual market size is 4,000 units, that the variable costs are as depicted below, and that each product in the product line results in fixed costs of $20,000 per year (i.e., for 2 products the cost is $40,000 for three $60,000, etc.). Further assume that all retailers offer the product at the suggested retail price and that they charge 25% more than whole sale price so that wholesale prices are $111.99 for the $139.99 retail price and $95.99 for the $119.99 retail price.