Conjoint Analysis: Learning About Client Requirements in Chinese Chemical Industry

By Dr. KaiPflug, Stratley AG

Chemical companies need to have a good understanding of customer requirements in order to optimize their product offerings. Do customers only care for price? Or is good technical service essential for business success? Are some customer segments willing to pay a substantial premium for delivery within 24 hours? How important are customized products? Getting answers to these questions almost guarantees increased sales and profits. And in China, where markets, and customers are changing more rapidly than elsewhere, these questions are even more vital.
   Classical customer surveys sometimes fail to deliver these answers. Extended face-to-face interviews with customers are very helpful for learning about market trends and general customer requirements. However, they are less fruitful when it comes to setting priorities between different product properties. The typical customer asks for highest quality, fastest delivery, highest level of technical service, etc. - and all at the lowest price. This is understandable, but not very helpful in determining the optimum product offering.
   The conjoint analysis is a customer survey technique which forces customers to state clear preferences and to make trade-offs between product attributes. This is done by giving the customers a choice between different product bundles. By indicating their preferred choice among several product bundles, the customers implicitly give information about which attributes are the most important to them.
    To give a simplified example, customers may look at three different parameters when choosing a supplier for a specific chemical:
  - Purity may be either 99% or 99.9%
  - Price may be either 5 euro/kg or 5.5 euro/kg
  - Delivery time may be either one day or one week.
    In a conjoint survey based on this example, the customers are not asked to state their ideal combination (which would obviously be the 99.9% pure chemical at 5 euro/kg delivered within one day). Instead, they may be asked whether they would rather have Product A (99.9% pure but at the higher price of 5.5 euro/kg and delivered within one day) or Product B (only 99% pure and delivered only after one week but at the lower price of 5 euro/kg). Thus they are forced to make a trade-off between, e.g., price and purity/delivery time.
   Once the customers have indicated their preference, they are again presented with two or more products (but with a slightly different combination of attributes) and asked for their preference. In a real-life conjoint survey, the customers participating in the survey are ideally asked to indicate their preferred choice about 20 times. The data thus generated is used as input for a specific computer program which calculates the importance of the different attributes based on the customer input.
   Let us take a look at a more realistic example - a conjoint survey conducted by Stratley for a global chemical company in China. This example also shows that running a conjoint survey is somewhat complex. A number of steps had to be carried out before results could be analyzed:
   -  In initial qualitative interviews with staff from the client as well as with selected customers, Stratley got an overview of customer buying criteria
   -  This long list of criteria was then prioritized, resulting in the most essential 4 - 6 buying criteria. This was accomplished in a workshop to identify the most important criteria in a discussion together with management and senior sales staff.
   -  For each of these prioritized criteria, 2-3 different levels were defined. For example, the buying criterion "delivery time" is meaningless unless, e.g., the three possible options "1 day", "1 week", and "1 month" are assigned.
   -  Stratley then developed the actual conjoint survey to be put online. As both Western and Chinese staff of chemical companies in China were to be included, we prepared both an English and a Mandarin version. Furthermore, as in some areas online access is not always given, we adapted the survey by also preparing a print-out version which could be answered offline.
   -  The conjoint survey was then now put online and made accessible to the customers. It is important to motivate as many customers as possible to go through the survey, for example, by inviting them to participate via email in combination with phone calls.

Analysis of results

Once the conjoint survey is closed, the results need to be analyzed with the help of customized software. In the example of the study undertaken in China, highly relevant knowledge was obtained in several areas:
   -  The importance of high quality was much higher than expected. This was particularly surprising to our client as our client perceived the Chinese market to be relatively disinterested in quality
   -  Payment terms were also found to be very relevant, which is in big contrast to similar surveys conducted in Western markets
   -  Technical support was found to be relevant only for some of the customers surveyed, namely the bigger ones. This is surprising as small customers tend to have very limited own technical staff and thus were expected to depend more strongly on outside technical support. In fact, in Western markets small customers tend to be highly interested in technical support.
    Illustrative results are shown in Fig. 2.

Actions based on conjoint survey results

Of course, the final goal of a conjoint survey is not just to extend customer knowledge but to increase sales and profits. Therefore it is necessary to take actions based on the conjoint results. Some typical actions based on knowledge gained from a conjoint survey are:
   - Expansion / improvement of attributes (e.g., shorter delivery time as importance of fast delivery is greater than originally thought) - this may mean e.g. setup of new warehouses in additional Chinese provinces
   - Price increases for all customers or for less price-sensitive segments (if e.g. quality is found to be more important than price)
- Shift of focus among customer segments (as some segments are found to be more profitable, less price sensitive or more strongly attracted by high quality)
   - Dropping of services for which customers are not really willing to pay (e.g. lowering technical service for the small customers in the example above)
   - Adaptation of marketing to identified customer priorities (e.g. focus advertising and sales approach on the high quality of the product)
   - Development of segment-specific product offerings (e.g., "no frills" -segment)
    As these steps show, running a conjoint survey is a somewhat complex task that requires both a lot of effort and some previous market knowledge. However, conjoint surveys can substantially improve sales of chemicals as they force customers to clearly state what they are willing to pay for. Thus, the conjoint survey is a valid tool for optimizing chemical product offerings and consequently increasing profits, particularly in the rapidly changing Chinese market.

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