The Strategic Implications of Scale in Choice-Based Conjoint Analysis

John R. Hauser (), Felix Eggers () and Matthew Selove ()
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John R. Hauser: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142
Felix Eggers: Faculty of Economics and Business, University of Groningen, 9747 AE Groningen, Netherlands
Matthew Selove: The George L. Argyros School of Business and Economics, Chapman University, Orange, California 92866

Marketing Science, 2019, vol. 38, issue 6, 1059-1081

Abstract: Choice-based conjoint (CBC) studies have begun to rely on simulators to forecast equilibrium prices for pricing, strategic product positioning, and patent/copyright valuations. Whereas CBC research has long focused on the accuracy of estimated relative partworths of attribute levels, predicted equilibrium prices and strategic positioning are surprisingly and dramatically dependent on scale: the magnitude of the partworths (including the price coefficient) relative to the magnitude of the error term. Although the impact of scale on the ability to estimate heterogeneous partworths is well known, neither the literature nor current practice address the sensitivity of pricing and positioning to scale. This sensitivity is important because (estimated) scale depends on seemingly innocuous market-research decisions such as whether attributes are described by text or by realistic images. We demonstrate the strategic implications of scale using a stylized model in which heterogeneity is modeled explicitly. If a firm shirks on the quality of a CBC study and acts on incorrectly observed scale, a follower, but not an innovator, can make costly strategic errors. Externally valid estimates of scale are extremely important. We demonstrate empirically that image realism and incentive alignment affect scale sufficiently to change strategic decisions and affect patent/copyright valuations by hundreds of millions of dollars.

Keywords: conjoint analysis; market research; choice models; scale (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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