The Power of the Simulator: Making Management Decisions based on Conjoint/Choice Studies

Optimization studies are important to product development and marketing teams alike, relying on rigorous trade-off methodologies (such as conjoint analysis, discrete choice, or MaxDiff) to identify the precise impact of features, pricing and bundling on demand. However, the results of such studies are not guaranteed to be easy to interpret or act upon, especially if there are internal factors (i.e. costs) that need to be accounted for in decision-making.

Rockbridge helps its clients develop new products and update existing products with MaxProduct™, a solution based on a hybrid-conjoint methodology that provides an Excel-based simulator for reviewing the impact of different product feature and pricing decisions on demand. Product managers can assess the demand potential for any combination of features or compare how an upgraded feature set would impact demand relative to the current offering.  However, assessing demand is not always sufficient. MaxProduct™ uniquely allows for incorporating financial data that affects decisions, allowing managers to simulate not only the demand potential of decisions, but the profit potential as well.

Rockbridge recently put this into practice for a hospitality client that wanted to cut costs by scaling back a popular but expensive guest amenity. They were concerned that the money saved would be offset by the loss in stays once the cutback was realized. Rockbridge designed an online survey utilizing its MaxProduct™ conjoint methodology that measured the impact of including/excluding various amenities on behavior.

It was interesting to know the impact of cutting back an amenity on the behavioral intent of current and potential guests. Would anyone care? Would there a be a large reduction in business?  However, management also needed to know the impact of the change on the bottom line to make an informed decision. To address this question, Rockbridge worked with the client to gather financial data on the cost of the amenity, the cost of the changes under consideration, revenue per guest, and guests per year. Rockbridge combined this business data with the predictive models captured from the survey to create a model that predicted the net financial impact of the amenity change.

The end-result was a simulation tool that directly answered the critical question: how did the change under consideration, eliminating the expensive amenity, impact the bottom line? The simulator allowed the client to determine whether the total cost savings would outweigh the loss in revenue due to reduced business from the amenity change, resulting in a net profit. The simulation tool also helped answer other key questions such as the impact of replacing the amenity with different but less expensive alternatives.

MaxProduct™ is powered by a proven scientific approach that accurately measures the utility of features and prices, but good science is not enough. Our job is to offer consulting and guide managers in sound financial decisions. By combining consumer data with financial data into a single simulation tool, we allowed the management decision-makers for our hospitality client to get straight to the bottom-line.

Written by: Hilary Ross-Rojas, Research Director and Charles Colby, Chief Methodologist