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What are Market Simulators?

Conjoint analysis and discrete choice experiments measure respondent preferences (utility) for products or services. In these experiments, the researcher asks respondents to evaluate a number of carefully constructed product concepts, in which each independent component (or "attribute") of a product concept is systematically varied. Respondents provide feedback regarding their preference for each product concept, generally in the form of a stated choice, rating, ranking, probability, or allocation of choices. After the data are collected, a market simulator is created that works like a voting machine, to predict which products the market would most likely select if they were available in the real world. Even though a respondent may evaluate just a small fraction of the possible product concepts within the questionnaire, the market simulator can predict the respondent's preferences for any possible combination of attribute levels.

Examining average utility scores can help us get a general idea of respondent preferences. But to really understand respondent preferences, we need to dig deeper. The market simulator is often the most important component of a well-designed conjoint analysis or discrete choice project. Simulators transform raw conjoint utility scores into simulated market choices. Simulators allow researchers and managers to analyze potential demand in a competitive market context, and see how various changes to competing product profiles might impact demand. Researchers can conduct "what-if" games to investigate issues such as new product design, product positioning, pricing strategy, cannibalization, and product portfolio optimization. Simulators typically also report average utility scores and importance scores, and allow you to segment your analysis.

For additional reading see: Introduction to Market Simulators for Conjoint Analysis (2009)

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