Three Ways to Treat Overall Price in Conjoint Analysis (2007)

Three ways to treat overall price in conjoint analysis experiments are discussed: traditional approach, conditional price, and continuous/summed price.

The traditional pricing method treats price as a separate attribute with a fixed set of price points that apply to all products. Prices are varied independently of the features. The problem with treating price in this traditional manner is that products with the best features are sometimes shown at the lowest prices (and products with the worst features are sometimes shown at the highest prices). This can lead to dominated choices and lack of realism.

With conditional pricing, incremental amounts are added to the price for premium brands or features, so enhanced products are generally shown at higher prices. One uses a look-up table to determine actual prices shown in the questionnaire.

Continuous/Summed pricing generalizes the idea of conditional prices (beyond the software limitations of just three attributes). Also, it estimates the effect of overall price as a linear coefficient, rather than as a part-worth utility function. After summing the prices across the feature components, price is varied by an additional random component specified by the researcher. One of the challenges of continuous pricing is that the price variable is moderately to strongly correlated with other attributes, depending on the design. A simulation study investigating the stability of the price coefficient within summed pricing is shown. The continuous pricing option is not currently available as a standard option in Sawtooth Software's tools, though a power user could implement it with additional work. Continuous pricing is a capability of the Adaptive CBC software.

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