Choice-based conjoint is based on four theoretical assumptions:
- Products can be described by attribute levels
- Attribute levels differ in their utility
- The appeal of a product is the sum of the utility of its attribute levels
- People prefer products with the highest utility
Assumption 1: Products can be described by attribute levels
The first key assumption of choice-based conjoint is that products can be described by their attributes. The table below shows attributes used in a study of the 2-ounce chocolate bar market in the US. Each attribute consists of a series of attribute levels. We can see that the attribute Brand, for example, has four levels: Dove, Godiva, Hershey, and Lindt.
|LEVEL 1||Dove||$0.99/2 ounces||Milk||Standard||Belgium||No||BLANK|
|LEVEL 2||Godiva||$1.49/2 ounces||Dark||50% reduced||Belgium (Single-origin Venezuela Criollo beans)||Almonds||Fairtrade|
|LEVEL 3||Hershey||$1.99/2 ounces||70%||Sugar-free||Switzerland||Hazelnuts|
|LEVEL 4||Lindt||$2.49/2 ounces||White||USA|
For more examples, see Examples of Attributes and Levels.
Assumption 2: Attribute levels differ in their utility
The second key assumption of choice-based conjoint is that different attribute levels have different levels of appeal. Choice-based conjoint studies tend to use the word utility instead of appeal, but they mean the same thing. For example, with the Brand attribute, consumers have preferences for the different brands, and we understand these preferences by estimating the brands' utilities. Choice-based conjoint studies only calculate the relative utility of different attribute levels. For example, we never estimate the actual appeal of Dove; rather, we estimate the appeal of Dove relative to some other attribute level, Hershey's. For this reason, we set one of the levels as having a utility of 0, and then the utilities of the other attribute levels are estimated relative to this attribute’s level, as shown below.
Assumption 3: The appeal of a product is the sum of the utility of its attribute levels
The third key assumption is that the appeal of a product is the sum of the utility of its product attribute levels. This is shown below.
Assumption 4: People prefer products with the highest utility
The final key assumption of choice-based conjoint is that people choose, or are most likely to choose, the product with the highest utility. This is shown graphically below.
It is easy to identify situations where some or all these assumptions are implausible. Consider perfume. Other than brand and price, what are the attributes? Nevertheless, these four assumptions are the only four assumptions that are practical, so the question of whether the assumptions accurately represent how people think is not so interesting, as there is no alternative.