Real world performance of choice-based conjoint models

Conjoint analysis is one of the most important tools to support product development, pricing and positioning decisions in management practice. For this purpose various models have been developed. It is widely accepted that models that take consumer heterogeneity into account, outperform aggregate models in terms of hold-out tasks. The aim of our study is to investigate empirically whether predictions of choice-based conjoint models which incorporate heterogeneity can successfully be generalized to a whole market. To date no studies exist that examine the real world performance of choice-based conjoint models by use of aggregate scanner panel data. Our analysis is based on four commercial choice-based conjoint pricing studies including a total of 43 stock keeping units and the corresponding weekly scanning data for approximately two years. An aggregate model serves as a benchmark for the performance of two models that take heterogeneity into account, hierarchical Bayes (HB) and latent class (LC). Our empirical analysis demonstrates that, in contrast to the performance using hold-out tasks, the real world performance of HB and LC is similar to the performance of the aggregate model. Our results indicate that heterogeneity cannot be generalized to a whole market and suggest that aggregate models are sufficient to predict market shares.