Competitive Analysis

Competitive Analysis and Differentiation: Be Different or Be Gone!

by Tom Gray | on Feb 19, 2012 |  Comments

The most important reason to do competitive analysis is to find your differentiation. Every company must have an edge – must be different from competitors, in a way that matters to prospects. If your company does not meet customer needs better than other available choices, there is no reason for the customer to choose to buy from you.

Without a reason to buy from you, you have no business! Customers will not buy, and bankers will not lend. Bankers will lend only to those companies who seem to be different in a way that matters to customers when they are choosing a supplier.

So your company has to be different. It must enable customers to meet their needs better than if they bought from others. But there is also this other idea – “different in a way that matters.”

What Matters to Customers when Choosing Suppliers?

Figuring out what matters to customers – their buying criteria – starts with understanding who your target market is, and then understanding their thinking about what they need in your product. For example, when someone is thinking about buying an e-reader, their choices include Kindle or Nook or a tablet computer with an e-reader app, and perhaps a few other less well-known e-readers. How do they decide what to buy?

They think about (make a mental list of) what the e-reader must deliver. For example, they will want a glare-free display, color display, large library of books (maybe children’s books or textbooks?), a reliable unit with decent battery life, a reputable supplier, easy book ordering, protection if things go wrong, and of course an attractive price considering the value received. For some, other features may be more important than some of those listed above, such as text to speech (“read-to-me”).

Humans cannot assess products on dozens of factors. Five to seven is our limit, and maybe seven is too many! Thinking like a customer in your target market group, organize these buying criteria into priority order, and stop at 7 (or 5). You may want to group some items into a broader category such as “ease of use”. This becomes your test list.

Now you will want to talk to some of these target customers and see if you guessed right. Note: don’t ask current owners; they know too much! Ask people who tell you they are considering buying an e-reader but have not done so yet. Find them at locations where the units are sold, and strike up a conversation. Maybe you can find such research on the internet, or pay for your own survey or focus group.

Once you have a reasonable set of buying criteria in priority order, then you can assess how well the competitors meet each of these criteria. For those criteria where no one meets them well (no competitor is rated “high”), that is where you must be high – this will be your differentiation.

Summary of the Process

There is a logical train of thought here:

  • You define your target market so you can think like them about their buying criteria.
  • Then you assess competitors on those criteria and find your differentiation.
  • It is something that matters to prospects because ideally it is one (or two) of their top 5 to 7 buying criteria.
  • Having this differentiation, you have a reason to be in business!
  • Next you must figure out a “positioning” slogan: how you want the customer to think of your company. It will relate to the differentiation, but expresses customer benefits in a catchy style.
  • Once you have your positioning, you can develop your marketing program (the 4Ps), where every tactic must support this positioning.

Have you ever found an easier way to do competitive analysis and find your differentiation?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

Competitive Analysis

by Tom Gray | on Feb 18, 2012 |  Comments

Once you know your target market’s top 5 to 7 buying criteria in priority order, you can assess the competition on how well it meets those criteria. See Competitive Analysis and Differentiation: Be Different or Be Gone!

Then you can plan to be different – to be excellent on some criteria that matter to customers where the competitors generally fall short. The final step is to capture your differentiation in a marketing slogan or “positioning” – what you want customers to think of when they hear your name.

Competitive Analysis In Your Business Plan

Start with two to four paragraphs describing the offerings of competitors today, and any improvements they are likely to introduce. In your narrative, be sure to highlight their offering in terms of the buying criteria.

Then set up a table called the Competitive Analysis Matrix. You could copy and paste the one below, and then edit it for your business.

You will have one row for each of the buying criteria, and one column for each competitor or group of competitors. Four to five columns is enough. By the way, “price attractiveness” is never the first buying criterion. The first one is most important, so it must be something about how the product meets a need, such as its functionality. After that, people might consider price. If it does not do the job, the price does not matter!

Then, in each cell, enter the consumer’s perception (not your perception, but what you think is their perception) of how well each competitor meets each buying criteria by entering H (high), M (medium), or L (low).

You will use three extra columns at the right end of the table: common shortfalls; my product; my strategy.

  • Under “common shortfalls”, enter an X for a buying criterion where no competitor is rated H.
  • Under “my product”, enter how you expect prospects will rate your product. Be realistic!
  • Finally, under “my strategy”, enter a word or two saying why you will be better than competitors on that criterion (e.g., “add color”).

Review the table to compare the ratings to each other. Modify them if needed to be sure you can explain and defend them. Review the three columns on the right; are your entries accurate?

The last step is to write a short paragraph stating your differentiation from competitors – your competitive edge. Obviously, make sure your words match what the table says. This is why they will buy your product. This is what a lender is looking for!

Positioning

Positioning  is a marketing slogan that captures your differentiation and expresses how you want to be thought of by prospects. Your slogan will be positive, expressed in terms of customer benefits – prospects will think of your company as one that offers value and perhaps good experiences.

Think of several possible slogans and try them out on friends. This is a big decision, because it drives all your marketing, so take your time to find something that makes customers (and you) feel good about your firm.

By the way, always use “price attractiveness” rather than simply “price.” Why? You want all your High ratings to be considered good. High price attractiveness is good, but a high price is bad.  So using “price attractiveness makes all your ratings consistent: high is good; low is bad.

Competitive Analysis Matrix Example (in two tables for blog space limitations)

Buying Criteria Ajax Co Sell-Co Big Bertha Also-Rans CommonShortfalls
Performance M M M L X
Durability H L M L
Price Attractiveness M M L H Almost
Fit with other tools M M H L
Company Reputation M M H L
Order/delivery M M L M X
Easy Training M M M L X

 

BuyingCriteria CommonShortfalls My Product MyStrategy
Performance X H ComputerControlled
Durability M Perf more important
Price Attractiveness Almost H Low Overhead
Fit with other tools L Our line will grow
Company Reputation L Startup needs references
Order/delivery X H Web, plusPerson option
Easy Training X H On-line

 

This table shows a startup firm whose edge is computer-controlled performance for some type of tool.

  • The firm will enter the market as an unknown, supported by references.
  •  Its appeal (differentiation) will be unmatched performance and attractive pricing for that level of performance, which can save money for its clients.
  • It is easy to do business with, but suffers from lack of a broad line of tools that work well together.
  •  It has also decided to be middle-of-the-road in durability to control costs, believing that its performance advantage will outweigh any durability disadvantage.
  •  Ajax is competing on durability and a price below Big Bertha. Sellco is a third place firm, and Big Bertha is the leader based on its broad line and established reputation.

A possible positioning slogan: “Cut your costs with the newest cutting edge.” This starts with positive customer benefit, and highlights the performance (cutting edge) of our product. It touches on how the customer can reduce his own expenses by using a high performance tool (for example, there may be no need for him to deburr and polish if he uses your machine). It also suggests that your price might be lower than average.

You will want to create your own buying criteria to fit your market and product, but here are some generic criteria to jog your thinking:

  • range of products
  • quality (hard to differentiate until AFTER one buys)
  • selection
  • service
  • reliability
  • stability
  • expertise
  • appearance or style
  • sales method
  • credit policies
  • advertising
  • image
  • ease of use
  • company reputation
  • durability
  • fit with other tools
  • training requirements

The Competitive Analysis Matrix is a simple tool to sum up the market (customer buying criteria and how well competitors meet them), choose your differentiation, and then your positioning. For a short video on how to do this, go to Competitive Analysis: Find Your Edge – YouTube.

How did this work for you? Did it organize your thinking? Was the effort worthwhile?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com