A useful tool in understanding your business is in understanding your competitors. More importantly, you must understand how your customers perceive you vs. how they perceive you competitors. This can be done by evaluating which characteristics consumers value in your type of product and service for both you and your competitors.
I’m going to take a quick tangent and remind you about customer segmentation. Different segments of customers will value different things. For example, my commuter car is comfortable and safe but all I care is that it gets me where I’m going as inexpensively as possible since I put on a significant number of miles each week. While reliability is important, I am more concerned about price and mileage. I have at least 140,000 miles on it and will probably double that before I think about replacing it. A friend of mine was driving back from a later event with her three small children in her car. The car broke down completely unexpectedly. This was back before everyone had a smartphone. She was stuck in the middle of nowhere with her kids for a long time before someone pulled over and offered to call AAA for her. Even then, she was nervous about the stranger in the middle of no where. She values reliability over everything else. There was no way that she was going to be in that situation again….. ever. She has purchased a new car every three years, regardless of how well she may love her current one. She also won’t consider an entry price point car because she perceives them as less reliable. Two different segments. Me, ok I’m cheap. My friend, Ms. Reliable.
Back to competitive analysis. Start by compiling a list of different functions, features and attributes about your product and your competitors’ products. Keep in mind that you want to understand the consumer perception of the products. For example, if product quality is a key differentiator and you could put your product up against a dozen competitors in a third party lab and prove without a hesitation that your product’s quality is superior but the consumers have a perception that the competitors are of higher quality than you, you lose that comparison. Common attributes include performance, price, quality, convenience, reliability, etc. Don’t forget that even if you are providing a product, the delivery process is part of the consumers’ perception. Therefore, you may need to include things like knowledge sales associates, return policy, hours of operation, etc.
A survey works well for creating what some call an importance-performance analysis. For each attribute for each product you want to test, you need to have the respondent provide two points of data. First, how does this specific product deliver against the attribute. For example, on a 7 point scale rate how product A satisfies each of the following attributes: price, delivery, reliability, quality, etc. Additionally, you need to know how important each of those attributes are to the customer. Back to the car’s, I would rank price as more important than reliability while my friend would be the reverse. In this case, I suggest force ranking the attributes. That is, if you have six attributes you are measuring, have the respondent rank them in importance. Importance of feature can be an excellent method for segmenting your customers.
Once you graph the result, you can see which areas you are superior and inferior to your competitors AND you can tell how important each of those areas are. Good rule of thumb, the more important the attribute, the more you want to be better than your competitor. The less important the attribute, the less it matters.