Know Your Competitive Position
Here are the questions and answers from our Dec 17, 2007 Webinar on How to Grow Your Company Using Customer Value Analysis. You can use the follwoing link to review the presentation slides (pdf format).
Q. What level of the organization makes the decision to undertake this type of program?
Typically, a senior-level vice president or above makes the decision. This is a strategic program that requires the cooperation of people in various departments including operations, market research, and finance to work together.
Q. Can you give an example of relative perceived value?
Relative perceived value is the ratio of the average perceived-value rating of a company to the average perceived value rating of its competitors. For purposes of simplicity, let’s assume that the luxury car market has only two competitors: Cadillac and Lexus. Let’s further assume that Cadillac is sponsoring the survey and gets an average perceived value rating of 7 while Lexus gets an average score of 9. Cadillac’s relative perceived value would then be 7/9 or approximately 0.78. Similarly, relative perceived price and relative perceived quality are also ratios where a company’s rating is the numerator and the average, aggregate rating of the competition is the denominator.
Q. When you calculate relative value perception, what are the criteria for choosing competitors?
We don’t have criteria for picking competitors because we simply don’t have expertise in every industry. Generally, the executives of the client company define who they are competing against. In areas like consumer durables, however, there are publications like Consumer Reports or trade periodicals that do comparisons based on expert groupings. We’ve never had a problem ascertaining a company’s competitors.
Q. What is the definition of perception? Does it require experience with the product?
By perception, we mean the customer’s evaluation of something. In this type of research, yes, the respondent must have experience with the product (or service).
Q. Please explain the blue line.
The blue line represents what the market regards as fair value. While it might look like the slope of this line would literally be the change in price divided by the change in quality, as it is in Richard D’Aveni’s price-benefit positioning map, it’s derivation is actually more complex. (See Harvard Business Review, November 2007, pp. 110-120.) Once again, in the interest of simplicity, the fair value line takes into consideration both the price competitiveness rating and the perceived quality rating, reducing three dimensions to two. Essentially, we obtain the slope of the line by dividing the slope of (perceived) quality (with respect to perceived value) by the slope of perceived price competitiveness. We also multiply the result by -1 because lower perceived price competitiveness is negatively correlated with actual prices.
Q. So, lower price competitiveness equals higher price. Is this correct?
Yes, that is correct.
Q. Talk about the extremes of the fair value line.
Goods or services perceived as offering low quality at a low price are at the lower left extreme of the line. Those perceived as having high quality at a high price are at the upper right extreme.
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