We have already discussed competition when we spoke of the Porter Five forces model, but before embarking on a customer VoC, I would encourage you to dive deeper into your competitive landscape and truly understand who your competitors are, how they are positioned, and what their relative strengths and weaknesses are. Like all the tools presented in this chapter, understanding your competitors positioning, capabilities, strengths, and weaknesses will allow you to assimilate and process more information more rapidly from the VoC's you undertake.
Does this sound familiar? Hopefully it does, as the one of the first steps in performing a competitive analysis is to do a SWOT or each of your major competitors, but before we can do that, we need to understand who our competitors really are. It would seem a simple task for a company to identify its competitors. GM knows that Toyota is a major competitor, Apple knows that Samsung is its major competitor, and Coke executives go to bed every night thinking about their major competitor, Pepsi. However, the range of a company's actual and potential competitors is in reality significantly larger. A company is more likely to be hurt by emerging competitors, new entrants, or substitute products as defined in the Five forces exercise, than by its current competitors. Let's consider the traditional book-sellers market as an example.
Not that long ago, Borders Bookstores & Barnes and Noble were racing each other to see who could build the most megastores with comfortable couches and easy access to premium coffee. While they were deciding which products to stock and coffee to serve, Jeff Bezos was building the online behemoth Amazon.com. Of course, Amazon.com had the advantage of offering an almost limitless supply of books at very low prices due to no stocking inventory costs. Additionally, customers no longer needed to leave their office or home to get the next Bestseller delivered to their door free and with no tax fees.
Barnes & Noble and Borders spent years trying to catch up, but the effect on traditional bookstores was devastating. While the number of Barnes & Noble bookstores were growing by leaps and bounds in the early 2000s, the number of Barnes & Noble stores peaked at 726 in 2008 and has been declining to where they currently operate only 696 stores and plan on closing a third of these remaining stores over the next decade.
In 2003 Borders had 1,249 stores under the Borders or Waldenbooks brand. By 2011, Borders applied for Chapter 11 bankruptcy protection and began liquidating 226 of its stores in the USA. By July, Borders starting closing its remaining 339 stores and by September of that year, Borders shuttered their online operations, transferring their trademarks and mailing list to Barnes & Noble, which is the only national bookstore in existence today. The message is clear: do not look only at your current competitors when evaluating a market, but keep a keen eye toward future competitors, wherever they may come from.
When analyzing current and future competitors, you must try to ascertain their strategic profile; specifically, you must try to put yourself in the shoes of your competitor to understand their strategy, objectives, strengths, weaknesses, and reaction patterns. Often times, a company will telegraph its strategic orientation by the actions it takes in the market. If a particular company is starting to acquire companies who supply materials the company uses in their product, you know they are focused on vertical integration to drive out their costs. If they begin to acquire companies with complementary channels to theirs, you know they are focusing on expanding their market reach. You should also try to understand the objectives of a company by understanding a little more about their behavior. Many variables affect competitor's objectives including size, history, current management, and financial situation. Are they going for market-share maximization and will invest today for future returns, or do they need to maximize profits as they need to hit a certain return to satisfy the parent company?
As mentioned previously, after you have defined who you're current and likely future competitors are, an effective tactic in doing a competitive analysis is to perform a SWOT on each of them. Just as a SWOT will help you to understand your own company's internal strengths and weaknesses, so can it provide the same illumination for each of your major competitors.
Just as we have done with our own internal SWOT, you should review each of your competitors using the following strength and weaknesses guidelines:
- Products: Standing and strength of products from a user's point of view in each segment. Breadth and depth of product line(s).
- Marketing and Sales: Capabilities in each area of the marketing mix, strength of channel and ability to manage and serve those channels.
- Channels: Dealer/Distributor coverage and quality. Strength of channel relationships and ability to serve the customers.
- Engineering: Strength and capabilities of engineering organization to develop new technology, creativity, R&D, and others. Patents, copyrights, and intellectual property. Access to outside resources.
- Operations: Manufacturing capabilities and cost position. Sophistication and flexibility of facilities and equipment. Proprietary manufacturing technologies. Location and labor pool. Supply chain strength and access to and cost of raw materials.
- Costs: Overall relative costs. Ability to scale and leverage other developments or business units.
- Financial strength: Cash flow. Access to capital. Credit and accounts receivables.
- Organization: Consistency of organization direction and clarity.
- Management: Leadership qualities of senior staff. Ability to motivate and adaptability of team. Depth of experience. Personnel turnover.
In addition to a detailed SWOT for each competitor, it is also best practices to analyze each one on the following variables if they are not included as part of the competitive SWOT:
- Share of market: The competitors share of the target market
- Share of Mind: The percentage of customers who named this competitor in responding to the statement: name the first company that comes to mind in the industry
- Share of Heart: The percentage of customers who named this competitor in response to the question: name the company you would most prefer to do business with
You should also try to get your customers to provide input on your competitors by focusing on their perceived value in the marketplace. It is commonly understood that customers will tend to choose competitive brand offerings on the basis of which delivers the most value to their enterprise. Customer value is defined articulated as:
Customer Value = Customer Benefits – Customer Costs
You can conduct your own customer value analysis by having your customers help you understand your own strengths and weaknesses relative to various competitors:
- Identify the major attributes customers' value. Customers are asked what specific attributes and benefits they seek when choosing a product or vendor. Often times, these are identified as Key Performance Indicators (KPIs).
- Rate the importance of each value in step one.
- Assess the company and competitors performance for each value identified in step one.
- Analyze how differing customers from differing segments answer the preceding questions. If there are key differences between the segments, there could be an opportunity to position your product differently in different markets.
- Continue to monitor the customer values over time as economy, technology, and competitive responses change.
Lastly, if you have the internal capabilities and resources, few things will beat performing a competitive teardown on your competitor's most successful products. Performing a competitive teardown will provide ammunition to the marketing and sales team in understanding potential product deficiencies and capabilities, but can also be a treasure-trove of information to the produce development teams.
Competitive teardowns are very common-place in high-tech industries, like automobiles and electronics, where teams can learn design choices made by the competition, emerging component suppliers, cost drivers, competitive strengths and capabilities, packaging trends, and others. It is not unusual for automobile companies to purchase fully-loaded competitive products costing $50,000 and more, only to have them completely disemboweled within a week.