COMPETITOR ANALYSIS - 2 & CUSTOMER ANALYSIS

Product Features Matrix :Refer page 113 to understand how Features of different
brands are tabulated , and then the relative importance is given to different features.
Gives good idea of the strengths and weaknesses of your product against competition.

Assessing Competitors’ Current Objectives :

• Growth Objective – market share with profit being secondary

• Hold Objective – consolidation for product losing market share is to stop slide
• Harvest Objective – Milking is when profit is paramount relative to market share

Determination of Competitor Objectives :

Brand’s objectives will decide the strategies at market place. Sensitivity to competitors’
actions, salesperson call reports, and other resources can throw up much of the details.
For example, Boeing announced in a major business publication that it would emphasize
on profits over market share – good news for Airbus !

Growth Vs Harvest – if competition’s brand is being pushed to improve market share , it

would be at expense of short term profits , which could cause price cut, increased advt.
expenses, increased promo for consumer and distributor etc. Product Manager increasing
brand’s market share will spend on market-related activities or cut prices.

For brands being harvested , increase in competitor’s price, decreases in marketing

budgets, and so on are temporary retreat from active and aggressive competition.

Two other factors are also very important to understand competitor objectives –

Firm with foreign-based parent are often affected by country of origin , and have backing
of a government or major banks e.g. Japan, Korea, and Singapore – who are keen for
market share in USA even at the cost of short-term losses. Secondly, ownership of
competitor is private, public or government also affect the objectives since government
firms may lay stress on employment, service, and currency exchange.

Another factor can happen if leveraged buyout (LBO) occurs then the company is more
interested in profits and cash flow to pay the debt than in plowing into market share
gains. For instance, LBO by Kohlberg Kravis Roberts& Co ( KKR ) of RJR Nabisco in
1988, resulted in high debt inheritance and so many of RJR’s brands became vulnerable
to competitors who went for market share gains. Phillip Morris in low-price cigarettes
category, and also competitors for Ritz crackers and Planters products. As of 1995 RJR
was free of KKR , and was able to regain market shares lost specially for Winston. This
also happens in mergers.
If a firm seeks to minimize capital investment , it will be slow to respond to competitor
that makes heavy capital outlay e.g. Emery Air Freight and Federal Express bought its
own airplanes in mid 70s. Similarly, firms that pay commission to sales staff based on
percent of sales – lay importance to volume rather than profitability as key objective.

Marketing Strategy :

At the product level 3 major components could be – Target market , Core strategy
( positioning and differential advantage) , and implementation ( supporting marketing
mix).

Product Managers have basic choice between 2 types of differential advantage –

price/cost and product features.

The price approach is based on the BCG model which says that experience curve pushes
costs down with increase in cumulative production and thus allows price cuts without
affecting margins.

The quality differential could be service, packaging, or delivery terms.

Comparing Value Chains :

Porter in 1985 developed the Value Chain concept to compare a brand’s strengths and
weaknesses against another. Here the differentiation can be obtained by the efforts of the
whole corporation , not just by marketing. Here the Primary Activities are Inbound
logistics, Outbound Logistics, Marketing & Sales, Operations, Service while the Support
Activities include Firm Infrastructure, Human Resource Management, Technology
Development and Procurement.

Inbound Logistics can be a factor of differentiation by selection of best raw materials,

and technology e.g. Steinway is the best piano builder in the world because they use the
best wood. Cray had the technological advantage for years in the field of Super
Computers. McDonald’s have led the market by investing in training programs for
consistency in service and product quality.

Outbound logistics can also be the third way of differentiation e.g. Federal express gives
speedy and on-time delivery.
Marketing Mix :

Final strategy of competitors to be assessed is the supporting marketing mix. The areas to
consider are :-

Pricing – Is the list price uniform in all markets ? Are discounts being offered ? How
does price change over time ? If strategy is quality-based what is the price differential
claimed ?

Promotion – What are the selling approaches ? Aggressive for getting new accounts ?
What are their commission rates ? What media is used for advertising ? Are competitors
referred to either directly or indirectly ? Promotion types and how often ?

Distribution – Have channels shifted ? Is the brand being emphasized in certain channels?
Are they opening own retail outlets or putting more efforts in direct marketing ?

Product / Service Capabilities – Less easily changed than price or advertising , it is a

major factor of company’s abilities. A product with expensive parts cannot be positioned
as a low-end product. Also physical properties ( stability under high temperatures) can
decide target market uses and hence strategy. Many engineering plastics are segmented
on the basis of physical properties e.g. DuPont’s Delrin versus Celanese’s Celcon.

How to Assess Competitor Strategies ?

 For industrial products – sales literature, sales force and trade advertising
 Websites
 For consumer goods – tracking competitors’ ads on TV and print media e.g. the
print ad copy in FORBES for Rolex watches ( from Mediamark Research’s
Magazine Total Audiences Report ) is directed to 73.8% readers in age group 18
to 49 , and 38.8% have household income over $ 75000 , and 83.3% either
attended or graduated from college. Product Manager may be interested in the
price of such ads.
 Pricing from distributors, sales people, customers, advertising agencies, or even
own employees acting as customers.
  Being customer or stockholder of competitors and usage of competitor products
are very revealing.

Technology Strategy :

Assessing this for major competitors involves 6 factors mainly –

1. Technology selection or specialization
2. Level of Competence
3. Sources of capability – internal Vs external
4. R & D investment level
5. Competitive timing : initiative versus respond
6. R & D organization and policies

For blank audio cassettes in early 70s ( early product life cycle stage ) both Gillette
Razor Division and Memorex Computer Tape Division were considering entry. Gillette
had advantage in finance and marketing , but Memorex was stronger in R&D ,
manufacturing, matching skills from existing products. End result was success for
Memorex and failure for Gillette in test marketing.

What to do with Information ?

Must be able to synthesize the information collected into a Competitor Capabilities

Matrix (refer Pg. 125 of Text book ) Structured analysis of Design, Production,
Marketing, Finance and Managerial strengths and weaknesses are drawn up against our
product. From this by rating segregate the Critical Success Factors for all the players.
This gives the Product Manager a good feel about the toughest competitors in the market.

Assessing Competitor’s Will :

Strongest competitor can be overcome if not committed , while the weakest competitor
can do massive damage if fanatically committed. So ask the 3 basic questions :

1) How crucial is this product to the firm ? More crucial the product more the
reactions e.g. eBay’s protects its online auction from Amazon.com and others by
high promotions and ads.
2) How visible is the commitment to the market ? Difficult for companies to admit if
they are wrong as publicly committed e.g. Exxon’s office systems division had to
be sold, Coca Cola held on to New Coke which did not sell well at introduction
 3) How aggressive are the managers ? Only by knowing how badly the competitor
“wants” it and depends on the management individuals.

Predicting Future Strategies :

Over a period of one year , and very crucial for companies vulnerable to major new
competitors encroaching their turf e.g. Bajaj / Renault / Nissan small car .

Future strategies are often given through press , but “cheap talk” signals should be
ignored by Product Managers .

Forecasting based on historical data e.g. if a company has track record of high-quality,
high-price program it is likely to continue the trend.

Bethlehem Steel invested billions of dollars to upgrade its flat-rolled products plant , and
thus was able to give price cuts without losing margins. Simulation by senior managers
on competitor moves could also be another way of matching competition e.g. Smith
Kline Beecham and Intel have effectively blocked Glaxo and others.

CUSTOMER ANALYSIS

Who buys and who uses the Products ?

1. Initiator (who identifies the need for product ).

2. Influencer ( who has informational or preference input to decide ).
3. Decider (makes the final decision by authorizing budget ).
4. Purchaser (makes the actual purchase ).
5. User.

This is true for most industrial goods and many consumer products, yet this is very
vital for industrial products e.g. in selling word processing software to a law firm ,
the needs of a secretary ( ease of use, support, readable screen) will differ from the
office manager (high productivity, service, no bugs in software) and also Purchase
(low cost , reliable delivery ).
General characteristics of describing Consumers is :

 Demographic – Age , Sex, geographic location, stage in life cycle are easy
to ascertain

 Socioeconomic – Income, Education, Occupation, and social class

 Personality – Personality traits used to profile consumers by using

psychological techniques can be used for segmentation

 Psychographics and values – Attitudes and behaviors , lifestyle

variables, Activities ( cooking, sports, traveling ) Interests ( music, art )
and Opinions. Also called A I O variables. Refer typical breakdown in
Pg. 142 of text book .
 Refer Pg 142 & 143 for Major Segmentation Variables for Consumer
Markets and for Lifestyle Typologies. For Industrial Products refer Pg
144 for Segmentation Variables.

WHAT CUSTOMERS BUY & HOW THEY USE IT

Benefits –old example of drill manufacturer recognizing it was selling holes not
drills highlights the need to compare Features against Benefits

Purchase Pattern – (2 Product Assortment) – Increased use of customer data base

for target marketing and customer retention programs today , and the 3 criteria for
evaluation are :-
• Recency
• Frequency – what different products and at what time intervals
• Monetary Value – Value of customer’s purchase and in terms of profits ?
• Potential customers fall in following stages – Unaware , Aware, Accepting
(willing to use the product), Attracted (have a positive attitude) , Active
(buy / and or plan to buy ) and Advocates ( not only buy but actively
encourage others to do so )

PRODUCT ASSORTMENT & USE

How many frequently purchased goods involve number of different brands ? For
Industrial products , it is useful to know how many different vendors a customer
employs and the assortment of models , quality levels, and the like from which the
customer chooses e.g. DHL , UPS, Blue Dart , DTDC and Skypak .
Share of wallet is another characteristic of customers – knowing what share of
spending is on your particular product has clear implications for strategy ( It is
hard to get more than 100% !! )

When , Where and How do customers use a product ? Also with what else do they
use it ? For example , cranberry sauce is used at Thanksgiving in USA out of
tradition and to give color ( not nutritional value ) to the meal.

Arm & Hammer found out about putting a box in the refrigerator , and using
baking soda to clean drains from customer feedbacks.

WHERE CUSTOMERS BUY

Channels are not fixed and traditional . Customers migrate to other channels based
on information needs and change in market conditions e.g. Home Stereo market – in
the 60s they were purchased from small stereo stores and mail-order firms, but in
the 90s these are bought at electronic stores like Best Buy. Also the Internet is a vital
source of information and purchases. The phenomenon of moving from specialty
retailer to discounter is often repeated and predictable.

WHEN CUSTOMERS BUY

• Timing – year, month and day and even time e.g. fast –food operators
segment by “day part” i.e. breakfast, lunch, dinner, and snacking times.
• Sales or Price breaks and rebates – special deals better than full price
• Nature of product – snowblowers will sell only in late fall or winter.
• Capital equipment at the end of fiscal year to spend money , which may not
be there next year.
• Seasonal products are marketed well before the season to lock out competing
brands

MULTI ATTRIBUTE MODEL

This model has 4 parts – first the products or alternatives in a category are assumed
to be collection of attributes. Attributes are the benefits sought. Second, eash
customer is assumed to have apperception about how much of each attribute the
alternatives in a product category contain.

Thirdly each customer is assumed to place an importance value, or weightage , on

obtaining each attribute when making choice in the category. Finally, customers are
assumed to combine the attribute and importance weight information using some
PROCESS or RULE to develop the most preferred product option in the category.
To identify the attributes is not simple , hence one way is through focus group
research. Second method could be by survey-based methods using Open End and /
or Fixed response questions.

PERCEPTIONS

Once attributes are identified , the next step is to determine the customer’s
perceptions of the amount of attribute possessed by each brand or product option.
This is done by direct questioning.

For example, weight is the key attribute for a notebook computer then the following
question could be asked “ On a scale of 1 to 7 where 1 is the lightest and 7 is the
heaviest , how heavy is the --------------- brand of laptop ?”. This question is asked
for other brands and models of interest ( restricted to those familiar or willing to
buy ) . Similar questions are asked for the other attributes.

An indirect approach to finding out perceptions is done by a marketing research

method called Multi-Dimensional Scaling ( also called Perceptual Mapping ) .

This method provides for a spatial representation of brands in a product category.

The differentiation of customer perception is done by their relative locations in
product space. Refer the example of Bank Perceptual Map on Pg 150-151. The 2
Key characteristics used by the Bank Customers in this city are COURTESY OF
PERSONNEL and COVENIENCE OF ATM LOCATIONS.

IMPORTANCE WEIGHTS :

An alternative approach is the CONJOINT ANALYSIS which permits product

manager to infer the importance of different product attributes from customer rank
orderings of alternative product bundles of attributes.

As an example , we consider a Lap Top purchase decision : 3 most important

attributes being – WEIGHT , BATTERY LIFE , and BRAND. Assume each
characteristic can also have two different levels or values as shown below :-

3 attributes of laptop computers : Weight ( 3 pounds or 5 pounds)

Battery Life ( 2 hours or 4 hours )
Brand Name ( HP or Dell )

Task : Rank order the following combinations of these characteristics from 1=Most
preferred to 8= Least preferred
 COMBINATION RANK

3 pounds , 2 Hours, HP 4
5 pounds, 4 hours, Dell 5
5 pounds, 2 hours, HP 8
3 pounds, 4 hours, HP 3
3 pounds, 2 Hours, Dell 2
5 pounds , 4 hours, HP 7
5 pounds, 2hours, Dell 6
3 pounds, 4 hours, Dell 1

The respondent’s task is to rate on some scale or rank order the eight combinations
from most to least. The least preferred is 5 pounds, 2 hours, HP and most preferred
is 3 pounds, 4 hours, Dell but we need to check the trade-offs for the combination of
options.

Avg. ranking for the 3 pound options is [ 1+2+3+4 / 4] = 2.5 ; for the 5 pound options
is 6.5 ; for the 4-hour options, 4.0 ; for the 2-hour options , 5.0 ; for the Dell , 3.5 ;
and for the HP, 5.5.

Looking at the differences in average ranks , the most important factor to this
respondent is weight (difference=4.0 ), followed by the brand name (2.0 ) and finally
by battery life (1.0 ) . Importance weights can vary by market segments as there
dramatic difference in the ranking of attributes between Home Users, IT
professionals and Purchase Managers.

CUSTOMER VALUE :

Critical component of customer analysis which explains wht customers make

purchase decisions – depends on benefits offered and the costs involved ( price,
maintenance, etc. ) . Customer value of a brand is made up of 3 elements :-

1. Importance of usage situation.

2. Effectiveness of the product category in the situation.
3. Relative effectiveness of the brand in the situation.

Points 1 & 2 involves CATEGORY value i.e. assumes no competing brands exists .
Point 3 deals with RELATIVE value by comparing with other products and decides
eventual share and profitability.
SOURCES OF CUSTOMER VALUE :

• Economic
• Functional – luggage capacity , fuel
economy, service
• Psychological – sporty, high-tech , luxury

• Brand Equity – Awareness, associations

(young, hip) , Attitude , Attachment
(addiction or loyalty ? ), and Activity
(spreading the positive word of mouth )

• Price and price sensitivity

• Complaints and compliments

• Word-of-mouth – chat rooms and bulletin

boards

• Margin / Profit contribution

• Sales is also a measure of product value

• Competitive activity

• Repeat Purchase rate

ASSESSING THE VALUE OF BRAND / PRODUCT / SERVICE

Using customer responses to estimate the value of a brand involves direct ratings ,
by any of several approaches :-

1. Ratings – for competing products. “How good is X for use Y ?” . This would
be on relative value and not absolute , so if other products score 2s and 3s on
5 and our product gets 4 it is good. If others get 4.5 and 4.8 then the product
has little value.
 2. Constant Sum Ratings across brands – for example “Please rate the
following brands by dividing 10 points among them” :

Brand A ----------

Brand B -----------

Brand C ----------

Brand D -----------

Total 10

3. Graded paired comparison , which requires customers to indicate which of a

pair of products they prefer and by how much . This is done by money values
, as given by example on page 157 regarding soft drink preferences. Coke is
most preferred and Fresca the least after analysis.

MARKET SEGMENTATION : This is a compromise between treating each

customer as unique and assuming all customers are equal. It makes marketing
programs more efficient , and the desirable criteria may include :-

• Sizable – should be significant in sales potential

• Identifiable – 35-50 age group, sports minded, are identifiable to help

in strategic decisions

• Reachable – For planning the marketing mix the efforts on the

segment can be done through specific media e.g. ESPN and Ten
Sports for the sports minded.

• Respond differently – Segments should respond differently to the

elements on offering i.e. some customers are sensitive to advertising
but not price , whereas other could be sensitive to price and another to
downtime.
 • Coherent – when interpreting a segment it is assumed all members
are homogeneous i.e. average member should be reasonably close to
the rest of the members

• Stable – Since future plans are based on past data , segments should
be fairly stable over time.

METHODS OF MARKET SEGMENTATION :

 Cluster Analysis

 Tabular Analysis

 Regression Analysis

These are 3 simple methods which have easy-to-use computer software applicable.
Mobil applied cluster analysis to gasoline buyers and identified 5 segments :

i. Road Warriors- Higher income, middle aged men who

drive 25000 miles and more per annum

ii. True Blues – Men and women with moderate to high

incomes loyal to a brand and station

iii. Generation F 3 ( Fuel, Food, and Fast ) – upwardly

mobile youth under 25 mainly who drive and snack a
lot

iv. Homebodies – Homemakers who shuttle kids during the

day and buy from any station along the way

v. Price Shoppers – rarely buy premium

Tabular Analysis can be explained by the survey done of 1004 users of Cranberry
Sauce ( Pgs 166-169). The descriptor variables are in leftmost column and is called
“independent variable” whereas the behavioral categories are located at the top and
are divided into 3 groups based on self-reported usage : heavy, medium and light.
These are “dependant variable”. The rows and columns sums are called
“marginals”.
Raw Data : Cranberry Sauce Usage

Cooking Heavy Users Medium Users Light Users Total(row

Attitude marginal)

Convenience 81 144 74 299

oriented

Enthusiastic 97 115 45 257

cook

Disinterested 35 108 127 270

Decorator 45 96 37 178

Columns 258 463 283 1004

Total(marginal)

Before analyzing the results in detail , check if any statistically significant

relationship is there between independent variable like cooking attitude and
dependant variable like usage quantity. This is done by CHI-SQUARE TEST or by
calculating percentages.

Each cell is compared to an Expected Cell Size ( number of people that would be
expected in cell if attitude to cooking were independent of usage quantity) – this is
calculated by multiplying the marginal for the row in which cell is located by the
marginal for the column in which cell is located and dividing by the total sample
size.

For example , for convenience-oriented-heavy-usage cell it will be 299 X 258 / 1004 =

77. Chi-Square value is taken by the sum over all cells of the (Observed-
Expected)squared / Expected. For the above table the chi-square value is 86.
Combined with number of degrees of freedom of the table – no of rows minus 1
multiplied by number of columns minus 1 and the significance level of the test.
Now this is compared in any statistics book , and for chi-square of 86 and 6 degrees
of freedom exceeds the table value of 12.6 at the 95% confidence level. Thus the
significant relation between consumers’ attitudes to cooking and their reported
usage levels of Cranberry sauce is confirmed.

REGRESSION ANALYSIS :

Like cross tabular analysis, a product manager can use this method when there is
explicit relation between a dependent(behavioral) variable and one or more
descriptor(independent) variables. Here the difference is that regression assumes a
continuously measured dependent variable – using the Cranberry Sauce example , if
the dependent variable is reported usage in number of cans rather than categories
then regression would be appropriate.

Regression provides information on response to marketing mix variables e.g. Bolton

& Myers found that price sensitivity depends on various service characteristics like
quality, support, etc.

Also segments in terms of price responsiveness exist across countries and continents
– which means that segmentation based on responsiveness rather country
boundaries is more relevant for global marketing.

The first stage in strategic thinking is to pinpoint the critical issue. For example, if
overtime work is a chronic problem with a company then they would like to ask the
question “How can we reduce overtime ?”

The answers could well be

• Work harder during the regular hours

• Shorten lunch and coffee breaks

• Forbid long private phone calls

Now we can reframe the question for a solution, rather than remedies to symptoms,
“Is this company’s work force large enough to do all the work required?” To this
the answer can be YES or NO.

For arriving at YES analysis would be needed, comparison with companies in the
same industry, the historical trend of workload per employee, degree of automation
and computerization and their economic effectiveness. On the other hand, after
scrutiny of sales record, profit per employee, ratio between direct and indirect
labor, comparison with other companies and so on – the answer should be NO i.e.
the company is currently understaffed the solution to the original problem will
automatically emerge.

Again the question could further be modified as “Do the capabilities of the
employees match the nature of the work?” A negative answer would imply shortage
of suitable personnel, which in turn would suggest that staff training or recruitment
of capable staff from elsewhere. If the answer is yes, then chronic overtime lies in
the nature of work but in the amount of workload. Thus not training, but adding to
the work force would be the crucial factor in the solution.

When problems are poorly defined or vaguely comprehended, one’s creative mind
does not work sharply. The greater one’s tolerance for lukewarm solutions, half
measures, or what the British call ‘muddling through’ the more loosely the issue is
likely to be defined. The source of the problem must be understood , before any real
solution can be found.

No solution can address the critical issue unless it is implemented with necessary
steps. Many companies try to short-circuit the necessary steps like planning for
operational improvement, and organizing for concrete actions. Remember the most
brilliant line manager cannot translate an abstract plan into action in a single step !