product innovation blog

Staking Out Valuable Positions

A crucial issue in strategy development is staking out a valuable place in customers’ minds. Customers (and potential customers) think about different companies/brands/products in different ways and companies try to position themselves in different ways to gain advantage. For example, in general, Volvo is about safety, BMW is about performance, Toyota is about quality, Hyundai is about value. By staking out a credible position on a dimension important to customers, a company can capture customers to whom this dimension is important. In the car industry, positioning is pretty clear. But, what about your industry? Is it clear how customers think of your company and its competitors? Is there a valuable position you can lay claim to.

Perceptual Mapping

For this type of analysis, we find a tool called perceptual mapping very helpful. You have probably done a very simple, subjective version of perceptual maps in a workshop at some time in your past. The approach is to identify two dimensions, such as two important customer needs, and plot competitors on these two dimensions. The resulting plot allows comparison of your company to competitors.

Although simple subjective plots are easy to do, and very popular, the problem is that they reflect the perceptions of the team making the plot, and not necessarily the perceptions of actual customers and potential customers. The better approach is to gather perceptions from the marketplace, and utilize more than two dimensions at the same time.

Marketplace Perceptions

The usual way to gather marketplace perceptions is to field a survey. In this survey you ask customers and potential customers to rate your company and competitors on various dimensions that may be important in the decision of whether to buy your product or a competitor’s. It is also critical to assess the importance of each dimension in the buying decision. These ratings are the basis for the statistical analysis that forms the perceptual map.

Multiple Dimensions

Customers simultaneously consider many attributes in their purchase decision. Sometimes their opinions on these many attributes can be thought of as driven by their attitudes on a smaller number of underlying latent factors. For example, in the banking industry, a customer may choose an institution because of their perception of how the various institutions compare on many attributes. Such attributes may include branch hours, ATM locations, online banking, check imaging, email notifications, and overdraft protection. Their perceptions of these attributes may be driven by their attitude toward an underlying latent factor related to convenience and ease of use. If you knew the customer’s attitude on this one latent factor, it would explain how the customer rates an institution on each of these many attributes.

There is a statistical technique called factor analysis that identifies the presence of underlying factors. It allows you to work with a few factors instead of many attributes. This technique can be used to generate the data needed for a perceptual map.

Another technique is called multiple discriminant analysis. The approach develops linear combinations of the attribute ratings which can be used to predict to which company/brand/product a particular set of ratings belongs. The output of such an analysis can also be used to generate a perceptual map.

Above is an example of such a perceptual map generated from a discriminant analysis. Teenagers were asked to rate various drinks (milk, lemonade, sodas, etc.) on various attributes (good value for the money, popular, nourishing, healthfulness, etc.).

Attributes are shown with a dotted arrow. The length of the arrow indicates how important the attribute is in differentiating between the types of drinks. The longer the arrow, the more important it is. Lines that are close together indicate that the attributes are similar. For example, fizzy and good-value-for- the-money are important attributes. Nourishing and healthfulness are very similar.

Drawing perpendicular lines from a drink to an attribute allows comparison of the drinks. For example, a new product, flavored milk, is considered more modern than regular milk. Coke®, Fanta® and lemonade are similar in the minds of the teenagers because they are near each other on the plot.

A map like this allows comparison of multiple attributes and multiple companies/brands/ products at the same time. It allows you to see if your product occupies the space in the customer’s mind that you intended. It also allows you to identify white space opportunities. In the map above, there are areas that no drink occupies. If the areas are associated with attributes that are important to customers (as determined by your survey) these are white space opportunities for you to explore.

Perceptual mapping is a very useful tool for understanding your company’s position in the minds of customers relative to competitors. This is crucial to staking out a valuable place that provides long- term competitive advantage for your company and its products.

Strategy 2 Market helps companies increase growth and decrease product development complexity.

For more information or to speak with one of our consultants, please contact Mary Drotar at 312-212-3144 or [email protected]

© 2005-present Strategy 2 Market®, Inc. All rights reserved. – 53 W. Jackson Blvd. Suite 360, Chicago, Illinois

Share your thoughts