Crafting a Competitive Landscape

Embarking on the journey to construct a Competitive Landscape for your product portfolio is not a simple task. While table comparisons of features and prices provide a snapshot, they lack the narrative and framework for a deeper understanding. If you find yourself in this situation, rest assured that you're not alone. D'aveni's Positioning Maps offer a highly practical method for building a competitive landscape by integrating the prices and benefits of competing offerings. This tool not only provides insights into the current competitive scenario but also allows you to anticipate how competitive positions might evolve over time.

Positioning Maps

D'aveni's method revolves around creating an accurate map of the competitive landscape based on the premise that, in the long term, the difference in the price of competing products is explained by how well they match the customer's perception of a core benefit. This explains the existence of high-end, mid-range, and low-end offerings within the same category and how they can be appropriately priced or fall into the categories of overpriced or underpriced. Ultimately, a company's strategic positioning is defined by how its offerings compare in this context.

D’aveni’s price-benefit positioning map offers a practical approach to assess how companies position themselves in the marketplace and how new product releases can provide leading trends to anticipate changes in competitive positioning.

Positioning Maps in Three Steps

Step #1. Define the Market: Begin by identifying the core consumer needs you aim to understand. Cast a wide net for products and services that satisfy those needs. Decide whether you want to track the entire market or focus on a specific segment, retail or wholesale, products, or brands.

Step #2. Choose Price and Determine Primary Benefit: Specify the scope of your price analysis. Decide whether to compare initial prices, life cycle costs, transaction costs, or bundled offers. Utilize regression analysis to unveil the primary benefit that predominantly influences prices.

Step #3. Plot Positions and Draw Expected-Price Line: Envision creating a visual map where every company's product finds its place based on both price and the level of the primary benefit. Draw the expected-price line, a guide revealing how much customers expect to pay for different levels of the primary benefit. The slope of this line indicates how much more customers are likely to pay for a higher level of the primary benefit.

The Price-Benefit Map comprises four components: an x-y axis, a regression price-line plotting the theoretically fair price customers are willing to pay, and the positioning of different offerings that can potentially categorize products as low, mid, or high-end offerings and determine if they are underpriced or overpriced.

Products don't land on either side of the line accidentally but due to companies' strategies. Enterprises position a product or brand above the line to maximize profits, either by raising the price or enticing customers to pay more for desirable secondary benefits. Alternatively, products can be positioned below the line to maximize market share by charging less than expected or by dropping some secondary benefits to attract price-sensitive customers.

For a more robust model, you can also run a regression analysis to identify which benefit explains most of the variance in product prices. This method is more reliable than relying on hunches or direct inquiries to customers who might struggle to explain their choices. The regression equation resulted from plotting prices and sets of features associated with primary customer benefits yields an incremental r-square statistic for each independent variable, showing the extent to which each benefit contributes to price differences. The benefit with the highest incremental r-square accounts for more of the variation in prices than the other benefits, so it’s the most important driver of price. If several benefits correlate with one another, that suggests they jointly influence price differences. In such cases, you can combine them into a single benefit by creating an index or a scale—a common practice in marketing research.

Once you've identified the primary benefit, you are ready to draw a positioning map, an oversimplification yet illustrative of the relative positions of competitors on a common scale.

Example: Mapping 2007's Cell Phone Market

The graph below is an exercise D'aveni and his team executed of drawing a positioning map in early June 2007 after they spent a week collecting data from public sources on 40 “unlocked” cellular telephones, which work with the calling plans of many U.S. cellular service providers. They drew up a list of the phones’ features, consumer ratings of those features, and retail prices. A regression analysis showed that advanced functionality accounted for most of the difference in the prices of cellular telephones. By advanced functionality, they defined high-tech features like the ability to play music in the MP3 format and to snap high-resolution photographs, the presence of sophisticated e-mail software, and a QWERTY keyboard (remember BlackBerry?). According to the results, advanced functionality accounted for 68% of the variation in prices, and according to my analysis, customers paid on average $28 more for each advanced feature in a cellular telephone.

In this map, the iPhone was positioned in the ultrapremium segment, Motorola was positioned in the midrange group. Sony Ericsson, Samsung, and LG had also positioned devices below the line, suggesting that the segment was becoming crowded and prices would soon fall.

In conclusion

Fundamentally, positioning maps serve as a compass in the misty expanse of the competitive landscape. They not only shed light on the benefits treasured by customers but also reveal the intricacies of release plans and roadmaps across various offerings, connecting the underlying product strategies within the ever-shifting interplay of price and benefit dynamics. When interpreted within the realms of industry and customer knowledge, these maps provide insights into why certain products and brands outperform others. Before embarking on this expedition, a word of caution: be mindful of outliers stemming from customers' perceptions of the benefits of an offering, influenced significantly by the efficacy of branding.