Glossary of Competitive Strategy Terms
Comparative Performance Scorecard - A table comparing the performance of the various products in a category.The table lists the product attributes that are most important to customers. Each attribute is assigned a performance metric, and the comparative metrics are arrayed in the table for each product.
Customer Value Management (CVM) —The art and science of measuring, analyzing, and managing value. A product’s relative value is the customer-perceived performance-for-price relative to rival brands. Executives leading product divisions and their teams working in product-line strategy (on product positioning, product improvements, new product development and launches, value propositions, value pricing, branding, marketing communications, value selling, and key account selling) use the techniques and tools for managing customer value to coordinate and execute their strategies to outperform competitors. [See Managing Customer Value by Bradley T. Gale.]
Customer Surplus – a measure of the value of a particular deal to the customer. Surplus is the difference between the fair price and the price actually paid.. If the price the customer pays is less than a fair price, the surplus is positive; if more than the fair price, negative; if equal to fair price, zero.
Differential Worth — The difference in the worth (economic value) of benefits delivered by one product versus a reference product. It is equivalent to the monetary difference between the two products’ positions on the fair-value line. The reference product can be the average product (in the category or consideration set) or a specific competing product.
Dimensions of Customer-Perceived Value — CVI’s customer-value tree identifies six generic dimensions of customer-perceived value:
- Product – relating to the good or core service being sold,
- Customer service – customer care activities that support the delivery of the product or core service,
- Relationship – customized connections and knowledge related to individual customers and key accounts,
- Brand affinity – KBFs relating to the authority the brand holds with customers, how well customers identify with the brand and its promise, and peer-group approval associated with using the brand,
- Price – the transactions price that the customer pays for the product; and
- Other costs – that the customer incurs in addition to the transactions price, not necessarily paid to the supplier.
Although the key buying factors will be different for different market categories, they can always be classified into these dimensions.
Equity Engine — the brand name of a market research technique offered by the firm Research International that has been used to provide data for a customer-perceived-value analysis. The Equity Engine approach gathers data on the performance of each brand in a market category on the key buying factors. RI splits the key buying factors into two main categories, functional and emotional. They have developed a unique battery of questions to measure nine attributes in the emotional category, which they label brand affinity. To learn about converting your data from the Equity Engine format to data suitable for CVI’s Value-Strategy Toolkit™ analyses, please contact us.
Fair-Value Line — A reference line on a value map that reflects how much customers are willing to pay, on average, for different levels of performance. The fair-value line passes through the intersection of the average price and average benefit lines – a point of, by definition, average value. All of the points on the fair-value line represent average value. See slope of fair-value line.
Fair Price — The price for a product that customers are willing to pay, on average, for a specific level of performance. It is equivalent to the economic value of the offer. To determine the fair price for a product, locate its performance score on the horizontal axis of a value map, move up vertically to the fair-value line, and move horizontally to the price on the vertical axis.
Fair-Value Zone — A zone on a value map representing customer value close to and spaced equally above and below the fair-value line. The width of the zone can be set as a percentage of the average price in the category or as a monetary amount. The default setting in the Value-Strategy Toolkit™ places roughly half of the products within the fair-value zone, one-quarter in the good-deal zone, and one-quarter in the bad-deal zone.
Frontier Price — The price for a product that would offer value to customers comparable to products selling at the lowest price in their performance range. To determine the frontier price for a product not on the frontier line, locate its performance score on the horizontal axis of a value map, move up vertically to the frontier line, and move horizontally to the price on the vertical axis.
Frontier Offerings — Products and bundled services that sell at the lowest price in their performance range. If an offering provides both the lowest price and best performance, it dominates every other offering in the category.
Goodness of the deal – an evaluation of whether or not the customer paid a fair price for a product. A good deal is where the customer pays a price that is less than the fair price (as determined by the product’s relative performance.)
Key Buying Factors (KBFs) — The list of important benefit and cost attributes that customers evaluate and value when choosing among competing brands. The list of KBFs will differ by product category, for example: computers – connectivity; retail banking – short queues; aircraft engines – spare parts availability; candy and nuts – freshness; outsourcing – contract flexibility.
Managing Customer Value — (see Customer Value Management)
Most Valuable Customers — Customers, or customer segments, providing the largest stream of profits over the relevant time horizon. Marketers target customers that can provide the greatest discounted present value of future profits.
Market-share Strategy — Activities associated with deciding whether to build, hold, or harvest market share and related decisions about positioning your products’ performance and whether to price for margin or growth. Pricing above your product’s fair price will typically lead to market-share loss. Pricing on or near the best-value frontier will typically lead to market-share gain. Changing performance opens up many other options for changing market share. (For a summary of PIMS research linking market share to the bottom line, see the Harvard Business Review article reprint, “Market Share — a Key to Profitability,” by Robert D. Buzzell, Bradley T. Gale, and Ralph GM Sultan.)
Neutral Price — The price for a product at which its market share will hold at the current level. Setting a price above the neutral price is a tactic for increasing unit profit margin, at the expense of causing market-share erosion; settting price below the neutral price is a tactic for gaining share.
Performance-Evaluations-and-Standards Table — a table in the Value Strategy toolkit software that lets the user specify how to transform any performance metric into a performance index on a 1-to-10 scale. This is a key intermediate step in the process of condensing a set of performance metrics on different attributes into a single index of overall performance.
PIMS (Profit Impact of Market Strategy) — an ongoing research and consulting activity focused on competitive marketing strategy and benchmarking using a business-unit database. The research and benchmarking activity focuses on measuring metrics that track a business’s competitive position (relative overall quality/performance, market share, and capital intensity) and relating competitive position and market attractiveness metrics to measures of business results (profitability and growth). (Empirical findings from PIMS research are summarized in the book, The PIMS Principles, Linking Strategy to Performance, by Robert D. Buzzell and Bradley T. Gale.) For more information, see the PIMS web site.
Price Customization — Setting different prices for different market sub-segments, pricing higher in sub-segments that perceive the most differential worth in your product, and reducing price to appeal to other sub-segments according less worth to your product.
Price Differential — The difference between the price of an offering and the price of a reference offering. Products that perform better than average are often priced higher than the average price. Products that perform worse than average are often priced lower than average.
Price-Performance Profile — A table showing customer-perceived performance scores, attribute relative importance, and prices of major offerings in a category for the major competitors in the market.
Price Premium — The selling price of the vendor's product minus the selling price of a reference product. It is the opposite of the price advantage a vendor enjoys when selling at a price below the price of the reference product.
Product Appraisal and Product Appraisal Talbe– Product appraisal is the process of evaluating how much a product is worth. This is done by comparing the performance of the product against comparable products on the market. The justified price for, say, product A will be the price of the competing products adjusted up or down based on the value of product A’s performance advantages or disadvantages relative to those products. The Product Appraisal Table is a standardized layout for doing this comparison.
Relative Value — The amount of value captured by customers, calculated as the fair price of an offering minus its selling price. Products on the frontier of a value map offer the greatest value to customers in their performance range.
Value Accounting — The discipline of analyzing a product’s worth to customers on an attribute-by-attribute basis, and determining how much customers will pay for it versus competitive offerings. [See, “How Much Is Your Product Really Worth – Optimize your pricing with Value Accounting and the Value Scorecard.”] Customer-perceived value analyses help a product team to assess its competitive position, nominate alternatives for improving performance, set prices based on an integrated view of cost, price, and economic value data, and craft a winning value proposition.
Market-Value Pricing — A technique for setting prices that recognizes the relative economic value, or worth to customers, associated with a brand’s features and performance. Worth is calculated by looking at the brand’s comparative strengths and weaknesses on the key buying factors that customers value when selecting a brand. (See, “How Much Is Your Product Really Worth – Optimize your pricing with Value Accounting and the Value Scorecard.”) The Value Map is a key tool used in Value Pricing.
Market-Value Pricing Chart – a visual summary of the key elements of Market-Value pricing. The chart shows the development of a fair-price, starting from a reference price (typically a market average) and adjusted upward or downward by performance differences and differences in the customers’ economics in using the product relative to the reference product. The chart also shows current price, costs and margins relative to the product’s estimated worth.
Value Map — A value map contains a plot of the prices and overall performance scores of competing offerings in a market category or segment. CVI’s value map contains reference lines for assessing customer-perceived fair value and the best combinations of performance-for-price in the category. CVI’s Value-Strategy Toolkit™ software contains value mapping tools that make it easy for people working on product positioning and perceived value pricing to produce visual displays of alternative competitive strategies and scenarios. (See Value Pricing.)
Value Mapping — See Value Map
Value Position — How a product compares to competitors, as reported on a value scorecard, price-performance profile, and value map.
Value Proposition — An offering’s performance and price promise to potential buyers. Product strategy teams can cross check their current value proposition against the perceptions of customer using product evluations, market research, and several CPV tools. For example, if your brand promise is rapid acceleration, but customers perceive other models as accelerating better, your promoted value proposition won’t connect with customers. You can craft a new value proposition using CPV tools, building on the competitive strengths of your brand.
Value Selling — an approach to selling that attempts to quantify to a customer the economic value, or monetary worth, of your product’s performance advantages versus competing products.
Value-Strategy Simulator™ — The Value-Strategy Toolkit™ Software feature that automatically updates associated value maps, product appraisal tabless, and head-to-head value comparisons from changes in a price-performance table.
Value-Strategy Toolkit™ Software — Computer software offered by Customer Value, Inc. used to analyze a product’s price, performance, and value position relative to competitors and to simulate actions to improve competitiveness. It takes a comparative performance scorecard as input and creates the associated value map, performance evaluatin guidelines, product appraisal table, and head-to-head value comparisons. The software contains a variety of analytical tools for managing customer value.
Voice of the Customer (VOC) — Is a research technique pioneered by Abbie Griffin and John R. Hauser. It was developed into a detailed market research analysis of attribute hierarchy by the research firm Applied Marketing Science, founded by MIT marketing professor John Hauser and located in Waltham, Massachusetts. Many companies adopting Six Sigma practices carry out a VOC-type study to gain insights from customers. To provide the data that you need for a customer-perceived value analysis and value pricing, you need to expand the typical VOC research to gather data on the performance of competing products.
Worth Differential – See differential worth.