Outperforming : How To Surpass Your Competitors

03 Mar 2008

The relationship between potential competitors is among the most significant forces in any market. As a basic rule of thumb, the less competition there is, the more relaxed people can be about their business. On the other hand, competition also stimulates intense optimisation processes, as well as better service at lower price points, which in the long run all benefit consumers. Competition is especially fierce in markets that lack true innovation, and typically includes not only manufacturers, but also retailers while battles are fought and won less and less over the actual functionality of a product. Article by Stefan Dongus.



‘Lifelong learning’ is a fashionable catch phrase these days that is symptomatic of a certain expectation in the work place, not only towards employees. The companies themselves are also under pressure to constantly evolve and adapt to ever-changing markets. One of the most efficient and affordable ways for such progress lies in re-thinking your competitive strategies. When it comes to benchmarking – business- speak for comparing yourself to your best competitors – the main idea is to learn from the key strengths of your competition while avoiding their mistakes. Anyone willing to improve their position in a competitive environment should proceed systematically with the following questions in mind:

1. Who are my competitors?
2. How do customers rate my shop compared
to competitive stores?
3. From a long-term perspective, how can I
excel over my competition?

1. Identifying your competitors
First of all, every store should know exactly who they are competing with. If you look closely, this one should be easy to answer. Every storeowner should know all the other board shops in the area they are catering to. But actually, your competition is much broader than just your local surroundings. If we consider the fact that consumers can only spend their budget once, we need to take a number of additional locations into account where our target group can spend money instead of leaving it in your till.

Direct local competition (1) takes place between local board shops in the same area. Stores are advised to watch this competitive field closely, since competitors with similar or even identical products are vowing to attract the exact same customers. The success or failure of such a competitor will have direct repercussions on your shop.

Direct supra-regional competition (2) has gained increased importance over the past few years. For pretty much all the products in a board shop there are by now a number of non-local mailorder sources. And due to the rising popularity of pertinent mailorder services and the increased acceptance of the Internet as a shopping channel among consumers, the competition between local stores and supra-regional mail order services is almost as intense as the rivalry between local board shops.

Indirect competition (3), whether local or non-local, has also gained importance over the past few years. At the same time, it’s increasingly rare to find any kind of loyalty among boarders towards their local suppliers anymore. Consumers have become more diverse in their shopping habits and in many cases they go and buy their clothing in stores that have absolutely nothing to do with boardsports whatsoever. This sort of infidelity not only takes customers to high-profile streetwear label stores, but also to the likes of high street brands such as H&M, etc.

Substitute competition (4) takes place almost entirely beyond our reach. When consumers alter the very structure of their shopping cart, only a whole market as such may be able to counteract it – individual retailers will hardly have a chance to make a difference. One of the most striking changes in shopping cart structure in the past couple of years was brought about by mobile phones, among other things.

2. Comparison with competitors and transfer of capabilities
Before making the comparison with your competitors, you need to define a set of relevant performance features on which to base this analysis. This set of relevant performance features also depends on how your own store is positioned and which competitive environment you are looking at. For instance, when comparing your strengths and weaknesses to a mailorder
store, the term ‘shopping experience’ will have completely different meaning than when it’s applied to a local store. But to customers that are occasionally buying their gear online, this factor will seem negligible.

Once you have defined your competitive environment and a set of performance features, you’re ready to evaluate your own store in comparison to one or any number of competitors. However, when it comes to assessing structural criteria like financial position or cost situation, you’re best advised to resort to an expert for an estimate. Judging your competitors in this light can be especially hard. But if you keep a constant eye on the overall market and your competitors, you’ll be able to make a pretty good estimate. On the other hand, a number of criteria primarily depend on how customers rate a store. Especially subjective criteria like customer service, interest, or know-how depend more on the perceived quality of a store experience, rather than the actual performance of the store. For example, the know-how the staff actually commands is of little importance if your customers never perceive it. What good is the best factual knowledge when it’s overshadowed by a rough delivery and/or lack of interest? 

In order to assess this ‘perceived performance potential’ on behalf of the customer, you need to conduct a customer survey. This will allow for specific questions like, “How do you rate the know-how of our employees compared to the ones at store X?” Whenever such data is unavailable or too troublesome to obtain, you can always draw on market insiders, (e.g. your
own employees) for evaluation. In that case, it’s always advisable to adapt their opinions to a customer’s perspective. The overall objective is to get an assessment of your own store and your competition as experienced by the customers.

Once a shop has decided on a set of relevant performance features, comparisons with the competition can be made by conducting a capability analysis. For a small snowboard shop making these comparisons with its local competitors, this analysis may appear as follows:

Such a capability analysis gives a clear overview of all areas in which diverging strengths and weaknesses exist between your own store and the competition. Regarding this example, your shop may be well positioned in a number of structural criteria (management skills, IT system, etc.), but overall tends to trail far behind the competition when it comes to a number of other factors.

The ultimate goal for every store should be to reach optimal ratings for all criteria. But keep in mind that a ‘perceived rating’ from a customer’s perspective will not change overnight. It takes initiative, time and in most cases money, to gain a better position when it comes to customer perceptions. For anyone short on resources – and that’s many of us these days – the focus should be limited solely to those features that are truly relevant. The order of importance of these features highly depends on your own situation and the make-up of your competitive environment. The ‘value for money’ offered at a store will take on a much higher value in a region with limited consumer spending power than elsewhere, and the importance of a controlling system will rise with the number of employees involved on a management level. For an illustration, an Importance Performance Portfolio is a good way to see to what extent your store is making efficient use of its capacities.  Looking at this portfolio you will note that the store in question only ranks in the desired ‘field of efficient capacity input’ in a limited amount of criteria. The majority of criteria, in which the store in this example is ranking extraordinarily well, seem to have little effect on overall success. This applies primarily to the controlling and IT systems. While these may be highly important to a large store, a smaller shop may be more dependent on its image, the awareness level, or its range or promotional activities. Another striking weakness lies in the fact that this store is not offering a snowboard rental program. The owner had decided against it for financial reasons at the time. The fact that his competitor was able to raise his awareness level and attract many new customers to his store with his rental program had not been factored into the initial analysis. But such an Importance-Performance Portfolio gives clear indication of areas where capacities need to be freed up and put to more efficient use. Quadrant IV in such a portfolio is an area where resources go to waste and means they are applied sub-optimally. Quadrant I on the other hand is an area where immediate action is needed. The higher a performance feature is placed in this chart (high relevance), the more important its rating will be over to the right (great performance potential). Resources must always be tied up in Quadrant I and II. 
 
Working with the capability analysis and the Importance-Performance Portfolio is relatively easy. The main difficulty lies in defining the appropriate set of performance features that are relevant to your own store and your competitive environment. The criteria listed above only represent a sample of potential factors. Additional criteria may include company
size, revenue, conditions for purchase of wares, product quality, shop location, assortment range, regional consumer spending power, brand portfolio, cooperation between store and suppliers, number of locations, rent and staff costs, etc.

3. Unique selling points. How to distinguish yourself from the competition long-term
If the tools introduced here are constantly applied, every store manager needs to ask themselves at one point, which performance features in Quadrant I and II to focus their resources on. This mainly means pinpointing opportunities that will enable you to distinguish yourself from your competitors by obtaining a unique position. Every shop should at least be able to give clearly founded answers to the following questions: “Why should customers shop in my store, rather than all other choices?” and “In which fields am I performing better than my competitors?” The last question also highly depends on your customers’ perspective: “In which areas do my
customers perceive that I am outperforming the others?” The main aim is for customers to rate your store higher than the competition in at least one of the criteria that are relevant to making a purchase decision. Without such a Unique Selling Position (USP), your customers will hardly be able to identify with the services a shop can provide, and will probably try to find a
product based on who can offer the lowest price. Be warned, though, that low price point only works as a strategy for shops whose sole aim is to offer the lowest prices. 

Stores can find their own USPs in a wide range of different areas. Examples include image, assortment range, price, customer loyalty incentives, guarantee and service offers, or sometimes even a likable store clerk or flash merchandising. This situation offers great rewards for the creativity and resourcefulness of all retailers, which at the same time presupposes accurate knowledge of your target group and their specific needs. There are no set answers, but the overall maxim remains: the more USPs, the better!

When it comes to defining your USPs, special attention should be paid to how well you are able to defend them against competitors. A store’s feature can only function as a long-term USP if your store has the necessary resources to defend said USP. The fact that there is currently no decent store in the main shopping area downtown doesn’t justify ranking your B-level location at a subway stop as a location USP. Once a store opens right downtown or right at the main train station, your position will be fading. On the other hand, an aggressive price point practice can be a USP for a franchise system with excellent purchasing conditions and low cost structure, which a said system might be able to defend over a very long period of time. But for a small store, a low price point USP will never work in the long run. 

And the conclusion? Keeping an eye on and comparing yourself to your competitors is a fundamental part of business. The same goes for optimising your resources towards your main performance features while establishing at least one USP for your store. But, you should also be glad when your competition is prospering. After all, this will keep the market healthy, which in the end will benefit every single shop.

Stefan Dongus is a partner in fine lines marketing gmbh based in Cologne, Germany; a company specialising in marketing and consulting for the action sports industry. Their subsidiary fine lines media gmbh publishes and produces a wide range of media products. Contact:s.dongus@finelinesmarketing.com.