Outperforming – Part 2 : Mastering Competitive Situations With Positioning Models

22 Apr 2008

In last issue’s Retailer Help column we tackled the subject of outperforming, while giving retailers a number of systematic tools to practice competition management. We arrived at the conclusion that intense competition is not necessarily only a burden for retailers, but can provide valuable impulses for optimisation processes and lead to better service at lower price points, which in the long run all benefit consumers. Part II will provide additional tools for analysing the competitive situation in order to arrive at adequate strategies and campaigns. Stefan Dongus has the details.


Why Competition Management Matters
To a large degree, competition management is necessary due to the fast changing pace of the Action Sports industry. Unlike many other markets, our industry keeps churning out new products and brands at an incredible rate. Falling behind the competition may mean missing the boat altogether. So in order to be effective, competition management should be a continuous part of day-to-day operations of every successful store. The point of departure for this long-term process lies in a clear assessment of all relevant competitors. In today’s market place, this list will not only include other core boardsports retailers, but also high street stores. After all, this is the age of the ‘hybrid’ consumer and customer loyalty requires hard work these days, and it doesn’t come for free anymore. And since our customers only have so much cash in their budget, and they can only spend it once, we find ourselves competing with manufacturers of mobile phones or video game consoles, all of whom are aiming at our target demographic.

One major characteristic of demand-oriented markets like ours is that the success of a business depends on whether customers actually perceive its image and quality. In other words, the store’s performance potential the way it is perceived by your customers is at least as important as your actual ability to perform. The same goes for your image. If a store is striving for a core image, it’s not only enough to actually be core. The whole core thing also has to register with your customers.

Positioning models range high among the tools that enable stores to get a clear and direct assessment of their qualities compared to other stores. Positioning models offer a condensed illustration of relevant information regarding the ‘position’ of your business compared to your competition. The actual definition of a positioning model leaves a great degree of entrepreneurial freedom to store owners. There is no such thing as one single valid model. Instead, you can freely adapt this tool to your individual situation and a number of highly focused criteria.

What all positioning models have in common is that they are either aimed at only two criteria, or that a number of additional criteria are summed up under two ‘main criteria’. Each of these two criteria is then attributed to an axis on the graph, which opens up a two-dimensional space in which the traits of your own store and those of the competition can be indicated. This limitation to a two-dimensional graph is for practical reasons. In theory, you could also code positioning models in three-dimensional graphs, but their illustrative value suffers from their complexity. Like all other models, positioning models reduce reality significantly, but this reduction is also their main advantage.

Basically, there are two different kinds of positioning models:
1. Positioning models that open up a value-neutral space in which several investigative criteria (e.g. competitors) can be positioned.
2. Positioning models in which the positioning of the axes in relation to each other indicate room for improvement in certain areas listed in the model.

We will now turn to specific examples of both kinds of models. The first category usually contains positioning models in which store image and specific features are juxtaposed.

Example – Store XY
Let’s have a look at store XY, a skate and snowboard store that is predominantly geared around hardware with a notable core-image and 15 years of experience in the business. Sales are stagnant and profit is on the decline despite numerous efforts for turning the tide. The owner of XY is considering opening a second store in order to compensate for the losses in sales of his first shop. But before XY can make a final decision, it is wise to have a closer look at the entire local retail environment in his area.
Among the relevant criteria for this analysis are ‘shop theme’ and ‘price
level’, next to others. The actual positioning model in this example looks something like this:

The model in our example clearly reveals that the store is positioned in a highly contested market. He is far from being the only provider of middle- to high-priced skate and snowboard hardware. C2 is doing business with an almost identical positioning, while C1 is also in direct competition with XY.

This graphing of existing positions is only the first step in the systematic implementation of positioning models. In the next step, we will indicate strategic measures by means of a PLAN-positioning. These PLAN-positions provide a rough outline for further measures. All resulting measures have to be oriented towards helping the store reach the desired PLAN-position. Such a model also leaves room for indicating the actions and reactions of existing and potential competitors. The positioning model in this example shows the following options:

PLAN 0: It may be time to question the basic strategy of a skate and snowboard store in the middle- to high-price segment critically. Competition in this segment is inherently fierce, and it is always likely that customers will fluctuate away from the store. This opens up a number of tactical measures worth exploring further.

PLAN 1: XY opens a store that is more diverse in its focus with a lot more emphasis towards the fashion segment. This way, XY can maintain his key competence, all the while enjoying overlaps when it comes to suppliers together with a number of synergies working in his favour. A detrimental effect towards existing core business cannot be eliminated entirely, but the possibility is far lower than in the inherent planning stages.

PLAN 2: At first sight, quadrant III appears a lot more appealing by holding far less competition. And so far, there is no one catering to this segment in the area. Business at lower price points with the local target demographic only takes place through the Internet and with sporadic sales in local stores. XY should seriously consider gaining a foothold in this segment, e.g. by opening his own outlet store. Another alternative would be to forego opening a new store altogether while simply converting the existing store space into an outlet.

One Eye On The Opposition
Positioning models can also give an indication of which moves are to be expected from competitors. After all, the opportunities of unclaimed business segments in the local market are open to all stores, including the competition. Now would be the right time to decide on how desirable PLAN positions can be protected by access barriers from the hands of enterprising competitors (e.g. by securing exclusive retail agreements with distributors).

Positioning models can also provide an interesting perspective of the current situation, e.g. by juxtaposing the following criteria on both axes:

Theme and level of innovation
Level of service and location
Size and price level
Etc.

Keep in mind: These kinds of positioning models cannot provide clear-cut answers – they merely illustrate important factors of the current situation. The final interpretations and conclusions gained from these models always depend on your individual situation and the criteria chosen for the analysis. But in turn, positioning models not only help in planning future measures for enhancing your business, they can also be applied for measuring the success of already implemented strategies.

Positioning models of the second category differ from the first kind by providing clearly structured recommendations for action. The main catchword here is ‘portfolios’. This is because these models correspond in key areas with a number of pre-defined strategies in a portfolio. One such portfolio is the Importance-Performance Model introduced in last issue’s article. In this model, we counted only two quadrants in which we could find a balanced relationship between the quality of a performance feature and its importance. For all criteria that fell outside of these quadrants, the model offered clear recommendations for strategic action.

Economic Power Vs Aggressive Pricing
Portfolios are also suitable for a direct comparison between competitors. In the following model we have coded a number of criteria such as ‘economic power’ and ‘aggressive pricing’. We are applying these criteria to store YZ, a small retailer that has reacted to the current market situation by offering product at an aggressive price point.

By looking at the portfolio we can see that store YZ wields only relatively little economic power compared to his competitors. But nevertheless, YZ is among the stores with the most aggressive pricing strategies. In the long run, this will leave YZ fighting a losing battle. After all, in order to survive on as an aggressive pricing policy, a store needs the backing of a consistently high economic power (advantageous cost structure, good buying conditions).

For shop YZ it is time to decide on how to position himself in this highly contested market environment in the long run. If he is unable to improve his own economic potential (PLAN 1), he will not be able to hold his own against his competitors in terms of pricing (especially C3). This poses the question whether it would be better to aim for a niche market instead, e.g. by offering high-priced goods to a target demographic less sensible to prices (PLAN 2).

Once again, the situation also calls for anticipating the competition’s next move – even if only for the sake of being better prepared if such a scenario should become reality. For example, store C2 can draw on a solid financial backbone, after having successfully sold high-price items and good brands for a number of years now. It is safe to assume that their war chest is well stocked, so what if they set their mind on expanding their business?

Meet The Challenge, Reap The Rewards
The main challenge in working with positioning models lies in creating the right kind of model that is relevant to the situation at hand. But if you know your own business and have a clear idea of the relevant factors for success, you will find your way around with this method after a little practice. Let us also point out that in most cases, positioning models will not offer any kind of standardised recommendations for action. Their great advantage lies in their relatively simple application and their potential for reducing complex circumstances into easily processed bites of information. They are especially suitable for illustrating a number of fundamental paths of investigation used in competition analysis – both for current and potential competitors.

Stefan Dongus is a partner in fine lines marketing gmbh from 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