Pricing and Profitability Management: A Practical Guide for Business Leaders

Assessing the Competition: Value Equivalency Analytics

While understanding customer segments and their needs is important, so, too, is grasping competitive positioning. Unfortunately, most organizations rely on secondhand information and market studies that provide limited comparative analytics.

Consider Kmart, which lost its dominant position as a discount retailer by failing to react to the competitive threats of Target and Wal-Mart. According to a 2003 Forbes Magazine article, the company's leaders “believed that they had invented discount retailing, and they knew best what the marketplace wanted.”³

Had Kmart been better able to predict the changes in the market, how would it have responded to the forecasts? What analytics could the company have done to determine how best to compete? Clearly, it is possible for firms to win against the lowest-cost provider. Rivals beat back Kmart, and retailers such as Kohl's and Target continue to challenge Wal-Mart, the most recent winner in the budget category. Kmart simply did not understand the complex dynamic of value and price as well as it thought it did.

Competitive positioning requires understanding the consumer's perception of value. There are two distinct value equivalency analytics, both rooted in the same conceptual framework. The first attempts to compare how consumers perceive differences in value and price between one company's products and those of its competitors (both in-kind and not-in-kind substitutions). Through this ...