At any intersection on the Value Map, between a Value Chain Position and a Value Domain level, we can start to compare different businesses competing in that space against each other. With hundreds of product category sub-levels, this task can get overwhelming fast, so we will start by mapping competitors in your current space.
Just like customer/consumer segmentation, there are many variables you can choose from for competitor segmentation, but there are two that are generally more important than any other: size and value positioning.
Business size is best measured by turnover, or estimated turnover if you can’t obtain actuals. It’s the first figure we want to find out about any other business as it relates to both a) their individual size as a competitive threat and b) the total market size in that space. On the diagrams, we show size simply by the size of the circle we draw. The bigger the circle, the bigger the business.
Three ways to estimate another businesses turnover Getting the turnover levels of other businesses can be challenging given most businesses are privately owned, especially in New Zealand. However, there are other measures available that can correlate closely to turnover. 1. Estimate by staff numbers - most small businesses generate around $200,000 turnover per FTE (Full Time Equivalent) staff member, and most large businesses generate around $300,000 per FTE. So if they have 20 staff, you might guess they’re approximately $4 million turnover as a starting point. NOTE: for industries with large scale and low margins this figure will be much higher e.g. construction. 2. Estimate by clients/stockists - e.g. if you’re a $2 million business yourself with 100 stockists doing $20,000 sales each (AAS – Average Account Size) and they have 200 slightly better stockists listed on their website, then a fair starting point might be to estimate that they’re around three times your size at $6 million (200 x $30,000). 3. Estimate by offices/branches/store numbers - only really relevant to retail e.g. if they have five 50sqm shoe stores, you might estimate these are turning over $1 million each = $5 million turnover overall.
2. Value positioning
This is plotted on a cost- benefit graph against two axes:
a. Cost to the customer/consumer (mostly price but should include all other costs e.g. hassle, research, pick-up).
b. Benefit to the customer/consumer (mostly a measure of quality – perceived or actual).
When combined, this gives us a measure of value for money (benefits minus costs) and therefore a business’s value positioning relative to another.
We can then also overlay the size measure from earlier so that all key information is shown on one visual display like the example below.
VALUE POSITIONING EXAMPLE: NEW CAR SALES IN NZ
Cars make an excellent example because we all know the main brands and approximate value positioning of each.
• Size is taken from new car unit sales from Jan-Aug 2015 multiplied by that brand’s average vehicle price. For visual simplicity, we’ve only included brands that sold over 1,000 vehicles over that period but when you’re doing this exercise for yourself, it’s best to map all players if possible as it could be one of the smallest players that is growing the fastest, or has something unique that provides the biggest growth opportunity.
• Cost is taken from the average vehicle price across all models for that brand. NOTE: not their average sale as we don’t have this data.
• Benefit scores were created subjectively by the Spring team based on collective perceptions. We marked a couple up a bit e.g. Toyota which has a very positive durability perception and Hyundai which has seen a rapid rise, and marked some down a bit e.g. Volkswagen who were having an emissions PR crisis at the time of writing, but generally the leading car brands are well established over a long period of time, so most are close to that cost-benefit breakeven line.
As you can see, in the New Zealand market the bulk of demand and supply for new cars falls around the $40,000-$60,000 mark.
Suzuki appears to have a clear space at the lower $30,000 end which helps explain part of the reason their Suzuki Swift has been one of the country’s top selling cars for many years in a row. Since they’re selling at a lower per item price though, their total sales will be less than the brands further up the value chain.
At the luxury end, Mercedes, BMW and Audi also all seem to have some clear space and a clear understanding of where they fit into the market. They sell fewer cars at this price range, but this is balanced out by the higher ticket price per car sold i.e. all three sold fewer cars than Suzuki, but all have greater turnover.
No brands have an average vehicle price in the $70,000-90,000 price range, and while there will be some individual models in this range, it does seem to suggest that it may be a difficult place to play in. Perhaps once someone has more than $60,000 to spend on a new car they generally go all out and are eyeing up those $100,000+ models? These are the type of important questions that market research can answer.
PS: did you notice that despite its very strong brand, Mini didn’t make that list? Sometimes marketing perceptions can be deceiving and those brands just don’t hit mass-market appeal.
FACT NOT FICTION It goes without saying, but when doing any segmentation exercise, it’s always best to use real and unbiased data like the car example above. Due to time and information restraints, the starting points for these exercises are usually estimations but should be replaced by real data when possible. This includes the benefit score too where the only way to get a truly accurate measure is to survey customers and consumers. Telecommunications firms do this regularly as they know their value position generally correlates to their ability to retain, win, or churn (lose) customers going forward. It’s their early warning bell. They use customer survey data to plot themselves against competitors on a cost-benefit graph like above. For many years, the result of this exercise showed 2degree’s aggressive entry strategy as having both lower cost and greater benefit over Telecom and Vodafone (therefore a stronger value proposition overall).This position enabled them to take market share off both rapidly. In fact, 2degree’s is regarded worldwide as the most successful third entrant to any established mobile market. Be careful of your source for cost data too. In the car example above we choose the average new vehicle price for each brand as it was the best data we had. This might be very different to their average sale if they have a couple of showcase vehicles or loss-leaders that significantly drag the average price up or down.