COMPETITIVE SEPARATION – THE VALUE MAP

The next two posting will deal with what I think is a fundamental difference between having a competitive advantage and creating competitive separation. This posting covers a tool called the Value Map

The Value Map tool was best described in Richard D’Aveni’s book on Hypercompetition and highlights the importance of competitive separation to the stability of the marketplace. I used it very effectively while running businesses as well as consulting them. It helps view the marketplace in the context of the perceived value from a target group of customers/consumers.

It is a construct of the price charged by competitors vs. the market average and the value of delivered, non-price attributes (function and emotive) both as perceived by the customer; it is best accomplished by using a third party to gather the information. First, you establish a list of no more than 10 non price attributes that your customers feel are critical and have the customer rate them from 1 to 100. The X-axis positions your offering as well as your competitors as a % of the total possible rating. The same is done with price by asking the customers what they perceive your price is vs. their competition; this can also be accomplished by an analytical price analysis if you feel uncomfortable discussing prices with your customer.

The Fair Value line (FVL) is the points of equilibrium where your customers feel they are paying an adequate price for the perceived quality they are getting. Now some possible scenarios:
- If your offering is left of the FVL, you are charging more than the perceived value delivered. You can expect price erosion unless you add more value
- If you are to the right of the line, you are not charging enough for the perceived value delivered and should consider increasing your price. This happens to be where most of my DuPont offerings were and we did refocus our efforts on increasing price accordingly.
- The trend over time always favors the customer/consumer (except in healthcare which is another discussion): either pricing will tend to drop for the same value delivered (FVL moves down); or more value will be delivered at the same price (move the FVL to the right); or prices will lower while more value is delivered (the FVL moves diagonally down).

These are all typical market dynamics that can still lead to profitable markets as long at there is sufficient competitive separation, i.e. a separation ON the FVL!

As an example, in the 80’s and early 90’s, there was sufficient separation among the major fast food players: McDonald’s tended to be lower price/lower quality house (less food in their hamburgers --player A); Burger King was in the middle (player B); while Wendy’s was a bit more upscale (player C). Trouble really started when they dramatically changed their menus. They all tended to become closer to each other. They grouped together at the center, thus reducing their competitive separation. This is a typical market dynamic.

Notice, I did not mention competitive advantage. McDonald’s had (they still may) a competitive cost advantage in the structure and operations of running their global restaurants vs. the others. This only created competitive separation when it enabled them to be profitable when they were in their original configuration on the FVL – the low cost, low price offering.

Now, let’s apply this to the series of articles we talked about involving Starbucks, Dunkin Donuts, and McDonalds (the last two postings). It wasn’t long ago that you wouldn’t have even put these players in the same value mapping exercise but they are now going after each other, particularly for the breakfast business. Starbucks is clearly positioning itself as player C and I suspect Dunkin Donuts (have offered many different types of coffee vs. McDonald’s, at least until now) is attempting to be player B leaving McDonald’s as player A. My guess is that history will repeat itself – they will go to war and become more like each other and come closer on the FVL. It will be interesting to watch.

I suggest going back to the last two postings and read them with this Value Map discussion as a context.