Let’s begin with a question: Who are your competitors? Take a minute to list two, three, or four companies. Then ask yourself how you know that these are your closest rivals. Are they the companies that most often pitch for business alongside your company? Do their brands sit beside yours on the shelf? Are they coming up close to your brand in search-page rank? Do they compete with you for resources and employees? Do they vie with you for the consumer’s dollar?
If a company or brand is truly your competitor, you should have answered yes to at least some of these questions. But ultimately, only one condition really determines a rival: whether your target customers include it among the brands they consider in relation to yours.
So let’s ask the question differently. Instead of considering which brands are your competitors, ask which brands the customer considers before making a choice. To determine this, you have to find a way to get into the customer’s mind. This is not easy, but it is worth doing, because your list of competitors and the customer’s list may not be the same. Invariably, the latter is more relevant and indicative of your true competition than the one you prepare in the comfort of your office.
Of all the products available to fulfill a given need, the customer will generally consider fewer than a handful before choosing one to buy, even in the most elaborate of purchasing scenarios. This group of products is the consideration set—your closest competitors. These brands are evaluated on a limited number of criteria before one is ultimately chosen for purchase. From a marketer’s perspective, then, how you analyze and address the competition boils down to three critical issues:
- How do you make sure your brand is among those considered for purchase by the customer?
- How do you ensure that, for as many people as possible, there are as few competing brands as possible in that consideration set?
- Which other brands are in the consideration set, and how do you make sure your brand is the one chosen for purchase from among those?
Now let’s delve a little deeper into the consumer’s thought process to understand how you can systematically increase your chances of success in addressing each of these strategic concerns.
Gaining Entry into the Consideration Set
Customers simplify the large set of available alternatives to the much smaller consideration set by applying rules of thumb that use certain criteria as cutoffs or must-haves. Any of the following, for example, could be a cutoff criterion for consumers forming consideration sets before choosing an automobile: It must have six seats and room for the dog, be a hybrid, be priced below US$25,000, be made domestically, be from a German brand, get at least 30 highway miles per gallon, and be easy to parallel park. These cutoff criteria are so pervasive among consumers that car companies often define the target segments by their customers’ cutoff criteria: the large-vehicle segment, the environmentally friendly segment, the price-conscious segment, the domestic segment, the German-car-enthusiast segment, the fuel-efficient segment, and the urban-car segment. Under this definition, a segment is a set of consumers who are sufficiently convinced by a given criterion to use it as a cutoff in forming their consideration set.
Your first strategic goal, then, is to convince as large a segment of the market as possible to use cutoff criteria that favor your brand. Sure, German car brands compete with each other, but they also have a collective interest in ensuring that a significantly large segment of consumers continue to be sufficiently fascinated by the mythology of German engineering to use that as a cutoff criterion in forming their consideration set. The simplifying heuristic of “German” makes the consumer’s decision much easier because it eliminates a large swath of available brands that are irrelevant to this segment’s choice. A look at the chat boards of German-car enthusiasts shows that to this customer segment, a Lexus, an Infiniti, an Acura—and all other luxury Japanese car brands—simply do not compare with the solidity and drivability of a German-made Mercedes, BMW, Porsche, or Audi. So convinced is this segment of the superiority of German engineering that year after year, members of the group willingly ignore the Consumer Reports testing results that place several Japanese brands higher on tests of both drivability and reliability, even as they accept the higher annual cost of owning a German vehicle. The marketer of German brands could not hope for a better cutoff criterion or a more convinced set of customers. After all, BMW’s marketing managers would much rather limit their consideration set to Mercedes, Audi, and Porsche than compete with a more extensive set of global brands. One benefit of comparisons with these brands is that it improves BMW’s relative value per dollar, more than would a comparison with a broader set of less expensive brands.