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What It Takes to be Competitive^©
by Al Hahn

I have come to realize that our industry has no agreed upon standard for what it means to be competitive. Since about 40 percent of my company’s business consists of providing competitive analysis, we are in a good position to define what it means to be competitive. There are three primary issues to consider: price, features and performance, and customer perception.

Competing on Price
Usually price is at the heart of competing, so let’s start with that. It will lead us into other factors soon enough. Research on this is fairly conclusive. It takes a 25 percent price difference to influence buying behavior in a measurable way. This data comes from consumer studies of buying behavior, high-tech market research and my own studies of third-party service penetration in North America and Australia. I conclude that prices within 25 percent of each other are competitive if the service is identical or very similar. Of course, services often are not identical in the real world. This makes competitive determinations more difficult.

Competing on Features and Performance
The feature set (including performance level) of the service is a better place to start than price to determine if your service is competitive. Are we comparing one company’s Gold level against another vendor’s Bronze? Should we compare them? It’s a good question. If they are designed for and target the same market segment, we should. If they are targeted for distinctly different customers, maybe we shouldn’t compare them. If this seems confusing, you are getting the picture. Determining if you are competitive can be more complicated than it seems at first glance.

Customer Perceptions Rule
Ultimately the customer, prospect and marketplace will make the determination. This is worth considering because it introduces the concept of perception influencing competitiveness. What customers believe we are offering can be more important than what we are actually offering. A true test of competitiveness (other than by actual sales results) should be made by polling the market in question. In fact, different markets or even segments often react differently to the same service/price combination. And, of course, competitors may change for different markets. A company may be a market leader in one market and an also-ran in another. This also changes country by country. A German company may be a formidable competitor in Germany, but not so strong in Canada or Japan. This, by the way, influences customer’s expectations for pricing. Market leaders are expected to be priced higher than their competitors by as much as 20 percent. This further reinforces our statement that it takes a 25 percent price difference to move beyond the competitive window. Marketing communications techniques including brochures, data sheets, presentations and public relations activities are all useful tools to influence customer perceptions. Ultimately, the salesperson may be the most effective method we have to influence customer perception.

A Simpler Definition
It is easy to become a bit confused by all this. Let me return to sanity and offer some useful ways to determine competitiveness. Simply stated, you should start by comparing similar services offered to a particular market. By similar, I mean that the feature sets and performance are the same or almost the same. Don’t compare a four-hour, on-site response time service package to one with 24-hour response time. They are designed to appeal to different customers. Find comparable packages and then compare their prices. If the price is within 25 percent, it is competitive. Your success in competing will depend upon the marketing tools provided and the skill of the sales force.

Competitive Selling
If your salespeople are telling you that they are losing business because you are priced 10 percent higher than the competition, you have a sales problem, not a pricing problem. Competing on price is very dangerous. Among its many problems, it fuels an appetite for discounts and "deals." Another issue is that companies that sell on price tend to have lower customer loyalty ratings, probably because they were not really sold on the value of what they were purchasing. Many salespeople have misunderstandings about this. They may believe that they must equal or beat the lowest price to effectively compete. Every bit of research on the buying behavior of service customers controverts this. The key to selling service is to sell into customers’ perceived needs. This requires a consultative sales process. You must gain a position of trust with the customer, determine their needs and sell into those needs. Many customers may not be in touch with their service needs. A consultative approach allows the salesperson to help the customer uncover their needs. This is competitive selling in the service part of the industry. It is different than the methods used for most product sales. Since services are intangible, customers must ultimately make a leap of faith when purchasing. Establishing a position of trust provides a competitive advantage in selling. Now get out there and close some business!