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Relative Performance Assessment: Improving your Competitive Advantage

Companies continually look for ways to increase customer loyalty (e.g., recommendations, retention, continue buying, purchase different/additional offerings). A popular loyalty improvement approach is customer experience management (CEM). CEM is the process of understanding and managing customers’ interactions with and perceptions about the company/brand. The idea behind this approach is that, if you can increase the satisfaction with the customer experience, your customers will engage in more loyalty behaviors toward your company/brand.

Customer Experience Isn't Enough: Industry Ranking Also Drives Customer Loyalty

Using the CEM approach, companies typically measure the satisfaction with the customer experiences (e.g., product, service, support) and use that information to target improvement efforts in areas that will maximize customer loyalty. Keiningham et al. (2011) argue that focusing on your absolute improvements in customer experience is not enough to drive business growth. What is necessary to increase business growth is to improve your performance relative to your competitors. He and his colleagues found, in fact, that a company's ranking (against the competition) was strongly related to share of wallet of their customers. In their two-year longitudinal study, they found that top-ranked companies received greater share of wallet of their customers compared to bottom-ranked companies.

A way to improve customer loyalty, then, is to increase your standing relative to your competition. To improve your ranking, you need to understand two pieces of information: 1) how your customers rank you relative to competitors they have used and 2) the reasons behind your ranking.

Relative Performance Assessment (RPA): A Competitive Benchmarking Approach

I developed a competitive analytics solution called the Relative Performance Assessment  (RPA) that helps companies understand their relative ranking against their competition and identify ways to increase their ranking.  The RPA helps companies improve their competitive advantage through customer feedback on a few key questions. In its basic form, the RPA method requires two additional questions in your customer relationship survey:

  1. How do our products compare with the competitors? This question allows you to gauge each customer's perception of where they think you stand relative to other companies/brands they have used.  Other types of comparative questions that can be used include: "What best describes our performance compared to the competitors you use?" and "How does <your company name>'s services compare to other suppliers?" The key to RPA is the rating scale options. The response options allow each customer to tell you where your company ranks against all others in your space. A 5-point scale that works for this purpose is: 1) <your company name> is the worst; 2) <your company name> is better than some; 3) <your company name> is about average (about the same as others); 4) <your company name> is better than most; and 5) <your company name> is the best). Lower ratings (1-2) indicate that your customers think you are relatively worse than the competition; higher ratings (4-5) indicate that customers think you are relatively better than the competition. A Relative Performance Index (RPI) can be calculated by averaging the responses (See Customers' Perception of Percentile Ranking - C-PeRk below - for another scaling method).
  2. Please tell us why you think that "insert answer to question above". This question allows each customer to indicate the reasons behind his/her ranking of your performance. The content of the customers' comments can be aggregated to identify underlying themes. Companies can use these comments to help diagnose the reasons for high rankings (e.g., ranked the best / better than most) or low rankings (ranked the worst / better than some).
In addition to these two questions, companies can also ask their customers about the current (and past) use of specific competitors:
  • Please tell us what other competitors you currently use or have used. This question allows you to identify how your customer's ranking of your performance is influenced by specific competitors. The response options for this question could be a simple checklist of your competitors.

I have used the RPA in different settings and will illustrate its use in next week's blog post.

Utility of the Relative Performance Assessment (RPA)

The value of any business solution is reflected in the insight it provides you. For the RPA, the value is seen in diagnosing the reasons behind your industry ranking and how to improve your ranking to increase customer loyalty.

  1. Improve marketing communications: Understand why customers gave you the top ranking (rated you "the best"). These customers' comments define your competitive advantage (at least to your customers). Identify themes across these customers and use them to guide the content in your marketing communications to prospects.
  2. Identify how to improve your competitive ranking: Understand why customers rank you near the bottom of the pack. These customers' comments define your competitors' strength (compared to you) and can help you identify business areas where you need to make improvements in order to improve your ranking against competing brands.
  3. Estimate your industry percentile ranking: Your relative performance is indexed as a percentile rank. This percentile rank, expressed as a percentage, indicates where you stand in the distribution of all other competitors. The percentile rank can vary from 0% to 100%, and a higher percentile rank indicates better relative performance. A percentile rank of 80%, for example, indicates you are better than 80%  of the rest. A percentile rank of 20% indicates you are better than 20% of the rest. The ratings can be translated into percentile values using the following values: the worst = 0; better than some = 25; average = 50; better than most = 75; the best = 100. The average value across your respondents on this question represents your industry percentile rank. I call this index the Customers' Perception of Percentile Rank (C-PeRk) score.
  4. C-PeRk Score as a Key Business Metric: Typical relationship surveys allow customers to rate their satisfaction with your performance. The metrics from these surveys (e.g., customer loyalty indices, satisfaction indices) are used to track your performance and gauge any improvements that may occur over time. By supplementing these key customer-centric metrics with the C-PeRk score, companies can now measure and track insights regarding the competitive landscape.

Summary

The relative performance of your company (compared to competitors) is related to customer loyalty. Companies that have higher industry rankings receive more share of wallet than companies who have lower industry rankings. Traditional customer experience metrics simply track your companies performance. In addition to these customer experience metrics, companies need to ask customers about their performance relative to competitors. The Relative Performance Assessment  lets customers provide valuable benchmark information and can help companies understand and improve their industry ranking and, consequently, customer loyalty. In next week's post, I will illustrate the use of the RPA.

7 Responses to Relative Performance Assessment: Improving your Competitive Advantage

  1. Sam Klaidman October 24, 2011 at 1:18 pm #

    Bob,

    Very interesting concept. However, in point 3 of Utility of the Relative Performance Assessment (RPA) I think you mis-spoke here "A percentile rank of 20% indicates you are better than 80% of the rest. " and meant to say better than 20% of the rest.

    Also, please explain the graph at the top of this entry.

    Thanks

    • Bob Hayes October 24, 2011 at 1:25 pm #

      Sam,

      Thanks for your feedback. You are correct regarding the percentile score. I made the change. As for the graph, there is nothing much to say other than it illustrates that companies can have customers who think that they are below average (e.g., the worst). In next week's post, I will show applications of the RPA and present results that show how well the RPI is related to measures of customer loyalty.

Trackbacks/Pingbacks

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