Editor’s note: Michael Branham is president of Competitive Benchmarking Associates in The Woodlands, Texas.

The idea that customer satisfaction is the central aspect of competitiveness is often overblown. Satisfied customers are undoubtedly an important ingredient in the recipe for long-term business success, but - as many companies have learned the hard way - a high level of customer satisfaction does not always translate to bottom line success.

Just look at Apple Computer. An overwhelming majority of the company’s customer base would never consider the possibility of replacing their Macintosh with a PC. But while maintaining a level of customer satisfaction and loyalty that would be envious by any standard, Apple has been struggling to stay afloat for several years.

In an August 25th, 1995 press release, Apple boasted that "Two recent independent studies rated Apple tops in customer loyalty and satisfaction, consistently surpassing every other brand of personal computer. Apple’s lead in customer satisfaction is not just a sign of the quality of Apple’s Macintosh computer, but also is evidence of the strength of Apple’s core business." The same press release went on to say "Obviously, people who use Apple Macintosh computers tend to be happy with them. Apple is especially pleased that Macintosh satisfaction ratings are high across the board — in homes, large businesses, and small businesses." This press release was just one of a series that focused on Apple’s superior satisfaction and loyalty ratings in comparison to Windows 95-based PC makers such as IBM, Dell, and Compaq.

Just two years (and two CEOs) later, Apple has realized that there is much more to competitiveness than high customer satisfaction and loyalty ratings. The company recently announced its plans to partner with Microsoft, its long-time rival, in a last-ditch effort to survive. On August 6th, 1997, Apple Computer co-founder Steve Jobs and Microsoft’s Bill Gates announced a technology and product development agreement that paves the way for the two companies to work closely on technologies for the Mac platform.

The collaboration is part of Apple’s new strategy to appeal to a broader segment of the market, gain new customers, and regain profitability. In short, the company finally understands the three components of real competitiveness: acceptance in the marketplace, customer satisfaction and loyalty, and marketing effectiveness. Understanding the three components of competitiveness will be an important first step in Apple’s comeback. The second, and equally important, step may be the development of a formal competitive benchmarking program to monitor the company’s progress over time.

Components of competitiveness

When marketers speak of competitive benchmarking they often refer to quality improvement over time, comparative customer satisfaction research, or the acquisition of superior technologies as a means to gain competitive advantage. At Apple, the focus was on comparative customer satisfaction research, which obviously did not go far enough. Perhaps a more appropriate approach to competitive benchmarking is the measurement of a company’s level of performance - relative to its peers - in terms of acceptance in the marketplace, satisfaction and loyalty, and marketing effectiveness. With this in mind, a formal research framework is necessary for measuring competitiveness and developing strategies to achieve competitive dominance.

A framework for measurement

In order to measure something, one must have a standardized instrument of comparison. Therefore, the first step in implementing a competitive benchmarking program is the development of standards by which to measure the three components of competitiveness.

Standards of measurement should be relevant, quantifiable, and objective. To meet these criteria, Competitive Benchmarking Associates has developed three indices that measure the core components of competitiveness: the Competitive Strength Index (CSI), the Secure Business Index (SBI), and the Account Development Index (ADI).

Competitive Strength Index: The Competitive Strength Index (CSI) measures the relative competitive standing of all companies providing a given product or service to a defined target market. The CSI is calculated from interview results derived from asking the target market three questions designed to determine which suppliers the collective customer base considers to be current vendors, preferred vendors, and primary vendors. We use the collective responses to the three interview questions to calculate index scores for every competitor identified by market study participants. Each competitor receives an index score between zero and 100, representing their competitive strength in the marketplace. The CSI reveals strengths and weaknesses of companies serving the target market of interest and provides a yardstick for improving competitiveness over time.

Secure Business Index: The Secure Business Index (SBI) measures the strength, or entrenchment, of the relationship between each competitor and its existing base of customers. It measures key components of the customer-vendor relationship to indicate the overall level of loyalty and likelihood of retention. The SBI is calculated from the responses to several interview questions focusing on issues such as length of business relationship, overall level of satisfaction, and past and anticipated future purchasing behavior. Each competitor receives an index score between zero and 10, which indicates the overall level of loyalty of their customer base.

Determining a company’s SBI score, and the reasons behind it, highlights strengths and weaknesses in its relationship with the customer base and provides a standard for measuring improvement in customer loyalty.

Account Development Index: The Account Development Index (ADI) measures a company’s success at cultivating strong business relationships with its target customer base. It assesses the company’s overall effectiveness at marketing, sales, and account management. ADI scores represent each competitor’s level of success in the relationship-building process that is integral to the development of accounts from the initial trial phase into deeper vendor-customer partnerships. Scores are derived from three marketing effectiveness ratios calculated for each competitor. The ratios reflect each competitor’s success at becoming a viable current vendor, moving from current vendor status to preferred vendor status, and achieving primary vendor status. Each competitor receives an ADI score between zero and one indicating the effectiveness of its business development efforts and providing a gauge for measuring improvements in overall marketing effectiveness.

Collecting objective data

Unbiased data is critical to the accurate measurement of competitiveness. For best results, professional telephone interviewers - from an outside firm - should collect data from a representative and random sample of the entire target market of interest. Objective information is unattainable when using one’s own employees (for obvious reasons) and impossible to gather solely from one’s own customer list (because of skewing). Therefore, outsourcing the project to a professional marketing research firm is the best way to ensure the integrity of the data collection process and the objectivity of the market study.

The devil is in the details

The most important data derived from a competitive market analysis, as described here, are not index scores or competitor rankings. The most critical information consists of the reasons behind the performance of each competitor. Without this vital background information, you will get nothing more than an overview of the competitive environment. Therefore, a thorough competitive market analysis always involves asking follow-up questions to determine why interviewees answered each question as they did.

Interviews should include direct open-ended questions about the strengths and weaknesses of your company and its competitors whenever possible. Interviewers should be competent to make notes of the reasoning, relevant comments, and explanations given by interviewees regarding various providers of the product or service of interest. Only then can accurate competitor profiles be developed.

Not an isolated phenomenon

The myopic business philosophy that caused problems at Apple Computer is not an isolated phenomenon. In fact, most companies overestimate the importance of customer satisfaction and underestimate the importance of other factors that constitute competitive strength. Marketing practitioners must constantly remind themselves that high levels of satisfaction and loyalty do not necessarily translate into bottom line success. Apple’s problems should be a valuable lesson to every corporation: Competitiveness goes way beyond customer satisfaction.