Editor's note: Michael T. Branham is a market research and strategic planning consultant in The Woodlands, Texas.

Marketers often use the concept of market share, customer satisfaction, and market penetration to measure the relative success of their company's strategic initiatives. Competitive strength is another, perhaps more relevant, measure of effectiveness. Understanding competitive strength - the elements that comprise it and how to measure it - will enable you to focus on what your company needs to do to improves competitive position. The competitive strength index (CSI) provides management with a snapshot of their company's market position relative to the competition at a specific point in time. It is a useful tool for navigating the organization toward long-term dominance.

Defining competitive strength

The CSI measures a company's market potency relative to its competitors as reported by the market's collective customer base. It is a derivative of three measures: the proportion of the collective customer base naming a vendor as one of the best three vendors, one of their current vendors, and/or their primary vendor for the product or service of interest.

Measuring competitive strength

The first step in calculating the CSI involves the administration of a simple survey to a representative sample of the collective customer base. The survey consists of three open-ended questions.

1. Which vendors do you currently use? The goal of this question is to obtain a list of all vendors who respondents use - under any circumstances. In addition to vendors of choice, this question will reveal vendors who respondents use only in special situations.

2. In your opinion, who are the best three vendors in the market? This question will reveal vendors that respondents believe offer the highest levels of quality, service, and/or value. For industries with unusually high numbers of competitors, asking for the best five (instead of three) will provide a more complete profile of the marketplace.

3. Who do you consider to be your primary vendor? This question will reveal vendors that respondents use most often. The primary vendor is not always the respondent's vendor of choice.

Collecting data

The data collection process requires surveying a representative sample of the entire customer base for the service of interest - not just a survey of your customers. For example, a reprographics (photocopying services) company serving the legal profession should survey a random and representative sample of all paralegals in the geographic market of interest. Whereas, a sample limited only to your company's customers would bias the survey to favor your company.

Telephone surveys are the most practical method of data collection and will yield the highest response rate. This method also generates the most accurate and timely results. Most important, telephone surveys enable the interviewer to ask follow-up questions about the reasons for a respondent's answer.

Calculating the CSI

Once the survey process is complete, you are ready to calculate the CSI. Use the following formula to calculate the competitive strength of each vendor mentioned in your study.

Competitive Strength = X+Y+Z/N(.01)

where:

X=Percentage score in current vendors category

Y=Percentage score in best three vendors category

Z=Percentage score in primary vendors category

N=Sum total (X+Y+Z) for all vendors

First calculate the percentage of respondents naming each vendor in question one (current vendor), question two (best three vendors - regardless of ranking), and question three (primary vendor) respectively. Calculations for each question should be independent of one another. Second, for each individual vendor mentioned in the survey - add the percentage scores (in the form of whole numbers) for all three categories of questions to arrive at a sum total. Third, add the sum totals for every vendor together and multiply by .01. You are now ready to calculate the competitive strength score for each individual vendor. Simply use the value calculated in step three as the denominator and divide it into the vendor-specific value calculated in step two to arrive at the competitive strength score for the vendor of interest. You should arrive at a number between zero and 100 for each vendor mentioned in the survey. By using a bar graph to display the results, you can display the relative strength of each of your competitors.

Factors influencing competitive strength scores

Several intervening factors will cause inconsistencies in survey responses and effect the CSI. For instance, a respondent may name a vendor as one of the best three vendors but not as a current vendor or a primary vendor. This situation might occur when a vendor named as "one of the best" is inaccessible to the respondent due to inconvenience, price, or a lack of decision-making authority. Other times, a respondent may name a vendor as their primary vendor and a current vendor but not as one of the best three vendors. This usually occurs - in a business-to-business relationship - when the respondent must use a particular vendor, who they do not consider to be one of the best three, due to a management directive.

Short-term purchase incentives, such as special offers, will occasionally enhance the competitive strength of a vendor. For example, a chain of gas stations offering a free soft drink with every fill-up may temporarily increase the number of people who would name it as a current vendor. This situation can increase the gas station's competitive strength for the duration of the special offer. However, if the gas station is unsuccessful at forming longer term relationships with its "special offer customers" - its competitive strength will be of short duration. Depending on the timing of the survey process, such situations can distort the outcome of your study. Asking respondents to explain the reasons for their answers will help you identify influences that temporarily enhance a vendor's competitive strength score.

Each time the surveyor encounters a discrepancy in responses to the three questions, he or she should ask the respondent to explain the discrepancy and make a note of the reason. By eliciting additional information, you will be able to discover specific reasons for otherwise illogical survey results. For example, some companies (in the business-to-business arena) may win a number of "exclusive vendor" relationships with large corporate accounts due to price alone. When this situation occurs frequently, a company with inferior quality or service may obtain a relatively high overall competitive strength score. Asking respondents to explain the reasons for their answers will provide insight regarding the competitive strength of companies that have a poor reputation for quality or service.

Detailed information about a respondent's reasoning is also useful for identifying strengths and weaknesses of specific competitors. Consider asking every respondent a series of follow-up questions to discover the rationale for their answers. For example, ask "Why is XYZ company your primary vendor?" Or "Why did you name ABC company as one of the best three vendors but not as one of your current vendors?" Remember, the reasons for a company's competitive strength score are often more important than the score itself.

Using the CSI as a strategic planning tool

  • Define the reasons for your score and the scores of your competitors. The survey will help you evaluate the market's perception of your company's practices relative to the competition. It also provides insight about the merits and pitfalls of marketing strategies implemented by your competitors. Use the survey as an opportunity to learn valuable lessons from the competition that will enable your company to make better strategic decisions in the future.
  • Use the survey as an opportunity to collect competitive intelligence data. Respondents can enlighten you to previously unknown information useful for anticipating future initiatives of your competitors. Moreover, you might discover competitor weaknesses that your company can use to its advantage. The survey may even reveal new competitors in the marketplace.
  • Use the CSI as a benchmarking instrument. The CSI will provide you with a snapshot of your competitive standing. Therefore, administer the survey on a regular basis, perhaps annually, to stay abreast of your position in the marketplace.