Let's say you're selling a brand of laundry detergent, you probably want to know how consumers view your product compared to competitors in the marketplace. Do consumers see your detergent as a high quality product or a low quality product? Do they view it as having high efficacy or low efficacy? Do they think that it has a better or worse scent than your competitor? By the end of this lesson, you'll be able to discuss the importance of defining from the consumer's point of view, have your product or service compares with competitors within your market and methods that help you decide which attributes you should focus on. Let's begin with a discussion of positioning. It's important to know how current and potential customers think of your product because it allows you to place a product with respect to the competing products and this placement is really of course in the mind of the consumer. We call this method positioning. The key questions positioning answers is, how does your product compare to your competitors? And how do you identify opportunities in a product market? Also, how do consumers view your product? A common technique used to try and answer these questions is called a perceptual map. If we get past the jargon a little bit, perceptual map is really just a visualization of how consumers perceive a set of brands in a particular category. And that set of brands can include your brands or brand and a set of competitors brands that you think are closely related to your brand. So to provide you some insight on how you might approach this problem, let's look at an example. Let's say you were working for a variable technology business and you would like to identify some space of opportunity in this business. It might help you to understand how consumers actually use wearable technology and how they perceive the set of wearable technology alternatives that currently exist in the marketplace. Let's say that you're looking at wearable technology in the form of smartwatches. Now you would need to identify the space of competing wearable technology in the smartwatch space. For example, you might think that Apple watch would be a good competitor, you might think of Samsung watches, you might think about Fitbit's efforts in this space and so on. Now the question becomes, if you already have a product in this space, how do consumers view your product as compared to these other alternatives that exist in the marketplace? The common method of course is to survey customers on the attributes of the product and to get their ratings. You would want to get that for your brand or product concept as well as for the competing brands that exist in the marketplace. Once you obtain the overall performance of the products surveyed, you are then in a better position to answer the question of how your product compares to other competitors in the marketplace. Commonly, one would consider about 15-20 attributes in about 5-10 brands for analysis, that's the most common approach when using this method. While we won't actually get into the analytical processes used or the methodology used to try and derive insights from the sort of data, I do want to define it. The methodology is called Factor Analysis. Very briefly, factor analysis creates composites of several of the attributes we looked at and combines them into two or three composite factors. Now, the rule of thumb used to try and understand how many factors one should keep depends on a graph called Scree Plot which charts the Eigenvalue associated with the various factors. Factors with eigenvalues greater than one are kept in the analysis. Unfortunately, we would not have enough time to go deeper into how eigenvalues are calculated. However, I have provided some useful links that discuss eigenvalues in some detail and provide the necessary intuition. Once you identify how many factors you want to keep, each of these factors need to be named and apart from that, you can add to analysis of performing a preference regression to try and understand which of these factors are actually important. Let us assume that you performed your analysis and obtain the results. Let's say that you have determine the number of factors from the scree plot and preference regression, and the question now becomes, how do you tell your story? The key point here is that the results from such analysis should allow you to identify the most important factors and create what we started off wanting to create which is a perceptual map. In our next lesson, we are going to take a look at a real world example so that we can get a better sense of how perceptual maps and positioning help us understand our market and help us continue to build our story.
