Perceptual Mapping

A crucial issue in strategy development is staking out a valuable place in customers’ minds. Customers (and potential customers) think about different companies/brands/products in different ways and companies try to position themselves in different ways to gain advantage.

For example, in general, Volvo is about safety, BMW is about performance, Toyota is about quality, Hyundai is about value. By staking out a credible position on a dimension important to customers, a company can capture customers to whom this dimension is important. In the car industry, positioning is pretty c

lear.

Perceptual Mapping

Customers simultaneously consider many attributes in their purchase decision. Sometimes their opinions on these many attributes can be thought of as driven by their attitudes on a smaller number of underlying latent actors. For example, in the banking industry, a customer may choose an institution because of their perception of how the various institutions compare on many attributes. Such attributes may include branch hours, ATM locations, online banking, check imaging, email notifications, and overdraft protection. Their perceptions of these attributes ay be driven by their attitude toward an underlying latent factor related to convenience and ease of use. If you knew the customer’s attitude on this one latent factor, it would explain how the customer rates an institution on each of these many attributes.

There is a statistical technique called factor analysis that identifies the presence of underlying factors. It allows you to work with a few factors instead of many attributes. This technique can be used to generate the data needed for a perceptual map.

Another technique is ca

lled multiple discriminant analysis. The approach develops linear combinations of the attribute ratings which can be used to predict to which company/brand/product a particular set of ratings belongs. The output of such an analysis can also be used to generate a perceptual map.

Above is an example of such a perceptual map generated from a discriminant analysis. Teenagers were asked to rate various drinks (milk, lemonade, sodas, etc.) on various attributes (good value for the money, popular, nourishing, healthfulness, etc.).

Attributes are shown with a dotted arrow. The length of the arrow indicates how important the attribute is in differentiating between the types of drinks. The longer the arrow, the more important it is. Lines that are close together indicate that the attributes are similar. For example, fizzy and good-value-for- the-money are important attributes. Nourishing and healthfulness are very similar.

Drawing perpendicular line s from a drink to an attribute allows comparison of the drinks. For example, a new product, flavored milk, is considered more modern than regular milk. Coke®, Fanta® and lemonade are similar in the minds of the teenagers because they are near each other on the plot.

A map like this allows comparison of multiple attributes and multiple companies/brands/ products at the same time. It allows you to see if your product occupies the space in the customer’s mind that you intended. It also allows you to identify white space opportunities. In the map above, there are areas that no drink occupies. If the areas are associated with attributes that are important to customers (as determined by your survey) these are white space opportunities for you to explore.

Perceptual mapping is a very useful tool for understanding company’s position in the minds of customers relative to competitors. This is crucial to staking out a valuable place that provides long- term competitive advantage for company and its products.

Source: http://www.strategy2market.com/downloads/perceptual_mapping.html

Author- Sushant Dhall

Finance group 3