American industry learned something back in the 1970s when it was getting overpowered by the Japanese. It learned not to make assumptions about competitors and customers.

We had grown accustomed to making assumptions and getting away with it, particularly these two assumptions:

1. We do it better.
2. Customers want what we're offering.

After being force-fed a hearty portion of humble pie (and suffering considerable heartburn!), we came face-to-face with the realization that we had something to learn-especially from our competitors.

Around that time, Michael Porter penned the Harvard Business Review article How Competitive Forces Shape Strategy and subsequently published two landmark books: Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980) and Competitive Advantage: Creating and Sustaining Superior Performance (1985). Through these publications, he launched the lexicon for competitive strategy and competitive analysis that still is taught today in every business school across America.

Porter taught us how to look outward at our competitors and to benchmark against best practices in the industry. However, even companies who master Porter's teaching and are adept at the most sophisticated forms of competitive analysis often make yet another fatal assumption; they assume their competitors know what customers want. Indeed, competitive analysis can be woefully inadequate and downright inaccurate if it lacks a thorough understanding of customer value.
Customer Value Analysis is a concept refined by University of Tennessee faculty members Drs. Robert Woodruff and Sarah Gardial in their book Know Your Customer (1996). The premise of customer value analysis is that companies can build a sustainable competitive advantage by creating, communicating, and delivering superior value - value as perceived by the customer.

If you are looking for a way to give your company a distinct advantage in the marketplace, you need to marry Customer Value Analysis and Competitive Analysis. The process is simple:

1. Start with the customer-What does the customer need or want?
2. Analyze your competition-How do your competitors stack up on those customer-determined value points?
3. Intersect those two knowledge bases - Where customer value intersects with competitive gaps, you will find market opportunities or entry points that others may have missed.

One of the most important steps you can take in using competitive analysis to position your company, product, or service in the marketplace is to acknowledge that what your competitors are doing may not be right by the customer!

Let's look at the airline industry, for example. Traditionally, airlines have operated with a hub-and-spoke model. Flights from smaller airports are routed to larger hub airports and then redirected along other spokes. Is this what customers want? Do customers want to deal with the hassles of transfers, layovers, delays, and lost baggage? Not any customer that I know! Indeed, several airlines have taken the unique approach of restructuring their operations to deliver higher satisfaction levels on the elements of service that customers most value, such as direct flights. Thereby, these creative, customer-value-focused companies have identified lucrative market positions.

Listening to your customers and determining what your customers truly value is another critical step in positioning your company, product, or service. We used this approach in creating UT's Physician Executive MBA (PEMBA) program. We could have followed the traditional model-conduct an in-house brainstorming session with our best and brightest academic minds, look at what other top programs were doing, and model our program along those lines. Instead, we started with the customer. We conducted focus groups and in-depth telephone interviews with physicians worldwide. Physicians told us what they needed-what they valued-in a graduate business program, and we designed our program accordingly. As a result, UT's Physician Executive MBA program has been the #1 Preferred MBA Program Exclusively for Physicians for seven consecutive years according to Modern Healthcare magazine.

Physicians in the program ask: How can I position my practice to be successful in the marketplace? They, too, are answering that question with the simple procedure of finding the intersection of what my customer values and ways in which my competitors are not paying attention.

We teach them to start with the customer, or, in this case, the patient. When physicians start paying attention to their patients, they soon find that their patients are not nearly as satisfied with the traditional practice model as has long been assumed. Many patients now want evening and weekend hours. So, the challenge for physicians becomes how to provide what their patients desire without working 24/7 for the rest of their lives.

One answer lies in an entirely new operational structure and management approach in which nurse practitioners and physician assistants deliver routine services while doctors focus on leading and
tending to special needs and chronic cases. Needless to say, this new system of delivering service-where physicians are no longer the primary clinician but rather the leader and manager of a clinical team-often requires doctors to master totally new skill sets.

Listening to the customer can require a radical change, but it also can lead to radically improved results in customer satisfaction, market position, and bottom-line performance.
Are you looking for a way to launch a business that offers something unique and different? Perhaps you are seeking a way to reposition a product or re-price a service? Or, perhaps you want to find an innovative distribution method that will give your company a leg up on the competition. In these and all competitive cases, the secret to creating a real and sustainable competitive advantage is to look hard at your competitors and listen well to your customers.

About the Author:

Michael J. Stahl, Ph.D., is the William B. Stokely Distinguished Professor of Business at the University of Tennessee (UT) and director of the Physician Executive MBA program. He teaches strategy and business planning in the University of Tennessee's full-time MBA, Executive MBA, and Physician Executive MBA programs.