This post is a continuation of Ken Wong’s discussion on Quality. If you haven’t read “Quality Defined“, you should start there.
My last blog suggested three key questions to ask in order to evaluate your quality.
- What are the criteria buyers use to select a pharmacy?
- How important are each of those criteria?
- How well do you perform relative to your competition on each of those criteria
We also looked at how we could use that data to get a snapshot of which customers were, all else equal, most likely to buy from us.
While there is value in knowing why people buy from you and therefore what you need to keep doing to retain their business, businesses usually are looking to grow. This raises the question, “what do I need to do to attract others?”
Since quality is based upon the criteria used by buyers to select a pharmacy, “quality” really means “attractiveness to buyers.” As such, it makes sense to refine our plan for customer acquisition on the basis of how they score on each of the criteria.
There are two parts to this analysis. The first is sensitivity analysis to determine on which criteria our success will depend and the second is identification of the alternative ways we could best manage each criteria.
Sensitivity Analysis
On the surface, there might not seem to be much difference between the stores based on their average scores. Our store is in fact tied with Competitor A and only slightly better than Competitor B.
However, that (arithmetic) average is somewhat misleading since its calculation implicitly assumes all five criteria is equally important. However, we can see from the relative importance weights, that they are not. We can correct for this by calculating a “weighted average” score (see Table 2). Click here to view Table 2.
For each criteria, multiply the competitor’s score by the relative importance weighting, then sum all of those products to find a total score.
When this is done, we can see that our store has a slight advantage over store A for the chronic patient and a clear advantage over Store B. We can also see that our advantage over Store A is tied to the quality and speed of service whereas Store A tends to win on the basis of the store hours and appearance.
More importantly, we can also ask “what happens if I changed my score on ….?” or “what would happen if people started to place more importance on ….?”. To do this, we simply change either the score or the weighting by the appropriate amount and redo the calculation (see Table 3). Click here to view Table 3.
This is a powerful tool since it helps us see where we are most vulnerable to attack by competitors who either improves their scores or if the public’s priorities (as reflected by the importance of the criteria) changes.
Making the Change
This raises the question “How do I know which criteria to change?”
For this we construct a “diagnostic matrix” (Table 4).
The matrix has two axes (1) whether the criteria has a high or low level of importance and (2) whether we performed better or worse than the competition on the criteria. Using the values in Table 2, we slot every criteria in one of the four quadrants.
There will be some criteria where our store does not score as well as the competition. There may be a temptation to want to do better on these criteria. However, some of these criteria are relatively unimportant to buyers (e.g. store appearance) while others (e.g. store hours) are of high importance. Since buyers are less likely to reward improvements on criteria that are of relatively low importance, we should think twice before spending money to upgrade the looks of our store.
Store hours is a different thing. In fact, as a general rule, you never want to score lower than the competition on anything of significant importance to a buyer. If you do, they will only buy from you “under duress” and will have no problem switching stores if a new one comes along.
How do we change? We can either improve our score by, in this case, having longer hours. Alternatively we could do something to reduce the amount of emphasis placed on store hours by finding an alternative to satisfying the buyer when the store is closed (e.g. pickup or home delivery of prescription refills, either on a regular cycle tied to dosage or ordered by phone). Deciding which of these to do is a paper and pencil issue based on the cost and likelihood of the success of each move.
Likewise, there will be some criteria where we do better than the competition. There may be a temptation to rest on these scores. However, how one manages performance on these criteria will depend on their relative importance.
For example, the criteria on which we score better and which are highly valued (e.g. speed of service) typically form the foundation for our brand or unique selling proposition. These criteria are, at the end of the day, the primary reason people stay with us. Firms that lack such a criteria usually end up competing on price since they can offer no compelling reason for staying. Not surprisingly, since these criteria are our so-called “claim to fame”, they form the core of our promotional messaging, logo etc.
When we are ahead of the competition on criteria that are relatively unimportant to buyers, we have two distinct courses of action. One action is to “educate” buyers to get them to place more emphasis on our competence in the area (e.g. a campaign telling them why they should care). As an alternative, if we do not think the buyer can be convinced, we can reduce costs by reducing our budgetary commitment to, or the time and money spent communicating, our performance on these less important criteria.
Imagine – all of that information from just three simple questions!
We have a winner!
Bob Michaels of Main Drug Mart is the winner of this week’s prize draw. Bob is still deciding what professional resource to pick as his prize. He has also won a one-year subscription to Canadian Business magazine and a one-year subscription to Money Sense magazine in his prize package.
