How do you use it?

You create a table as shown in the image. The first column represents your own business, and the others represents a competitor or group of competitors. Each row represents a ‘characteristic’; something that you can rate each business on. Within the table you score each competitor/group on each aspect.

Competitors - If you have only a few competitors, you can use a separate column for each. Otherwise, you will have to focus only on your most important competitors. It is also possible to group competitors together if their positionings are very similar. There is no prescribed number of columns, but anywhere between 3 and 5 (including your own) is practical.

Characteristics - You can choose many aspects; they can be related to product features and quality, services, pricing, distribution, etc. The most important is that these characteristics are relevant for your customers; they are things that affect their choice which product to buy.

Scoring - There are many different ways that the competitors can be scored, ranging from percentages (0-100%, stars (1-5), grades (A-F or 10-1), etc. It’s also possible to describe rather than score how each competitor performs on a certain characteristic.

How do you teach it?

It’s not difficult for students to create the differentiation matrix, but it helps to challenge them with the right questions. For the columns, you can ask which business are really competitors, and whether they can be grouped together or not.

For the characteristics, you can start by discussion your business’s value proposition. It is important to focus on the important ones, and not for example irrelevant product features.

It is quite common for students to end up with a matrix that is too positive, where their business is better than their competitors in many aspects (e.g. best quality products and lowest prices). This is easily challenged by asking them why their competitors are still in business, what makes them attractive to certain customers. Sometimes the answer is something that seems minor (for example the location of their business), but if this is something that drives consumer choices it may justify another row to the table.

It’s important at the end of the exercise to step back and answer the following question: Is there a certain segment of consumers that will choose our business? What are they looking for, which combination of characteristics, that they cannot find at any of our competitors?

Sometimes there is no clear answer to this question; not every business needs to be unique as long as the market is large enough. For example, in a large town there can be several Italian restaurants offering very similar menus, and all of them may be successful.

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