Product Ratings
Consumer Reports (CR) is famous for its product performance ratings of various consumer products. They rate individual product attributes on a 5-category scale that ranges from poor to excellent. Overall product ratings are rated from zero to 100. The sixty inkjet printers displayed in the graphic above received overall ranking ranging from 43 to 73, with an average of 61. Prices ranged from $40 to $350 with an average price of $148.
Relative Product Performance Metric
While actual product performance ratings are of value, creating a Relative Product Performance metric allows for a more strategic interpretation of product performance. In the graphic above, the Relative Performance was computed for each of the sixty inkjet printers, by dividing the printer overall CR rating by the overall average. For example, the HP PhotoSmart Premium had a relative performance of 120, indicating a 20 percent higher performance than the average printer.
Relative Product Performance = Performance / Average Performance x 100 = 73 / 61 x 100
= 120
Profit Impact
The PIMS Database (www.pimsonline.com) has created a large business unit database from which many performance metrics can be assessed with respect to their impact on pre-tax return on investment. Shown above is the relationship between Relative Product Performance and Pre-Tax ROI. One of the premiere findings in the PIMS research is that businesses with above-average levels of relative product performance are more profitable. It is important to note that the real profit impact goes to products with a meaningful advantage in relative product performance.
Measuring & Managing Relative Product Performance
While overall relative product performance is a key performance metric that helps a business understand its relative competitive advantage, we need to break it down into discrete aspects of product performance to manage this metric. In the lower portion of the table below are the HP ratings for four aspects of product performance as measured by Consumer Reports. We also added four HP competitors with prices comparable to the HP PhotoSmart Premium printer. In the upper portion of the table these ratings are shown as relative performance metrics. HP had a CR copy quality rating of 7 and had a relative performance rating of 155.6.
Because performance priorities across different customer segments will vary, we add the relative importance to each area of product performance. For example, the relative importance of Copy Quality is 30 percent, meaning that it accounts for 30 percent of overall performance. When relative importance is applied an overall relative performance of 126 is obtained. If HP were to improve its Copy Quality from a rating of 7 to a rating of 8, they could improve their overall relative performance from 126 (Yellow Dial) to 133 (Blue Dial). This would extend their competitive advantage relative to benchmark competitors and also have the potential to positively impact the company’s Pre-Tax ROI.
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