Are You Creating a ‘Competitive Moat’ Around Your Business?
Two things happened on the weekend. One was that I was feeling lazy and ordered pizza on Saturday night. The other was that I finished reading a business book called, Blue Ocean Strategy.
It would seem that the two events are not related, but one got me thinking about the other and vice versa. The book, Blue Ocean Strategy, has been out for a few years now and I was familiar with the concept before reading the book but wanted to better understand it.
If you haven’t heard of it, the gist is that businesses set themselves apart from the competition by creating a new ‘ocean’ that they can own. A classic example cited in the book is Cirque Du Soleil; it is neither a circus nor a theatre in the traditional sense of either but instead, has created a new type of performance that provides an appealing mix of both. For many years it had no competitors in that arena, hence the term ‘blue ocean’. A ‘red ocean’ in comparison is red because of all the blood in the water from competitors fighting over customers and is usually primarily about price.
Home delivery pizza isn’t exactly a ‘blue ocean’ and has indeed for many years been a highly competitive landscape with Cheaper Tuesday, $5 pizzas, a coupon culture and a range of other cut-price offerings. With the recent insolvency of Eagle Boys, it is becoming less competitive from the large-scale providers. In the pizza delivery market, there are now two main players: Domino’s and Pizza Hut, as well as smaller franchises like Pizza Capers and a number of local independents.
However, Domino’s changed the game when they introduced their online ordering system. Previously buyers would phone to order pizza, and from an operational point of view, a key element was making sure there was both enough phone lines to handle incoming orders and enough staff to answer the phones.
This wasn’t a great system for the business (it was easy for competitors to copy and difficult to cope with unexpected surges in demand) or for the customer who often felt rushed and unsure of new offerings but it was the accepted practice. Domino’s took a risk when they first introduced their online ordering system in 2005, back then ordering anything online was still a cautious move for many concerned about security.
The first iteration had its bugs of course, but they have now refined and smoothed the process to the point where the majority of orders received are online or from mobile devices. They’ve since added on other layers like GPS tracking for both drivers delivering pizzas and customers wanting to pick up, ordering apps for smartphones and tablets and over one million followers on Facebook that can instantly share their experience just to name a few distinctive innovations.
All these elements together have created a sizeable ‘competitive moat’ around the business, one that will take significant investment to replicate or compete with. Plus they continue to offer low-priced pizzas. Given all that it’s not surprising that Eagle Boys was unable to compete.
The authors of Blue Ocean Strategy talk about ‘reconstructing existing buyer value elements’ to create new boundaries and a change in the structure of the industry and that is what Domino’s has done.
How can you create a ‘competitive moat’ for your business, as Domino’s has?
1. Understand your target market and what they value.
There is little point providing a service or product that your customers won’t see as an improvement. The challenge is that your customers don’t always know what they want or the best way to solve their problems, and so it comes back instead to what they value.
I ordered pizza on Saturday night because I couldn’t be bothered cooking and I wanted it to arrive with no messing around or unnecessary delays. The online ordering experience made it easy and it turned up when they said it would.
2. Create a feedback loop to encourage and foster innovation.
This is done by listening to your customers but also by being curious about them. After an order is placed with Domino’s the page shows the order process and below that they’ve added a question which takes one click to answer. Once answered the results are shown, and then a new question appears. Some of the questions were fun, and some were about my food preferences.
The questions I answered ranged from: “Who am I with?”; “Do I like to order traditional pizzas or something new?”; to “Who is my favourite Pokémon?” The Pokémon question may seem random; however, this could drive the decision on whether to encourage their franchisees to buy Poke Stops to encourage foot traffic to their store.
3. Be prepared to change the way things have traditionally been done to make the competition irrelevant.
Just because things have always been done a certain way doesn’t mean that is the only way or the best way. There are two tools in the book that are helpful for analysing your own market.
One is the strategy canvas that looks at the importance of different values to customers and plots them along a graph to see how the different options compare. The other is a four actions framework that looks at what can be reduced and eliminated and what can be created and raised in importance to form a new value curve.
What can you do to create your own ‘blue ocean’ or ‘competitive moat’?
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