Innovation Reactor

How Waitrose competes with a differentiated business model

 

I attended a great presentation from Mark Price, Managing Director of Waitrose Supermarkets and was fortunate to have a quick conversation with him afterwards.  The UK supermarket business is fiercely competitive and recent statistics by TNS show Waitrose has a 4% market share compared to their main rivals Tesco (31.5%), Asda (16.6%), Sainsburys (16.2%) and Morrisons (11.2%). In this competitive industry structure, how does Waitrose grow market share against such strong competition?

Waitrose have created a strategy focused on two specific market segments of affluent consumers

• Baby boomers looking to trade-up to better quality
• Pre-children Gen-Xs that want quality food and drink to match their lifestyle

Then utilizing a differentiated business model, focused on quality Products, Service and Store Environment, they have created a premium brand and differentiated customer experience. This makes it difficult for price-led competitors such as Tesco or Asda to replicate the Waitrose strategy.

Products: Waitrose maintains product quality by investing in the supply chain since they made a strategic decision to invest in organic farming (production) and take a long-term approach with supplier relationships. By paying dairy farmers above-market prices for milk they locked in exclusive relationships. These farmers could then invest in better technology and upgrade equipment, while other farmers struggled to reduce costs and lowered quality. Subsequently, Waitrose then repeated for pig farmers and organic growers.

Service: Waitrose isn’t owned by shareholders, but all employees are partners so profits that usually go to shareholders are paid in bonuses to employees. All employees receive a 20% annual bonus regardless of seniority; the company is open with information like sales data and store performance, publishing this every week; managers are empowered to make decisions to optimize sales and service in their store; while employee committees are elected to consult with the board on strategic decisions. By placing employees first in the value chain, Waitrose has generate higher levels of employee satisfaction, created better customer engagement and increased service levels, resulting in superior levels of customer satisfaction with profitability. 

Store Environment: Waitrose creates a unique customer experience through cleaner stores, wider isles, shelves setup to promote the products and not sales posters or promotions, and established store locations are convenient to the target market with easy car parking.

I asked Mark “how is Waitrose innovating to beat the competition?”

“Waitrose is investing over £10 million in product development each year. We do not outsource our product development to suppliers like other supermarkets rather we employ top master chefs to create new Waitrose-branded product lines. Because of our business model, our produce buyers are more tenured and experienced so they understand the product categories better. This has allowed us to shift from organic to new segments, such as locally grown fresh produce, which grew 170% last year, faster than our competitors. We’ve also invested in online supermarket Ocado acquiring a 25% stake in the company, that’s helping Waitrose expand coverage into new geographic regions and gain a 16% share in online food retailing in the UK.”

Like Waitrose, a challenger brand aiming to steal market share from strong competitors, can start by developing a strategy focused on niche customer segment, then use a differentiated business model to win.

Let your customers design your next product

Companies invest millions in consumer research with the aim of developing new products and bringing them to market. Some companies are becoming smarter and reducing research costs, by using the web to engage in dialogue with customers then using the information gained to create new ideas for products and services.

Starbucks www.mystarbucksidea.com lets you share, post and comment on new Starbucks related ideas. Anything from their used cup recycling policy to feedback on the taste of the new Pike Place Roast. Since many consumers visit social networking sites and read posts but don’t have time to comment, Starbucks lets you vote on the ideas already posted so people then have a fast mechanism to either agree or disagree with what’s being said. This is a great way for Starbucks to collect quantitative data to understand consumer sentiment and pinpoint trends.

Dell created IdeaStorm www.dellideastorm.com an online community that allows customers to share ideas and collaborate with one another. Over 9000 ideas for new products and existing product improvements have been posted –sparking conversations between users. Dell then feeds the data back to their designers, engineers and programmers to bring the best customer ideas to life. Dell creates a great 3-way dialogue, by allowing employees to join the conversation, so they can provide tips, training or just a thank you for any new ideas.

Lego, the Danish toy company has a great site for kids www.lego.com/factory where they can design, share and buy their own customized Lego models. Kids can post their designs onto the site, share them and rate others creations. This helps Lego gain deeper insights into their target audience and from hundreds of postings has now launched 3 new products designed by actual fans.

Companies can also collect data on customer preferences and feed this into their new product development and ideation process. Dominoes Pizza www.dominoes.com lets customers create their own pizza from a list of toppings, crusts and sizes. Through the Nike website www.nikeid.com customers can design and customize their own shoes, gear and apparel – choosing styles, colours and personalization elements. Capital One www.capitalone.com lets customers build their own credit card from a choice of interest rates, rewards programs and graphics.

 

How is your company using the web and social networking to gather customer feedback, generate new product ideas and collect data on customer preferences to identify the latest trends?

Creating an environment for breakthrough innovation

You want to create a new direction for your company and make innovation a top priority. However to make this new strategy work it’s the people within an organization must first transform their communication, relationships, thinking and focus.

To achieve this I suggest 3 steps to generate “Innovation from the inside”

1. Improve communication and relationships to challenge existing ways of thinking

2. Develop a vision for the future and design breakthrough projects to achieve the vision

3. Create dynamic networks inside your organization that focus on driving results

1. Every team consists of a Coach and Players –with their actions on the field determining whether the game is won or lost. However many people become Journalists and Spectators –sitting in the stands giving opinions,  judgements, explanations, telling stories, writing reports or spreading rumours. Since Journalist and Spectator perceptions are rooted in the past they stifle innovation, creativity and change. If you have too many in your organization you cannot begin to realise your new strategy. To provide the catalyst for change try hosting town-hall style meetings focused on putting the new direction into context. Then smaller workshops that highlight Journalist and Spectator behaviours and the resulting low-performance it delivers. By challenging existing ways of thinking and improving communication people can then open up to new possibilities.

2. Work with your teams to develop a new vision for the future –then facilitate open communication to create alignment and shared understanding of this vision. Build momentum by developing a list of breakthrough sprint-projects. These short-term projects could be improving a process, adding a new partnership, building new technology or sales/marketing capabilities.  These action-orientated projects will help refocus everyone on the game and beating the competition.

3. After choosing your sprint-projects develop a rough plan, outline milestones, align resource networks and determine what learning is required to be effective. Remember keep it simple and remove complexity. While every team needs a structure and game plan, too much control limits innovation, restricts ideas and blocks creativity. Space with empowerment allows self-organization to flourish and employees to take action themselves and drive the new strategy forward.

When companies let employees contribute to the vision, facilitate open communication and challenge established norms, they will volunteer for projects and self-organize into dynamic networks. With employees championing new ideas, driving change, and spreading your new innovation culture across your organization imagine what you could achieve.

Technorati Profile

How to develop an integrated marketing communications strategy

Implementing an integrated marketing communications strategy can provide a competitive advantage for your business. However, many companies still employ a linear direct marketing process in which products are developed, messages created and incentives are added to the mix. The products are then pushed through various media or a salesforce to consumers. This methodology relies on behaviour assumptions that all consumers follow the same decision process: Awareness – Knowledge – Evaluation – Purchase.

This strategy worked well a few years ago because targeting and smart advertising gave companies the edge over consumers with limited product knowledge. However, buying behaviour has become more sophisticated since consumers acquired access to technology such as the Internet, mobile phones, iPods, search engines and on-demand TV. This technology has made the traditional linear marketing and communications process (product/brand – channel – media – customer) redundant. Because consumers can now block out marketing messages using spam filters, pop-up blockers, remote controls, “do not mail” lists or the regular trash can.

• Why do consumers need to learn about your product/service now when they can just Google it?
• What are you going to tell consumers that they don’t already know or cannot find out for themselves via an online product comparison site?

A consumer-controlled communication landscape has emerged with a faster dynamic consumer learning process. The outcome is declining efficiency rates and increased costs from traditional direct marketing activity. Thus companies now need an integrated marketing communications approach that combines traditional media, online channels, PR, affiliate partnerships, products, people and social networks to be successful.

How can your organization develop an integrated marketing communications model?

Don Schultz, Professor of Integrated Marketing Communications at Northwestern University suggests companies can coordinate their marketing resources and supply customers value-added information to create engagement and build long-term relationships. Start by using what I call ABCD resources -Audience, Brand (Product/Service), Content, Delivery. You then need to find the optimal mix based on your industry and competitive position.

Audience – a key ingredient is to use extensive data and analytics to understand your target segment. Creating pen-portraits of your core customers including demographic and lifestyle information will help optimize your media targeting strategy.

Brand – your product or service must have a unique selling proposition to provide a competitive advantage. It must deliver superior value for the audience and be clearly differentiated on features, service or price.

Content – with most competitors using the same linear marketing strategies targeting the same consumer segments, content can now become a point of competitive differentiation. When you supply value-added content you provide consumers a reason to engage with your brand and connect your products or services.

Delivery - You then need to connect new digital media channels with traditional channels to create a push-pull system. Consumers must become engaged with the media employed or your content delivery will be unsuccessful. To achieve this ensure the content is linked to your brand positioning to make the emotional connection with your product or services.

Traditional measurements systems do not work well with integrated marketing, but most companies have all the data and just need to align it. Problematic areas can include breaking down internal silos and defining measures of success –site traffic, new sales, revenue per customer, return on capital, NPS (Net Promoter Score) etc. 

The customer experience now occurs during the interaction with your products, online channels, customer service and content. If companies can optimize the synergy between the ABCD resources and employ an integrated marketing communications strategy they can drive improved returns from their marketing investment.

The 10 C’s of Leadership

I recently attended a leadership coaching session hosted by the President of American Express, Al Kelly. With many years experience as an executive at The White House, Pepsi and now American Express, he shared some great insights into what it takes to be a standout leader in the business world today. These are his 10 C’s of leadership.

The first 5 C’s are focused on becoming a Leader

1) Comfort –understand your strengths and weaknesses and then be comfortable hiring people smarter than yourself to fill the gaps.

2) Character –good moral values, doing what’s right and acting with integrity. Be aware of the culture you are creating (i.e. Enron).

3) Confidence –this is about channeling your ability in a focused way and taking measured risks necessary to drive an organization forward and reach an end objective. However overconfidence can breed arrogance and make people take stupid risks like Evil Knievel. Thus self-awareness is important since companies need leaders not cowboys.

4) Composure –being aware of your energy, mood and feelings and how that energy can influence the people around you. You need to demonstrate consistency in behaviour all the time because you don’t want your team thinking to themselves “which person is going to show up to the office today?”

5) Courage –leaders have to make tough decisions using a mix of data, facts, experience and intuition. You must show good judgment in your decisions. You must have the courage to make a vital decisions when there is no playbook and to stand-up for what’s right.

The next 5 C’s are focused on being a Leader

6) Caring –the people that work for us are our greatest asset so it pays dividends to spend time with them, listen to their problems, and understand their situation, background and lives. Build good relationships inside and outside of work.

7) Communication –these are opportunity situations where you can shine but your written and verbal communication must be clear on the intent, consistent and ‘on brand’ every time. Try to match your communication to the situation (i.e. a company reorganization might require a town hall style meeting, while quarterly updates could be done via email memo). To earn the respect of people be clear on how the communication will affect them.

8) Coaching –a good leader invests in people through coaching, mentoring, facilitating and guiding.

9) Curiosity –invest in constant learning and updating your skills, plan ahead and ask really good questions that push your thinking and the thinking of those around you.

10) Conviction –commitment once you make a decision has been made and staying the course. You must be a cheerleader for the company strategy, the products and people who work there.

Good leaders continue to learn and develop their skills, while being self-aware about the decisions they can control and the impact of those decisions on people’s lives who work for them. While there are other C’s (co-operation, compassion, etc) the 10 C’s above can be hardwired into a leaders DNA to earn followership and deliver results.