Monday, June 4, 2007

There's More Than One Way to Slice a Pizza

In the world of strategy, it is easy to get trapped by conventional wisdom. Certain industries tend to operate in certain ways, with most industry participants thinking about the business similarly. This includes thinking about what is being offered for sale, what are the most important features, how the product/service is pitched to the consumer, how it is priced/bundled, service levels, and so on.

With so much of the industry thinking along the same lines, one can start believing that this is the only way to run the business. We start narrowing the strategic options to one—the one that everyone else uses. If everyone is following a similar path, it is extremely difficult to break out of the pack and produce results above industry norms.

However, if one throws conventional wisdom out the window, a much wider range of possibilities become available to choose from. Better still, one can discover a position radically different from the status quo. This can create more distinction and differentiation for your brand, thereby increasing the preference for your brand and minimizing the threat of price wars.

Take, for example, coffee. It used to be that if you wanted to be a big player in the coffee business, you would use the following conventional wisdom:

• Sell coffee grounds in 3lb. cans.
• Sell the cans through supermarkets
• Use heavy promotions through coupons and the retail trade to try to get endcap displays in the supermarket at a hot price
• The key selling point was low price
• Consumers then make their own coffee for home consumption

Starbucks, however, threw away conventional wisdom and came up with an entirely different business model:

• Sell fully-prepared coffee, a cup at a time.
• Sell in special branded locations dedicated to coffee
• Have coffee consumed on-premise or in car via drive-up window
• Key selling points are quality, variety and atmosphere. The price of one cup can start to approach what people in the past used to pay for an entire can of coffee grounds.
• Provide internet service while enjoying the coffee.

Of course, neither Folgers nor Maxwell House came up with Starbucks. They were trapped by conventional wisdom. It took a relative outsider—unbounded by conventional thinking—to see the potential from looking at the situation differently.

However, the example which fascinates me the most is pizza. It’s just a little dough, a little sauce, a little topping, and a little cheese. Conventional wisdom is that you buy fresh, hot round pizzas in multiples of entire pies and that you can have a choice in size of pie and type of toppings (made to order). A key selling point is that it is a relatively inexpensive way to feed a group of people. You win either by focusing on lowest price or best toppings. Yet this simple little item has spawned a wide variety of variations when one thinks outside of conventional wisdom.

Take Little Caesars Pizza. It decided to try to offer incredibly fast service with incredibly low prices, so it invented the Hot-n-Ready program. The selling point is that you can go to a Little Caesars and pick up as many pizzas as you want without calling ahead and pick them up immediately at $5 per pizza. How do they do it? They limit your choice to two pizzas—cheese or pepperoni—in one size (large). By limiting choice, they can make them in advance, so that there are always plenty ready to take home immediately at any time. So much for the conventional wisdom of selling choice and made-to-order. As it turns out, cheese and pepperoni are two of the most popular choices, and for many, the ability to avoid waiting 30 minutes to have it made to order. It also helps to keep the costs down.

Rocky Rococo’s (located primarily in Wisconsin) turns conventional wisdom upside down in another way. Rather than focusing on round pizza pies, its specialty is in making huge rectangular sheets. It then cuts them up into smaller single-portion rectangles and puts them into little cardboard boxes, just like McDonald’s sells a Big Mac. They break down the convention that you have to buy an entire pie, or that it has to be round. It is perfect for serving a single person (rather than a group). It is also great if everyone in the group wants a different flavor of pizza. It is far more convenient as a quick to-go purchase (grab a box and go). And, as in the case of Little Caesar’s, you can get your individual serving immediately because the big sheets are made in advance. Sbarro’s is similar, but sells pizza by the slice from a conventional round pizza.

Another variation on the theme is the pizza buffet—places like CiCi’s. Rather than selling pizza pies, one is basically selling the opportunity to fill a plate. You can eat different slices from different pizzas, so that you are not stuck with just one pizza flavor. If your group wants different pizza choices, this is the place. It’s all you can eat, so your money goes a long way.

Pizza buffets tend not to have the highest quality pizzas, so that they can keep the prices low. However, if price is not your main issue, you can step up the quality and the flavor by going someplace a little nicer, like California Pizza Kitchen. The flavors tend to be more exotic and sold primarily in preset topping combinations.

Of course, many pizza’s come from places that have no seating at all (a restaurant without the restaurant—just a kitchen and a door). You are expected to eat it at home. Why they will even deliver it to your door. This is the business model of Domino’s. And now, Domino’s is taking choice to a new level, offering not only a choice of toppings, but a choice of sauces (four choices) and a choice of crust flavors (choice of 2).

And then there are places like Papa Murphy’s which specialize in take-n-bake pizzas. They will prepare your pizza to order, but do not bake it. Instead, you take it home and bake it in your own oven. By eliminating the costs of ovens and delivery which places like Domino’s have, they can create a good pizza value. And this way, the customer has more control over the time when the pizza is ready. It will not have a chance to cool down during delivery before getting to the table.

And now, thanks to modern pizza technology, you can get pizzas in the frozen food section of the supermarket which claim to taste as good as take-out pizza.

Finally, let’s not forget places like Chuck E. Cheese which are primarily selling an entertainment experience. You pay money for the entire experience and somewhere in there you have also purchased a pizza. The pizza is not the main draw. It is almost an afterthought.

The point I am trying to make is that if you can invent this many strategies for selling a simple pizza, then just think of what you can do in other industries. Pizzas do not have to be round, do not have to be sold by the pie, do not have to be made-to-order, do not have to be baked, do not have to offer on-site seating, do not have to be the main attraction, and so on.

What are the conventions in your industry just waiting to be broken?

Conventional wisdom about how to do business in an industry can block our minds from seeing alternatives. It’s hard to become a leader if you continue to follow the pack by imitating conventional wisdom. Greater profitability tends to come via differentiation. Find a way to be different by reinventing the rules of the game—rules at which you can win. Remember, there is more than one way to slice a pizza.

Leaders tend to like conventional wisdom, because they are the brand best associated with delivering on the expected conventions. Leaders also tend to like imitators to follow conventional wisdom, because it reinforces the fact that the leader is doing things the right way and that they are superior in delivering it. When other brands forge a new path, consumers see that the leader is not the best at all possibilities and it can weaken or narrow the appeal of their brand. Why should you give the leader what they want by accepting their definition of how it should be done?

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