Why a Competitive Moat Can Benefit Your Business

Customer Service

You’ve no doubt heard of Cirque du Soleil; neither a circus nor a theatre but an appealing mix of both. In the last 10 years, it has successfully increased its revenue 22-fold. How?

By developing uncontested market space with a new type of performance and making the competition irrelevant.

Cirque du Soleil has managed to create a ‘Blue Ocean Strategy’ which is the title of a business book I finished reading recently. Coincidentally, at the time I finished reading the book I also ordered a pizza from Dominos (it was Saturday night and I was feeling lazy). It would seem that the two events are not related but one got me thinking about the other and vice versa.

The gist of Blue Ocean Strategy is that businesses set themselves apart from the competition by creating a new ‘ocean’ that they can own. 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.

In the pizza delivery market there are now two main players – Dominos and Pizza Hut – as well as smaller franchises like Pizza Capers and a number of local independents. But Dominos stands out from amongst all the rest because they have indeed achieved a blue ocean with their online ordering system introduced in 2005.

They’ve expanded the boundaries of the existing pizza delivery industry and blown the competition out of the water. Back in 2005 ordering anything online was still a cautious move for many concerned about security. Dominos has 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. They also have over 1 million followers on Facebook that can instantly share their experience, just to name a few distinctive innovations.

When you create a blue ocean you also create a brand, and Dominos has made certain they’re the brand uppermost in people’s mind’s when they want to order home delivery food. Plus they continue to offer low priced pizzas, so it’s no wonder smaller franchises can’t compete.

Another way to describe this phenomenon is that it is like creating a ‘competitive moat’ around your business. This means it has an advantage that will take significant investment by other businesses to replicate or compete with. The deeper your moat the better as it directly affects your ability to sustain long-term growth and profitability.

The term was coined by financial entrepreneur Warren Buffet who said “In business, I look for economic castles protected by unbreachable moats.”

Here are 3 tips for building a competitive moat for your business:

  1. Understand what your competitive advantage is

There is little point providing a service or product that your customers won’t see as an improvement. The challenge is to understand your target market and what they value. If not everyone can offer them what you do, then that makes your business even more valuable.

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. In essence, Dominos gave me exactly what I needed so there’s a high chance I’ll be a repeat customer.

  1. 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 Dominos 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 Pokemon’. The Pokemon 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.

  1. 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.

Many successful businesses build their competitive moats on a strong foundation (look at Google for example) so, as well as understanding your target market, you should establish your focus and motivation, what you hope to achieve and your core business values.