The Innovative Competitive

Advantage:
A Case Study of

Two Pioneering Companies
By Elizabeth Whalen and JiYoon (Jennifer) Han
Elizabeth Whalen and JiYoon (Jennifer) Han are both affiliated with University of Houston.

Introduction

Great organizations consistently look for a competitive advantage that will give them an edge
over the competition. Finding competitive advantages that are not easily mimicked is essential in
maintaining momentum for an organization, and one of the best ways to stay ahead of the
competitive market is to maintain an environment of innovation. The definition of innovation is
simple: the introduction of something new or a new idea, method, or device (“innovation”,
2011), successfully implementing the concept of innovation is significantly more challenging.
Innovation requires the ability to understand and to read the market and the consumers. As stated
by DeMaria (2013), “successful innovation [must] begin with the identification of an un- met
need... [and once this] unmet need is recognized and a plausible solution is identified, a
successful innovator has to be a risk taker and be willing to fail” (p. 253).

The challenge of innovation is recognizing opportunities for the implementation of novel ideas
combined with the willingness to accept that those innovations may result in failure (DeMaria,
2013). Despite the risks and challenges, the hospitality industry calls for service and practice
innovations that will help guide strategic and operational deci- sions in meaningful and valuable
ways (Johnson, 2011). The following case study examines two organizations that took the risk of
innovation: one through pricing strategy and one through technology. These two organizations
reasonably represent the spectrum of opportunities for innovation from service operations
through marketing strategies.

Innovative Pricing Strategy

Coworkers at Lunch
Coworkers Evelyn, Matt, and Cassandra finished a long, tedious morning meeting and decided
that they want to eat out for lunch. Cassandra recommends a very nice local restaurant her
friends have been raving about, “don’t miss the foie gras!” They quickly collect their things and
make their way to the gastronomic district for lunch. The atmosphere is warm and welcoming,
and the restaurant is packed with other business diners. Their server, Edwin, was courteous and
prompt. He welcomed them as first time visitors and offered a number of rec- ommendations for
the most popular dishes.

Evelyn looks at the menu and starts to worry, “The food on this menu all looks so good, but it
also looks fancy. I am not sure I can af- ford the prices.” However, when Evelyn searches for the
price of the different entrees, she does not find any! Evelyn asks Matt and Cas- sandra if their
menus have any labeled prices, and they agree that they cannot find any. The three quickly call
their server Edwin over to ask him to help. Edwin smiles at the new customers, and quickly
explains the situation. “I’m sorry I forgot to tell you when I first introduced my- self. This
month, there are no prices for the food. The owner told us that he wants customers to ‘pay what
you think the food is worth’. It is completely up for you to decide.” He again smiles at the
puzzled and awed faces of the three coworkers.

Matt enjoys trying new foods, but is often worried about being disappointed. He is excited for
the promotion because this means he can try different things and not worry about the price of
each item.
He decides to order an appetizer, an entrée, and a dessert. Evelyn, however, feels
uncomfortable. She is not sure what the value of the food items should be, and she does not want
to look foolish in front of her coworkers. She decides to order the simplest entrée which she is
most familiar. Cassandra is not worried about the promotion, she de- cides that she wants to
follow her friends’ recommendations and order things they suggested to her. All three greatly
enjoyed their food, the service, and the atmosphere. As promised, a bill never came. Instead,
Edwin placed an empty check presenter on the table and reminded them that they were free to
pay what they wanted.

Little Bay Restaurant

Although this scenario seems outlandish, this is exactly what the owner of the Little Bay
restaurant in the Farringdon District of London did during the recession in 2009. Peter Ilic, a
Yugoslavian immigrant, decided to follow a month long pricing strategy that allowed the cus-
tomers to decide the value of his product. In an interview with Voice of America (VOA) News in
February 2009, Ilic cited many reasons for his promotion choice. He believed that people should
have the op- portunity to eat even if they lost their jobs, something that happened increasingly
during the recession. He also explained that during the economic downturn, customers were
seeking value (Drew, 2009).

Ilic’s strategy was a success. He claimed that customers on aver- age paid more than what he
would have charged, paying around 17.25 pounds per person ($26.25 USD), 30% greater than
the average of his own priced checks (Hodge, 2009). The volume of customers also remained
high. Ilic served just under 10,000 customers in the month of February (Hodge, 2009), and often
had to turn people away due to the filled capacity (Drew, 2009). The promotion was not only
successful in the local community, but also received expansive media attention (Britton, 2009).
Twenty-one British news outlets, eleven international news outlets and thirteen blog media sites
covered Ilic’s price promotion in 2009 (Little Bay Farringdon, 2009), which is esti- mated at
148,000 pounds of free publicity (Kent, 2009).

Innovative Operational Strategy

Coworkers at a Business Trip

Three weeks later, Evelyn and Matt were scheduled to go on a business trip to San Francisco to
attend an important meeting to ob- tain funding for their company project. They had a very
rigorous travel schedule with an early morning departure from London arriving in San Francisco
at 1:05 PM and had to make their way to the office for a 5:30 PM meeting, leaving very little
time for relaxation. They were very hun- gry when they arrived in San Francisco, but after
clearing customs and immigration they realized they had limited time before the meeting would
start to both eat and drive into town.

Evelyn was hoping to find a quick, light, and healthy meal; her stomach was too sensitive to take
in heavy and greasy food especially after a long day of travel. The hungry colleagues went to the
closest airport food court. Within a few minutes of arriving at the packed food court, Matt and
Evelyn stood blankly staring at the extremely long queue and the dining place packed with noisy
travelers. Thirty min- utes later, Evelyn and Matt were still hungry. They had grabbed their bags
and were hailing a cab. Matt grabbed his phone to search for any dining opportunities on the way
to their meeting. Surprisingly, one perfect match popped up on his smartphone, a quick-service
restau- rant serving healthy fast food called “Eatsa.”

Matt and Evelyn directed the cab driver to the financial district where the Eatsa was located. By
the time they arrived at the res- taurant, it was already 4:10 PM, and they decided they only had
30 minutes to eat and head on their way. When they entered the restau- rant, there were amazed
by two exceptional things: there were neither counters to order from nor any employees to serve
or take their order. Instead, on one of walls there were small boxes similar to a post office, and a
small queue of people standing to the opposite side, which Ev- elyn and Matt joined. Feeling
unfamiliar with the setting, they glanced at the menu on a flat-screen monitor which included
options for eight quinoa bowls, including the burrito bowl, the bento bowl, and the balsamic
beet, for $6.95 each. The line moved more quickly than they expected and it was Matt’s turn to
order. He approached the virtual iPad screen, tapped in his order for a burrito bowl, and paid. His
name appeared on a big screen as the food was ordered, an extra touch that immediately helped
Matt feel comfortable. Next it was Evelyn’s turn, and she ordered the stuffing bowl.

When Matt’s burrito bowl was ready, a number appeared beside his name on the screen which
corresponded with one of the small boxes Evelyn and Matt had noticed when they first walked
in. “This
is called a cubby,” a nearby customer told them. “I can see that this is your first time
here, you are going to love it. Go to the cubby that is black and alarming and tap it with your
finger.” Amused, Matt went to his transparent LCD cubby and did as the woman instructed. His
cubby opened, and his burrito bowl was waiting for him. He took the bowl outside, sat at one of
the benches in front of the restaurant and en- joyed his meal. Evelyn was also satisfied with her
very filling and quick meal. It took them less than 10 minutes to order and receive their food,
which allowed them to arrive at the meeting venue feeling warm and comfortable and prepared
to make their important presentation.

Eatsa

The restaurant industry is constantly challenged with increased levels of competition. Eatsa is
one of the restaurants that decided
to accept change and innovative strategies for operational
efficiency and cost effectiveness. It is a fully automated restaurant located in San Francisco at
121 Spear St, which was newly introduced in 2015. The restaurant’s founder, David Friedberg,
insists that this adoption of technology is more than a food delivery system. It is a different con-
cept from the normal restaurant model (Miller, 2015).

One of his major motivations to start this new concept was be- cause of workers’ increasing
salaries in San Francisco. On November
4, 2014, Proposition J was passed by San Francisco
voters raising
the city’s minimum wage to $15 by 2018 (Office of Labor Standards
Enforcement, 2015). In the restaurant industry, employee salaries ac- count for approximately
30% of the total cost of conducting business (Dopson & Hayes, 2011). Minimizing labor costs
results in much higher profit margins. Eatsa has fully integrated this concept into its innova- tive
service model. There are no servers taking orders. The service model depends on technology via
the virtual kiosk and a section of “cubbies” for food delivery. This system decreases the number
of front of the house employees. Eatsa currently employs a front of the house concierge to assist
with guest questions and a full back of the house staff to prepare the food. As restaurants are
sensitive to labor costs, the development of technology will be one of the solutions to ensure the
chance of survival in the future (Doran, 2010).

In addition, although the front of house procedure is fully au- tomated, the restaurant aims for
customers’ health. The eight menu items are high in protein, loaded with flavor and prepared
with environmental values in mind, providing customers with a good com- bination of
convenience and health-conscious food (Miller, 2015). The Eatsa business team also declared
that they are targeting the busy workers in the financial district who currently do not pay much
atten- tion to healthy eating (Farr, 2015). Eatsa is planning to open two more locations including
Los Angeles in the upcoming months.

Service Innovation

The modern hospitality industry climate imposes certain strategic operational imperatives. These
include creative and quality services
for competitive advantage and innovation to effectively
manage re- source constraints. Service innovation is a powerful tool for service operations
ranging from multi-national corporations to small, private restaurants. The implementation of
emerging technology garnered attention worldwide and created a demand from customers to
have more efficient, productive, and cost effective restaurant delivery systems (Gallouj &
Weinstein, 1997). The major motivation for Eatsa to adapt new technology was cost reduction.
The service industry is different than other goods based industries due to the intangibility of the
service product in addition to the simultaneous production and consumption of service.
Typically, service innovation focuses on the delivery process since it is paramount in creating
value for customers. Selecting the right innovative strategy depends on the goals of the
organization and the characteristics of the service operation. Radical, combinative, incremen- tal,
and improvement innovations could be considered, based on the concept of the service product
(Fitzsimmons & Fitzsimmons, 2006).

Eatsa clearly shows that technological adaptation had brought a critical change to traditional
service delivery systems. Using iPads for the Point-of-Sale (POS) system, automatic mail boxes
for delivering food, and screen menus for informing customers of the menu options prove that
hospitality operations have the capacity for innovation which shows the strength of the demands
from customers for im- provement within service operations.

Value Creation
While most innovative strategies focus on product innovation, pricing is an area that has received
far less attention. Pricing can be equally powerful (Hinterhuber & Liozu, 2014). Through Little
Bay’s participative pricing strategy, the company was able to reach price- sensitive customers
who might not have otherwise purchased the product during difficult economic times, but who
may become loyal customers when their personal spending increases after economic
improvement. Past research on pay what you want models (PWYW) focuses on consumers’
feelings of altruism, fairness towards the orga- nization, self-signaling, social welfare and
preferences, and reciprocity (Mak, Zwick, Rao, & Pattaratanakun, 2015). Mak et al. (2015)
addition- ally attribute payment behaviors to social norms. By creating a culture of normative
behavior and reciprocity between organization and customer, restaurants like Little Bay can
successfully run innovative pricing promotions like this one.

Ultimately, any strategy, innovative or standard, must provide value to both the organization and
the consumer. Value is the tradeoff between the quality and utilization of the product and the
costs associ- ated with its acquisition (Oh, 2000). During an economic downturn, the risks
associated with spending money can be much higher than dur- ing economically good times. By
decreasing the risks associated with the cost of dining out, coupled with the emotional appeal of
building relationships through offering this promotion, the Little Bay Restaurant successfully
built value for both the customers and the organization.

On the other side of organizations, Eatsa decided to adopt technological innovation to maximize
operational productivity and efficiency, setting all of its menu prices to $6.95. Although slightly
different from the pricing perspective, they share the same goal of providing value to customers.
Innovation is expected to save costs and increase productivity. This will directly affect customers
by allowing them to spend their money and time on other important issues (Miller, 2015).
Innovation cannot be viewed in isolation from technology, radical or incremental, especially
during economic downturn (Gallouj & Weinstein, 1997). Comforting elastic customers with
reasonable prices for their meals is essential, and the adoption of technology is regarded as one
of the best solutions for adding value for both the consumer and the organization. As a result,
delving into the ‘black box’ of technology and innovation could greatly benefit both foodser-
vice operations and customers in the long-term.

Conclusion
Porter’s well known strategies for competitive advantage include both differentiation and low-
cost leadership, represented in this case study by Little Bay’s innovative differentiation strategy
through price and Eatsa’s innovative low-cost leadership strategy through techno- logical
advancements in service operations. These two organizations use innovation to create
competitive positions within the highly satu- rated food and beverage market, not only through
ingenuity but by creating value for both the organization and the customer.

Discussion Questions
Little Bay Restaurant

1. Why did the reactions of the three diners differ when they found out about the
promotion?
a. How could you manage the different reactions?

2. What are the advantages and disadvantages to an innovative pricing strategy such as the
pay what you want (PWYW) model?
3. This pricing strategy was a month long promotion. Would it be a successful long-term
strategy?

How would this price promotion affect the employees, especially the wait staff?
a. Tipping
policies in London are different than other places globally. In London, it is customary to tip 10-
15% for full service restaurants only (London & Partners). Would the employees feel differently
about the policy based on local customary tipping norms?

5. What are some other ways of creating innovative pricing strategies?

Eatsa

6. Will this kind of service operation work in other locations? Does it require a degree of
technology comfort which might not ex- ist everywhere? 


7. Will this kind of service operation work with other models and market segments? 
a. Could it
be adapted for fast food, casual dining, fine dining, etc.? b. What kinds of food service
options could best adapt to this 
model?
c. Where would this technology be
appropriate?
d. When would this innovation not work? Why not? 

8. What are the advantages and disadvantages of eliminating the human component of the service
environment and replacing them with technological alternatives? 


9. What other cost-effective technological advancements could you apply to restaurants in order
to increase efficiency? 


Questions for both Little Bay and Eatsa

Compare and Contrast your answers

10. What impact would a no price promotion or technological front of house have on brand
reputation? 


11. How would these innovations make different consumers feel about the experience both
internally and socially?
a. How would these strategies impact loyalty? 


12. Would the price promotion or service innovation work on a larger scale for a bigger
brand across the organization? 


13. Would these innovations be successful in every market? Why or why not? 


14. How do these innovations create value? 


15. Imagine you are opening a restaurant. What kinds of strategies 
could you generate and
adopt for a competitive advantage in the future? 


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