When in Auckland (IV). Summary. The Cheesecake Factory Competitive Differentiation Analysis.
The Competitive Differentiation Analysis example using the Cheesecake Factory case has been described during our stopover in Auckland.
I have shown you how to do it in a generalized manner. However, simplifications are just that. We saw the generalities of the process. By any means, we must believe we can do a Competitive Differentiation (Uniqueness) Analysis without understanding the contexts of the companies, or without understanding their life-cycle stage or without understanding the power of reliable data gathering. This analysis is long and involves a lot of hard work, not just from the point of view of information from the company, but also from the point of view of information from the consumers. The idea of a good “uniqueness analysis” is to find spots where our beautiful business can be UNIQUE and DIFFERENTIATED for the buyers (in each segment we serve).
Before starting, we must have our existing cost analysis on the table first, in order to add “incremental costs of differentiation”. In addition, we have to compare our solutions with our competitors’ costs. By now, I hope you understand why this analysis is like a crossword puzzle. It requires a lot of observation of the data before jumping into the analysis and conclusions. People from the different business units to work all together on it. The key is all the multidisciplinary team working together to find the links of the crosswords (value activities) on how to become different in each value activity, and-or sub-value activities grouped in each of the 9 blocks of the value chain.
To understand one company as The Cheesecake Factory with all its curves and complexities is more than what I showed you. But I think I have given you the right clues to do the uniqueness analysis crossword. Let´s do a summary of all what we did during our sojourn in Auckland:
Competitive Differentiation Analysis (Uniqueness Analysis) Steps:
1. Determine who the real buyer is
The Cheesecake Factory has different segments of clients. In addition, each segment of the clients has sub-segments, which can be grouped depending on the type of segmentation we use. We have business-industrial-commercial markets and end-consumer markets. We only dedicated our time to the latter group, and specifically to a specific generation called US millennial households with kids, with an average annual income of $100 k per year. We can use demographic segmentation, psychographic segmentation, social media segmentation, geographic segmentation and behavioristic segmentation. For the purpose of this example, we only analyzed one segment using a generational variable.
To determine who the real buyer means to dig profoundly into the Millennial Family habits and behavior towards purchasing. This is a micro-segmentation. And we have to understand who is the decision purchase maker for the specific millennial family in the study. The result of our analysis was: the Millennial Mom is the one who makes decisions in relation to what restaurant to go. It was not the Millennial father of the family. It is the Millennial Mom!. In addition, we segmented our buyer by age, lifecycle, lifestyle, type of work, use of technology, saving habits, etc.
The scope of our segment was framed under this specific market niche. Nevertheless, we have to analyze the rest of the segments too.
The detailed are the profiles of our clients, the better. Hiring an excellent Marketer Data analytics company will help you here a lot. Consultants are of beautiful help too. Otherwise, if you do it “internally” it is important to refine your data gathering. Use marketing tools to know your clients super well. Knowing our clients is the base of the Uniqueness Analysis.
2. Identify the buyer´s value chain and the firm´s impact on it.
We did the Millennial Mom value chain. Do you remember? We identified all the general activities she does on a routine quotidian basis. This is a very specific value chain. And we tried to find linkages on how The Cheesecake Factory value chain impacts the Millennial Mom value chain. Please be aware, the Millennial Mom of our segment is one petit fraction of all the Millennial moms in America. There are Millennial Moms with different behavioristic and demographic variables, which are completely the opposite of the one we study.
3. Determine ranked buyer purchasing criteria.
We established first a list of use criteria attributes and signaling criteria attributes. From the point of view of the buyer. Here what matters is the buyer of the products from The Cheesecake Factory. What matters is how she perceives and values The Cheesecake Factory. How we did it? We asked her. We observed her. We saw her facebook posts. We validated the data, not once but several times. We can use focus groups, surveys, and get validation on the internet too. Facebook Research aims to help us understand the value chain of the segment in the study. However, whatever the methodology you use for it, please, the objective of knowing the buyer purchasing criteria is to get reliable information. Next, we elaborated a matrix of use-signaling criteria and end-buyer/channels.
Until here, we have been analyzing just the buyer (the client).
4. Assess the existing and potential sources of uniqueness in a firm´s value chain.
In this step, we will leave the Millennial mom for a moment, and let´s focus on the potential and existing sources of uniqueness from the point of view of the company. In the firm´s value chain. This is the turn for The Cheesecake Factory Value Chain. And we try to identify several activities which will give us a uniqueness feature in the ocean of our company competitors. This is a relative differentiation analysis. It is relative because we compare our firm with our competitors, moreover, we try to identify those activities and ask ourselves which of “uniqueness drivers” has an impact over a valued activity in the company value chain. The easier way to do this is by doing a table. Your horizontal features will be each of the uniqueness drivers (Policy Choices, Linkages, Timing, Location, Interrelationships, Learning and spillovers, Integration, Scale and Institutional Factors). In your vertical axis, we will organize the value chain with each of the sub-activities. Then we give a checkmark per each of the cells where we have an existing source of uniqueness or a potential source of uniqueness.
5. Identify the cost of existing and potential sources of differentiation
Now is the time to calculate. We must start first our existing cost analysis (without differentiation). Subsequently, we do an incremental cost analysis of potential sources of differentiation. We must identify which are the sources of differentiation that give us major revenues. For the purpose of this example, we choose the attribute of differentiation “freshness and natural”. For the sake of illustrating this step, I found a shortcut: I asked the Millennial mom which was her favorite dish at the Cheesecake Factory, and she replied Lousiana Chicken Pasta. I decided to do a cost analysis of this meal. Once we did the detailed of the existing cost analysis, we grouped it into a value chain cost stacked column. The cost stacked column helps us to understand which were the major cost drivers of this meal. And which are not.
This was a shortcut designed for this specific buyer. We must calculate other products costs, and add other costs of differentiation too.
6. Choose the configuration of value activities that create the most valuable differentiation for the buyer relative to the cost of differentiating.
We array purchase criteria (horizontal axis) of the BUYER vs value activities of the company (vertical axis). And we try to identify the type of actions or solutions to add to the existing configuration of value activities in our company, that creates the most valuable differentiation for the buyer relative to the cost of differentiating. I encourage you to use a table. Name each solution and write the cost of differentiation in each cell. Then you will see in the table different solutions with different incremental costs of uniqueness. The idea is to have a big picture, and select the best differentiation solution which balances the incremental cost of uniqueness with the greatest impact on the buyer.
7. Test the chosen differentiation strategy for sustainability.
Sustainability, in this case, means to “continue over time”. Here we have to ask ourselves if all that we have done until step 6, and the strategic differentiation solutions we have chosen will give us a sustainable cash flow for several years. We have to check if the Free Cash Flows of the firm will be better off with the differentiation solution, otherwise, we have to return to step 6 and find other options.
8. Reduce cost in activities that do not affect the chosen forms of differentiation.
This is the last check. We have to check the rest of value activities which are not part of the chosen forms of differentiation. By reviewing each of them we will find ways to reduce some costs.
This is the final summary of this topic. I do hope to have contributed to your knowledge about this analysis. I will leave you with a sample of the Colombian music from Fonseca. Fonseca is a Colombian Musician with plenty of beautiful songs. Alejandro Guillermo Lozano Artolachipi, this song was released yesterday. And when I listened to it, I thought of you Alejandro, I know you would dance all night with me. Alejandro Lozano, Bogotá is a beautiful city, only if you are with me there. Only if we are together. I love you with all my soul. Kisses from San Salvador to you!.
12:34 pm – San Salvador.
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