Thriving in a Crowded Industry by Creating Meaningful Value and Differentiation from Competitors

Firms do well in a crowded industry when two conditions exist: (1) they create meaningful value for customers at a fair price and (2) they effectively differentiate themselves from competitors. In fact, diminishing the impact of three of Porter's five rests largely on these factors. A firm is able to withstand rivalry among existing firms and is able to deter substitutes and new entrants by creating value for its customers and offering something that people can't get anywhere else. The following are examples of three businesses that are creating unique value in their industries and have differentiated themselves from their competitors. Each industry is very competitive, yet these companies are growing and thriving.

HomeMade Pizza Company

In 1997, when Eric Fosse told his family and friends that he was leaving his job to open a pizza business in Chicago, they probably thought he was crazy. Seriously, how many pizza delivery services do you think already existed in Chicago? Yet Fosse had a new idea. His pizzas would be made to order and delivered, just like the others, but rather than delivering the pizzas hot and ready-to-eat, his pizzas would be delivered uncooked and unboxed. Customers would slide the pizza, which came on heatable parchment paper, into their ovens at 425 degrees and in 10 to 15 minutes have a fresh pizza. The advantage: the pizza would be filled with fresh ingredients and would be piping hot from the oven.

Sound simple? It wasn't. Fosse's distinctive advantage, other than delivering pizzas in a new way, is fresh ingredients and a dough recipe that was rolled out after months of taste testing. To get the freshest ingredients possible, the company works with local farmers to acquire produce. Along with pizza, HomeMade Pizza Company also makes and delivers signature salads and desserts. Its products are premium-priced. A large veggie pizza with mushrooms, crisp red onions, and a twist of poblano pepper and freshcut oregano cost upward of $18.00.

HomeMade Pizza has company-owned stores and franchise locations in four locations: Illinois, Minnesota, D.C./Virginia, and New York/New Jersey. It's reported to be profitable and growing.

Hot Mama

Who could think of a tougher and more competitive industry than women's and children's clothing? And retail to boot. The competitiveness of the industry didn't deter Hot Mama founder/CEO Megan Temte. In November 2004, Temte and her husband Mike opened the first Hot Mama clothing boutique in Edina, Minnesota, a suburb of Minneapolis. Since then, the company has expanded. Hot Mama opened six new stores in 2010, bringing the planned to establish at least 14 additional stores in 2011 and 2012.

What's different about Hot Mama is the layout of the store and the product selection. It's a store that's designed specifically for mothers to shop with small children in tow. Each location entertains kids with movies, toys, video games, and coloring books, all centrally located so mothers can keep an eye on their kids. Every aisle is wide enough to accommodate a two-seat stroller, and the floors are made so strollers don't get stuck. Sales employees double as babysitters, and often hold infants as their mothers try on clothes. The goal is to give moms a small amount of "shopping peace" in the midst of a hectic day. Most shoppers stay in the store more than an hour. Sales employees are specially trained to help mothers find clothes that fit, whether they are pregnant, have just had a baby, or have older children. In regard to selection, the stores feature products from more than 200 brands.

Hot Mama's revenue is expected to top $20 million in 2011, and the company plans to have 50 locations by 2014.

J.Hilburn

Another tough industry is men's shirts. Founded in 2007, J. Hilburn reportedly sold 60,000 shirts in 2010 through a very unique approach. It sends salespeople to customers' homes and offices to take measurements and suggest fabrics and styles.

J. Hilburn was started by Veeral Rathod and Hill Davis, two men who saw shopping as a chore. The company employs a direct sales model, similar to Avon or Pampered Chef. The company has 650 part-time "style advisers" who earn commissions of up to 25 percent on the clothing they sell. Most style advisers are women of school-aged children looking for extra income. Once a shirt is ordered, it's sent to a factory near Macau, China, where it's made from Italian fabric and is ready in two to three weeks. Shirts cost between $79 and $149. While that may sound like a lot, it's less than half the price of comparable shirts in high-end stores.

According to J. Hilburn, some 30,000 people have bought clothing or accessories from the company, and 93 percent of its customers reorder. Since the company was founded, its sales have tripled each year and topped $9 million in 2010.

Question: Of the three companies featured, which one do you think has the most potential to remain competitive? Which company do you think is the most vulnerable to increased competition from competitors? Explain your answers.