J. Crew vs. Domino's: Competition in the Digital Age

 

Technology has shifted the balance of power from brands to the individual consumer. No longer is a consumer confined to selections on display in store windows, hours of store operations, or waiting for semi-annual sale prices. Today, a consumer can view hundreds, if not thousands, of goods, compare prices, and place multiple orders from their smartphone, all in the time it takes to brew their morning cup of coffee.

The rules of competition have changed, and experience is now the best place to differentiate your brand in the marketplace. Heed the lessons from two large US brands, J. Crew and Dominos, who are heading in opposite directions, primarily because one failed to understand how technology and experience are the new measures of competition in the marketplace.

J. Crew, one of the top 200 largest private companies in the US, is currently at risk of falling into bankruptcy. Sales have slumped for 2 years, and this past week famed CEO Mickey Drexler agreed to step down as CEO of J. Crew. Mr. Drexler is considered a giant in the retail industry, having built brands such as Old Navy and Banana Republic, earning him the nickname the, “Merchant Prince”.

However, even a prince can turn into a pauper if he fails to recognize and relate to the changing needs of his people. Mr. Drexler underestimated the impact of technology within the retail world. Previously, Mr. Drexler argued that when people come into a store and feel the fabric, they will notice the difference in quality, and will recognize the value of the brand. And that belief may hold, provided consumers are still going into the stores. But today, that is simply no longer how people shop. Preferring convenience and options, consumers have turned to online shopping where they can find quality at discount prices, without actually touching the fabric until after the purchase. 

Since J. Crew was relying on in-store shoppers, and not online appeal, they have lost their competitive advantage to brands that have invested more in the digital experience. In Mr. Drexler’s own words,

“You cannot be successful without being obsessed with the product, obsessed with social media, and obsessed with digital. Retail is now all about that.”

Because J. Crew failed to recognize the shift to digital experience, they are now behind the curve, and the result is lost market share and a famed CEO stepping down.

Now consider Domino’s Pizza - a pizza chain that in the early 2000s was known for cheap ingredients and bland tasting pizza. With a stock price at $8.76 in 2010, Domino’s turned to new CEO, Patrick Doyle, to turn things around. Mr. Doyle made two notable accomplishments of equal importance:

1. Improved the taste and quality of the pizza.
2. Leveraged technology to make the customer experience the best in the industry.

Mr. Doyle knew the pizza had to improve, but he also knew that taste alone was never going to turn the tide of the company's success. The real change happened when Domino’s stopped thinking of themselves as just a pizza delivery company, but as a technology company that happens to deliver pizza.

Today, a hungry consumer can order a pizza from Domino’s on more than 15 digital platforms, including texting a pizza emoji, sending a tweet, or even telling Amazon’s Echo to place an order. The average order now takes less than 30 seconds, and users can watch the progress of their pizza through Domino’s, “Pizza Tracker”. 

Domino’s focused on experience and leveraged technology to provide their users with the best in the industry, resulting in 60% of orders now being placed through a digital platform, as opposed to over the phone. The transformation from pizza company to technology company that delivers pizza resulted in a better user experience. The investment in the experience has paid dividends, as Domino’s stock is currently over $200 per share - a dramatic turnaround from just 7 years ago.

J. Crew has stated that in an effort to reconnect with their core customers, they plan to cut prices. They continue to compete on an outdated level of competition, and this effort is most likely going to further degrade their brand. They need to focus on how their customers are shopping and how they can improve that experience. By offering a better experience, they will see faster returns on their investment.

Domino’s, who built their brand on speed - “30 min or less” - and low cost, admitted they had to improve the quality. More importantly, Domino’s recognized the importance of delivering a world-class experience, and leveraged technology to better resonate with their customer base. This emphasis on experience through various digital platforms is why Domino’s has captured market share and is now the second largest pizza chain in the world.

The lesson is clear: in today’s marketplace, a company needs to be strong on all the levels of competition. However, if you focus on only one, a company would be best served by providing the best experience. The better your experience, the more you will foster loyal customers and take them up the loyalty ladder.

Technology is reducing the importance of speed, price, and quality. Shoppers now expect to find all three dimensions when making purchases online. Experience is the one differentiator on which you should build your brand. Failing to capitalize on the digital experience can cost even a prince his kingdom.




References:

Sean Flaherty (2015, October 14). The 4th Dimension of Competition. https://www.itx.com/ITX-Blog/Article/239/The-4th-Dimension-of-Competition

Khadeeja Safdar (2016, August 31). J. Crew Sales Fall as Slump Continues. https://www.wsj.com/articles/j-crew-sales-fall-as-slump-continues-1472681978

Christina Cheddar Berk (2017, June 5). Famed Retailer Mickey Drexler Leaving CEO Job at J. Crew. http://www.cnbc.com/2017/06/05/famed-retailer-mickey-drexler-leaving-ceo-job-at-j-crew.html

Khadeeja Safdar (2017, May 24). J. Crew’s Mickey Drexler Confesses: I Underestimated How Tech Would Upend Retail. https://www.wsj.com/articles/j-crews-big-miss-how-technology-transformed-retail-1495636817

Bill Taylor (2016, November 28). How Domino’s Pizza Reinvented Itself. https://hbr.org/2016/11/how-dominos-pizza-reinvented-itself

Vaughn McNiff (2017, April 18). Domino’s Pizza: The Greatest of All Time? https://seekingalpha.com/article/4063000-dominos-pizza-greatest-time

James F. Peltz (2017, May 15). Domino’s Pizza Stock is Up 5,000% since 2008. Here’s Why. http://www.latimes.com/business/la-fi-agenda-dominos-20170515-story.html

Fred Beer (2017, February 13). Anatomy of an Experience. https://www.itx.com/ITX-Blog/Article/425/Anatomy-of-an-Experience

Sean Flaherty (2016, February 11). Customer Loyalty is Not a Transaction. https://www.itx.com/ITX-Blog/Article/377/Customer-Loyalty-is-Not-a-Transaction