Thanks for the comment! I was also very surprised to find out during my research that Wegmans operated its own farm. It is not something that is apparent to shoppers, but they should publicize it more since it separates them from competitors. I agree that Wegmans will struggle to maintain its operating model if it tries to compete head-to-head with Whole Foods in too many markets. I think they would do better focusing on a “fill-in” strategy in which they build additional stores in one geographic region before starting to slowly expand their footprint outward. There is still a lot of growth potential left for them in the Northeast!
Thanks for the comment, Simeon! Even though Wegman’s has a smaller target demographic than some competitors, I think it can continue to grow by being the secondary shopping market for many families. For example, Wegmans was the store for specific purchases in my family growing up. We would get fresh bread, meats, and homemade desserts there, even though we would shop for dry goods or cold cuts at a cheaper store like Giant. By getting more customers in the door, Wegmans can “wow” them with its customer shopping experience and slowly increase basket size (i.e., wallet share) over time.
As for growth, I think Wegmans needs to slowly expand its geographic footprint. It would not be logical to jump somewhere like California next, which is completely separated from its current distribution system. But, I agree that it may reach a point in its growth where it is no longer efficient to manage its own distribution. At that point, Wegmans should consider shifting its operating model to work with third-party distributors for particular regions and/or product types.
Great post – I agree that Uber epitomizes an aligned business and operating model. One concern I have is how Uber will be able to handle customer service as it continues to grow. To support its growth, Uber needs to constantly hire more drivers. My understanding of its operating model is that drivers can join Uber very quickly after a basic background check, but without any in-person interview component. What mechanisms does Uber have to control the actions of these drivers if they do not really screen them? For small issues, such as taking an unnecessarily long route, Uber seems to have great customer service. I have always received my money back when I’ve complained in these situations. Given Uber’s data capabilities, they can easily confirm that the route was erroneous and calculate the proper amount to refund.
But, what about when the issues are much more severe? There have been isolated incidents in the news about Uber drivers committing crimes during the course of their work. What legal risk does Uber have in these situations? Additionally, how can it protect its brand against accusations of being unsafe? I think Uber should consider how changes to their operating model could protect against these concerns, such as hiring processes, performance measurement, and culture. I think that Uber has significant brand equity today, so this problem is likely not immediate, but it could threaten them in the future as more competitors enter the market.
Great post, Sherri! I have been a fan of IKEA ever since I graduated college and realized how expensive it is to decorate an entire apartment. One thing I noticed when I moved from DC to Boston this year is that IKEA furniture is very difficult to disassemble. Even if you don’t lose the Allen wrench you get with the furniture, trying to remove the screws often strips the wood making it impossible to re-assemble. You mentioned that customer assembly is one of the key elements of the modularized operating model. Do you think it is also intentional that the furniture is difficult to disassemble? If so, it’s a very smart idea because it aligns well with their business model of providing furniture for functionality over durability. It forces people to invest in new furniture when they move, which is frequently for the young customer market that IKEA targets. I would expect that many customers do not even attempt to disassemble when they move. The hassle of disassembling coupled with the cost of moving services is probably more expensive than the original low price of the furniture, which encourages customers to simply repurchase, boosting IKEA’s sales.
Great post! I have never flown Spirit Airlines, but I understand why the pricing model would appeal to price-sensitive customers. One question I have is why Spirit chooses to have a pay-for-service model when their all-in fares are already 40% lower than competitors, as you mentioned. We discussed in Marketing that customer perceive prices as “unfair” if they are asked to pay for something that they expect to be free (e.g., reserved seat). If they can compete head-to-head with competitors on price, why does Spirit risk dealing with the customer backlash that comes from their business model?
But, on the other hand, I can see two additional benefits to their business model. First, they are likely very successful with infrequent travelers. If someone rarely flies, they do not have an expected service level that they can compare to Spirit. It is also less important to provide them a good customer service experience since they have a low likelihood of being a repeat customer and, therefore, a low customer lifetime value. Second, Spirit’s business model is well-designed to withstand fluctuations in the economy, which are notoriously difficult on airlines. When the economy is weak, people are less likely to fly, which decreases the entire market. But, they are also more likely to be price sensitive, which increases the market share for Spirit. This balance should them going forward.