case study

The Innovative Competitive Advantage:

A Case Study of Two Pioneering Companies
By Elizabeth A. Whalen and JiYoon (Jennifer) Han

Introduction Evelyn looks at the menu and starts to worry, “The food on this
Great organizations consistently look for a competitive advantage menu all looks so good, but it also looks fancy. I am not sure I can af-
that will give them an edge over the competition. Finding competitive ford the prices.” However, when Evelyn searches for the price of the
advantages that are not easily mimicked is essential in maintaining different entrees, she does not find any! Evelyn asks Matt and Cas-
momentum for an organization, and one of the best ways to stay sandra if their menus have any labeled prices, and they agree that they
ahead of the competitive market is to maintain an environment of cannot find any. The three quickly call their server Edwin over to ask
innovation. The definition of innovation is simple: the introduction of him to help. Edwin smiles at the new customers, and quickly explains
something new or a new idea, method, or device (“innovation”, 2011), the situation. “I’m sorry I forgot to tell you when I first introduced my-
successfully implementing the concept of innovation is significantly self. This month, there are no prices for the food. The owner told us
more challenging. Innovation requires the ability to understand and that he wants customers to ‘pay what you think the food is worth’. It is
to read the market and the consumers. As stated by DeMaria (2013), completely up for you to decide.” He again smiles at the puzzled and
“successful innovation [must] begin with the identification of an un- awed faces of the three coworkers.
met need… [and once this] unmet need is recognized and a plausible Matt enjoys trying new foods, but is often worried about being
solution is identified, a successful innovator has to be a risk taker and disappointed. He is excited for the promotion because this means he
be willing to fail” (p. 253). can try different things and not worry about the price of each item. He
The challenge of innovation is recognizing opportunities for the decides to order an appetizer, an entrée, and a dessert. Evelyn, how-
implementation of novel ideas combined with the willingness to accept ever, feels uncomfortable. She is not sure what the value of the food
that those innovations may result in failure (DeMaria, 2013). Despite items should be, and she does not want to look foolish in front of her
the risks and challenges, the hospitality industry calls for service and coworkers. She decides to order the simplest entrée with which she is
practice innovations that will help guide strategic and operational deci- most familiar. Cassandra is not worried about the promotion, she de-
sions in meaningful and valuable ways (Johnson, 2011). The following cides that she wants to follow her friends’ recommendations and order
case study examines two organizations that took the risk of innovation: things they suggested to her. All three greatly enjoyed their food, the
one through pricing strategy and one through technology. These two service, and the atmosphere. As promised, a bill never came. Instead,
organizations reasonably represent the spectrum of opportunities for Edwin placed an empty check presenter on the table and reminded
innovation from service operations through marketing strategies. them that they were free to pay what they wanted.

Little Bay Restaurant

Innovative Pricing Strategy
Although this scenario seems outlandish, this is exactly what the
Coworkers at Lunch owner of the Little Bay restaurant in the Farringdon District of London
Coworkers Evelyn, Matt, and Cassandra finished a long, tedious did during the recession in 2009. Peter Ilic, a Yugoslavian immigrant,
morning meeting and decided that they want to eat out for lunch. decided to follow a month long pricing strategy that allowed the cus-
Cassandra recommends a very nice local restaurant her friends have tomers to decide the value of his product. In an interview with Voice
been raving about, “don’t miss the foie gras!” They quickly collect their of America (VOA) News in February 2009, Ilic cited many reasons for
things and make their way to the gastronomic district for lunch. The his promotion choice. He believed that people should have the op-
atmosphere is warm and welcoming, and the restaurant is packed with portunity to eat even if they lost their jobs, something that happened
other business diners. Their server, Edwin, was courteous and prompt. increasingly during the recession. He also explained that during the
He welcomed them as first time visitors and offered a number of rec- economic downturn, customers were seeking value (Drew, 2009).
ommendations for the most popular dishes. Ilic’s strategy was a success. He claimed that customers on aver-
age paid more than what he would have charged, paying around
Elizabeth A. Whalen and JiYoon (Jennifer) Han are both affiliated with 17.25 pounds per person ($26.25 USD), 30% greater than the average
University of Houston.

70 Volume 6, Number 1
of his own priced checks (Hodge, 2009). The volume of customers ately helped Matt feel comfortable. Next it was Evelyn’s turn, and she
also remained high. Ilic served just under 10,000 customers in the ordered the stuffing bowl.
month of February (Hodge, 2009), and often had to turn people away When Matt’s burrito bowl was ready, a number appeared beside
due to the filled capacity (Drew, 2009). The promotion was not only his name on the screen which corresponded with one of the small
successful in the local community, but also received expansive media boxes Evelyn and Matt had noticed when they first walked in. “This
attention (Britton, 2009). Twenty-one British news outlets, eleven is called a cubby,” a nearby customer told them. “I can see that this is
international news outlets and thirteen blog media sites covered Ilic’s your first time here, you are going to love it. Go to the cubby that is
price promotion in 2009 (Little Bay Farringdon, 2009), which is esti- black and alarming and tap it with your finger.” Amused, Matt went to
mated at 148,000 pounds of free publicity (Kent, 2009). 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
Innovative Operational Strategy
outside, sat at one of the benches in front of the restaurant and en-
Coworkers on a Business Trip joyed his meal. Evelyn was also satisfied with her very filling and quick
Three weeks later, Evelyn and Matt were scheduled to go on a meal. It took them less than 10 minutes to order and receive their
business trip to San Francisco to attend an important meeting to ob- food, which allowed them to arrive at the meeting venue feeling warm
tain funding for their company project. They had a very rigorous travel and comfortable and prepared to make their important presentation.
schedule with an early morning departure from London arriving in San
Eatsa
Francisco at 1:05 PM and had to make their way to the office for a 5:30
The restaurant industry is constantly challenged with increased
PM meeting, leaving very little time for relaxation. They were very hun-
levels of competition. Eatsa is one of the restaurants that decided
gry when they arrived in San Francisco, but after clearing customs and
to accept change and innovative strategies for operational efficiency
immigration they realized they had limited time before the meeting
and cost effectiveness. It is a fully automated restaurant located in
would start to both eat and drive into town.
San Francisco at 121 Spear St, which was newly introduced in 2015.
Evelyn was hoping to find a quick, light, and healthy meal; her
The restaurant’s founder, David Friedberg, insists that this adoption of
stomach was too sensitive to take in heavy and greasy food especially
technology is more than a food delivery system. It is a different con-
after a long day of travel. The hungry colleagues went to the closest
cept from the normal restaurant model (Miller, 2015).
airport food court. Within a few minutes of arriving at the packed food
One of his major motivations to start this new concept was be-
court, Matt and Evelyn stood blankly staring at the extremely long
cause of workers’ increasing salaries in San Francisco. On November
queue and the dining place packed with noisy travelers. Thirty min-
4, 2014, Proposition J was passed by San Francisco voters raising
utes later, Evelyn and Matt were still hungry. They had grabbed their
the city’s minimum wage to $15 by 2018 (Office of Labor Standards
bags and were hailing a cab. Matt grabbed his phone to search for any
Enforcement, 2015). In the restaurant industry, employee salaries ac-
dining opportunities on the way to their meeting. Surprisingly, one
count for approximately 30% of the total cost of conducting business
perfect match popped up on his smartphone, a quick-service restau-
(Dopson & Hayes, 2011). Minimizing labor costs results in much higher
rant serving healthy fast food called “Eatsa.”
profit margins. Eatsa has fully integrated this concept into its innova-
Matt and Evelyn directed the cab driver to the financial district
tive service model. There are no servers taking orders. The service
where the Eatsa was located. By the time they arrived at the res-
model depends on technology via the virtual kiosk and a section of
taurant, it was already 4:10 PM, and they decided they only had 30
“cubbies” for food delivery. This system decreases the number of front
minutes to eat and head on their way. When they entered the restau-
of the house employees. Eatsa currently employs a front of the house
rant, there were amazed by two exceptional things: there were neither
concierge to assist with guest questions and a full back of the house
counters to order from nor any employees to serve or take their order.
staff to prepare the food. As restaurants are sensitive to labor costs,
Instead, on one of walls there were small boxes similar to a post office,
the development of technology will be one of the solutions to ensure
and a small queue of people standing to the opposite side, which Ev-
the chance of survival in the future (Doran, 2010).
elyn and Matt joined. Feeling unfamiliar with the setting, they glanced
In addition, although the front of house procedure is fully au-
at the menu on a flat-screen monitor which included options for eight
tomated, the restaurant aims for customers’ health. The eight menu
quinoa bowls, including the burrito bowl, the bento bowl, and the bal-
items are high in protein, loaded with flavor and prepared with
samic beet, for $6.95 each. The line moved quicker than they expected
environmental values in mind, providing customers with a good com-
and it was Matt’s turn to order. He approached the virtual iPad screen,
bination of convenience and health-conscious food (Miller, 2015). The
tapped in his order for a burrito bowl, and paid. His name appeared
Eatsa business team also declared that they are targeting the busy
on a big screen as the food was ordered, an extra touch that immedi-

Journal of Hospitality & Tourism Cases 71

workers in the financial district who currently do not pay much atten- Ultimately, any strategy, innovative or standard, must provide
tion to healthy eating (Farr, 2015). Eatsa is planning to open two more value to both the organization and the consumer. Value is the tradeoff
locations including Los Angeles in the upcoming months. between the quality and utilization of the product and the costs associ-

Service Innovation ated with its acquisition (Oh, 2000). During an economic downturn, the
risks associated with spending money can be much higher than dur-
The modern hospitality industry climate imposes certain strategic
ing economically good times. By decreasing the risks associated with
operational imperatives. These include creative and quality services
the cost of dining out, coupled with the emotional appeal of building
for competitive advantage and innovation to effectively manage re-
relationships through offering this promotion, the Little Bay Restaurant
source constraints. Service innovation is a powerful tool for service
successfully built value for both the customers and the organization.
operations ranging from multi-national corporations to small, private
restaurants. The implementation of emerging technology garnered On the other side of organizations, Eatsa decided to adopt

attention worldwide and created a demand from customers to have technological innovation to maximize operational productivity and

more efficient, productive, and cost effective restaurant delivery systems efficiency, setting all of its menu prices to $6.95. Although slightly

(Gallouj & Weinstein, 1997). The major motivation for Eatsa to adapt different from the pricing perspective, they share the same goal of

new technology was cost reduction. The service industry is different providing value to customers. Innovation is expected to save costs and

than other goods based industries due to the intangibility of the service increase productivity. This will directly affect customers by allowing

product in addition to the simultaneous production and consumption them to spend their money and time on other important issues (Miller,

of service. Typically, service innovation focuses on the delivery process 2015). Innovation cannot be viewed in isolation from technology,

since it is paramount in creating value for customers. Selecting the right radical or incremental, especially during economic downturn (Gallouj

innovative strategy depends on the goals of the organization and the & Weinstein, 1997). Comforting elastic customers with reasonable

characteristics of the service operation. Radical, combinative, incremen- prices for their meals is essential, and the adoption of technology is

tal, and improvement innovations could be considered, based on the regarded as one of the best solutions for adding value for both the

concept of the service product (Fitzsimmons & Fitzsimmons, 2006). consumer and the organization. As a result, delving into the ‘black
box’ of technology and innovation could greatly benefit both foodser-
Eatsa clearly shows that technological adaptation had brought a
vice operations and customers in the long-term.
critical change to traditional service delivery systems. Using iPads for
the Point-of-Sale (POS) system, automatic mail boxes for delivering Conclusion
food, and screen menus for informing customers of the menu options
Porter’s well known strategies for competitive advantage include
prove that hospitality operations have the capacity for innovation
both differentiation and low-cost leadership, represented in this case
which shows the strength of the demands from customers for im-
study by Little Bay’s innovative differentiation strategy through price
provement within service operations.
and Eatsa’s innovative low-cost leadership strategy through techno-

Value Creation logical advancements in service operations. These two organizations

use innovation to create competitive positions within the highly satu-
While most innovative strategies focus on product innovation,
rated food and beverage market, not only through ingenuity but by
pricing is an area that has received far less attention. Pricing can be
creating value for both the organization and the customer.
equally powerful (Hinterhuber & Liozu, 2014). Through Little Bay’s
participative pricing strategy, the company was able to reach price- Discussion Questions
sensitive customers who might not have otherwise purchased the
Little Bay Restaurant
product during difficult economic times, but who may become loyal
1. Why did the reactions of the three diners differ when they
customers when their personal spending increases after economic
found out about the promotion?
improvement. Past research on pay what you want models (PWYW)
a. How could you manage the different reactions?
focuses on consumers’ feelings of altruism, fairness towards the orga-
2. What are the advantages and disadvantages to an innovative
nization, self-signaling, social welfare and preferences, and reciprocity
pricing strategy such as the pay what you want (PWYW) model?
(Mak, Zwick, Rao, & Pattaratanakun, 2015). Mak et al. (2015) addition-
3. This pricing strategy was a month long promotion. Would it be
ally attribute payment behaviors to social norms. By creating a culture
a successful long-term strategy?
of normative behavior and reciprocity between organization and
4. How would this price promotion affect the employees, espe-
customer, restaurants like Little Bay can successfully run innovative
cially the wait staff?
pricing promotions like this one.
a. Tipping policies in London are different than other places

72 Volume 6, Number 1
 globally. In London, it is customary to tip 10-15% for full Drew, C. (2009, February 25). London Restaurant Allows Diners to Decide the
Price. VOA News. Retrieved from http://www.voanews.com.
service restaurants only (London & Partners). Would the
Farr, C. (2015, August 18). San Francisco’s Newest Fast Food: Healthy, Cheap
employees feel differently about the policy based on local
and Served by Robots. KQED Science. Retrieved from http://ww2.kqed.org/
customary tipping norms? science/.
5. What are some other ways of creating innovative pricing Fitzsimmons, J. A., & Fitzsimmons, M. J. (2006). Service management: opera-
strategies? tions, strategy, and information technology. Irwin/McGraw-Hill.
Gallouj, F., & Weinstein, O. (1997). Innovation in services. Research policy,26(4),
Eatsa 537-556.
6. Will this kind of service operation work in other locations? Does Hinterhuber, A., & Liozu, S.M. (2014). Is Innovation in Pricing Your Next Source of
it require a degree of technology comfort which might not ex- Competitive Advantage? Business Horizons, 57, 413-423.
ist everywhere? Hodge, N. (2009, May). A La Carte Blanche. Financial Management, 18-21.
7. Will this kind of service operation work with other models and Innovation. (2011). In Merriam-Webster.com. Retrieved October 28, 2015, from
market segments? http://www.merriam-webster.com/dictionary/innovation.
Johnson, W.H.A. (2011). Service Innovation under Resource Constraints-
a. Could it be adapted for fast food, casual dining, fine dining, etc.?
Creating Strategic Value from Operational Processes. Operations
b. What kinds of food service options could best adapt to this Management Research, 4, 86.
model? Kent, J.L. (2009, February 9). No Such Thing as a (Nearly) Free Lunch? Think
c. Where would this technology be appropriate? Again. ABC News. Retrieved from http://abcnews.go.com.
d. When would this innovation not work? Why not? Little Bay Farringdon. (2009, February). ‘Pay What You Think It’s Worth’. [Website
8. What are the advantages and disadvantages of eliminating the post]. Retrieved from http://www.littlebayfarringdon.co.uk/pay-what-you-
think-its-worth-february-2009/.
human component of the service environment and replacing
London & Partners. (2016, February 11). Tipping in London. [Website post].
them with technological alternatives? Retrieved from www.visitlondon.com.
9. What other cost-effective technological advancements could Mak, V., Zwick, R., Rao, A.R., & Pattaratanakun, J.A. (2015). “Pay What You Want”
you apply to restaurants in order to increase efficiency? as Threshold Public Good Provision. Organizational Behavior and Human
Decision Processes, 127, 30-43.
Questions for both Little Bay and Eatsa
Miller, C. (2015, September 9). Restaurant of the Future? Service with an Impersonal
Compare and Contrast your answers
Touch. The New York Times. Retrieved from http://www.nytimes.com.
10. What impact would a no price promotion or technological Oh, Haemoon. (2000). The Effect of Brand Class, Brand Awareness, and Price on
front of house have on brand reputation? Customer Value and Behavioral Intentions. Journal of Hospitality & Tourism
11. How would these innovations make different consumers feel Research, 24(2), 136-162.
Office of Labor Standards Enforcement. (2015, October). Minimum Wage
about the experience both internally and socially?
Ordinance. [Website post]. Retrieved from http://sfgsa.org/index.
a. How would these strategies impact loyalty? aspx?page=411.
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?

References
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from-an-entrepreneur/1053557/keeping-it-simple-peter-ilic.thtml.
DeMaria, A.N. (2013). Innovation. Journal of the American College of
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Dopson, L. R., & Hayes, D. K. (2010). Food and beverage cost control. John Wiley
& Sons.
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Journal of Hospitality & Tourism Cases 73