Disruptive innovation: 4 times brands disrupted their own business models

Disruption is a big buzzword, especially in the world of tech. But what does it truly mean to be disruptive, and what’s the key to doing it well? We found that some of the best insights come from brands who disrupt their own business models.

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What is disruptive innovation?

The term ‘disruptive innovation’ is attributed to Harvard professor of business Clayton Christiansen, who helped develop the concept in the 1990s. It’s based on the idea that established companies tend to focus their development on the top end of their markets, leaving a gap for newcomers to rethink the basic principles those companies were founded on, quickly progress and eventually overtake the originators. The result is a new way of doing things that makes previously high-end experiences accessible to the mass market.

Since this idea was first formulated, industry disruption has become a broader theme. The term is now applied to any business that shakes up the status quo of a sector and finds new ways to compete for customer dollars.

Does disruption always come from start-ups?

Typically, disruptive innovation is carried out by small or lesser-known companies, start-ups with low overheads, zero brand capital and a high appetite for risk. These businesses have the agility and flexibility to re-invent their ideas and those of their competitors almost endlessly – they effectively have a blank canvas to work on.

But despite the advantage for start-ups, there are big brands who have prevailed in a disruptive climate. For some large businesses, the way to tap into the disruptive movement is to buy or fund startups and develop their own alternatives to the disruptor-challengers. For example, in answer to the growth in retail banking startups such as Starling and Atom, BNP Paribas set up the app-based ‘Hello Bank’ to appeal to the same audience.

For other big players, disruption comes from a long hard look in the mirror and a re-think of their original principles.

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When brands disrupt their own models

Self-disruption may not sound like a positive thing, but it’s actually another way of saying that a brand has pulled off an exceptional feat – they’ve been able to pivot away from a business model that was heading for failure, and reinvented themselves in a related or not-so-related area of the market. Rather than focusing on the top end of the market and going ever-forward, they have taken up their own foundations and built something brand new with the pieces.

The key to a successful transformation of this kind is always a mix of insight and daring. Businesses who understand the experience gaps in their current model ­­­­– whether it’s that customers have moved online, technology has evolved, or simply that their pizza tastes terrible ­– must also take a leap of faith and make a commitment to the unknown.

Here are four companies who have done just that.

1. Netflix – from discs by post to kings of streaming

Netflix was once a media rental service that mailed out DVDs to its members. Taking a step onwards from traditional video store models like Blockbuster Video, it eliminated the need for customers to leave the house and select from physical media on shelves. Instead, they could select from an online library and have the DVDs arrive through the letterbox a few days later. In 1998, when Netflix was founded, this idea was disruptive in itself.

A decade later, digital infrastructure had reached a point where good-quality streaming video was accessible to most of the US. Netflix began offering films and TV series direct to the devices of its American customers, and soon to viewers further afield too.

Not content with offering third-party media, Netflix quickly began to establish itself as a producer of high-quality content. In 2013, the first Netflix-owned series – the hugely popular House of Cards – was released.

The ability to see not just one, but two steps ahead has marked Netflix out from the competition and assured its success. From the already-disruptive discs-by-post model to online streaming, and then from online streaming to media channel with original content, the company has used ambition and forward-thinking to help differentiate it from its competitors.

Where does this kind of vision come from? From listening and taking note of what is happening in the market, and above all, from understanding what customers want and what will prompt them to choose you over your competitors. Netflix has thought deeply about what its audience wants – convenience, choice, quality – and taken technology to its limits in order to deliver.

2. Lego – from kids’ toy to cultural tool

Lego has been making construction toys for children for decades, but at the turn of the millennium, it found its fortunes changing. After years of steady success the brand began making a loss. In an effort to turn things around, it diversified more broadly within the toy market, creating Lego-themed jewelry, clothing and even a video game studio that would create block-themed games. But by the mid 2000s, things were looking dire. The company CEO made bleak statements like ‘we’re on a burning platform… and probably won’t survive.’

Fortunately, the future was brighter than expected. Perhaps the turning point for the brand was the release of the Lego Movie in 2014. It was witty, wry, modern and far from being a brand tie-in, stood in its own right as a film worth watching. The film brought the brand out from behind the bricks and built out an aspirational legacy that appealed to both kids and adults. Far from being an outmoded children’s toy, Lego became synonymous with creativity and originality.

There was plenty happening behind the scenes, too. The reinvented Lego has been dubbed ‘the Apple of toys – and like Apple, its strength now lies in its simplicity and commitment to quality. Stepping back from its early efforts at regeneration, where it borrowed approaches from other toy brands and diversified into as many niches as possible, Lego found success when it went back to basics. It cut down the types and colors of bricks it offered and reduced or retired its various third-party tie-ins. It encouraged communication and collaboration with fans, extending a presence to social media and applauding the creativity expressed through the Lego product.

Rather than taking the product into new territory, Lego rediscovered its origins and the strength of its brand, and used film and online media to strengthen and amplify its value. Lego is no longer simply a product, but an experience. One that both the brand and its audience recognize and value.

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3. Dominos – from pizza company to tech platform

In the early 2000s, Dominos was the underdog of the fast-service pizza world. And not an underdog in the scrappy, up-and-coming sense. It had a reputation for poor quality and unremarkable service, and it was rapidly losing money.

The brand’s recovery was a result of two major changes. Firstly, it overhauled its menu and ingredients to improve product quality. Secondly, and less predictably, it embarked on a major program of digital transformation.

In 2006, the company made a decision to put their money behind ecommerce, and to use it as a market differentiator. They saw potential for the digital channel to outperform telephone or in-store ordering, mostly due to the way it interacted with customer needs and motivations. Detailed visual representations of pizza provided the nudge to get people ordering. A ‘Pizza Tracker’ tool gave online customers unprecedented visibility of their meal’s journey from oven to bike to plate. More recently, Dominos introduced an AR ‘Pizza Chef’ application where customers can virtually build their own pizza on a surface in their own home.

It’s not just about the gimmicks, though. The company is resolutely customer-centric, and has said it’s committed to adding value with every innovation: “a new solution must enhance the customer experience in a useful way”, in their words.

Likewise much of Dominos’ connection with its audience is a result of mapping customer journeys. Marketing is geared towards the moments when families or groups of friends order pizza, be it a big sports match, a Sunday film night or a gaming get-together. The successful digital campaign ‘the official food of…’ was born from these kinds of insights, and is served on digital platforms like streaming services and via TV sponsorship. The ads appear at moments when customers are likely to be receptive to the idea of ordering in a slice or 12.

In the UK, 80% of Dominos’ sales now come from ecommerce, and the figure for Australia and New Zealand is 70% or over. In the USA, the company had $4.7 billion of digital sales in 2018.

4. Fujifilm – from camera film to healthcare and cosmetics

Fujifilm was a leading light of the photography industry – until the photography industry went digital. As digital cameras became the norm, demand for film dropped sharply. Competitors like Kodak and AGFA were all but buried, but Fujifilm prevailed by taking its technology and applying it in new markets.

This wasn’t wholly a reactive move. The company had reportedly been aware of the digital photography risk since the 1980s, and had begun diversifying well in advance.

As well as maintaining a range of photographic products including digital cameras, which were of the high quality required to please photographers unsatisfied with the snappers on their smartphones, the company branched out into print. Teaming up with Xerox, another brand imperilled by the digital revolution, Fuji were able to broaden and adapt their offering in the offline space.

Another successful application of the brand’s technological know-how was pharmaceutical and cosmetics. In both cases, the ability to suspend or encase active ingredients in a thin film, prevent oxidation and protect from or filter out sunlight was the head-start the brand needed.

Fujifilm’s ability to take its business apart and re-arrange the components, right down to the level of which industries they operate in, is an example of the pragmatism and lateral thinking required to be self-disrupting. When remaining doggedly attached to the status quo (as Kodak did) means certain death, total reinvention may be the only option. But it’s by no means an easy thing to pull off.

To reinvent fully, companies need to put their idea of themselves to one side and look outward, focusing on what’s happening in the world and among their customers and audiences.

Key takeaways – what does it take to be a disruptor?

All the examples above show the value of being able to take what you have and re-apply it in new ways. Often, that means looking at your company and products with a fresh pair of eyes.

In our experience, one of the best ways to do this is to start with the customer. Gathering data around customer experiences can benefit your business in a number of ways.

• Like Fujifilm, you’ll understand where the experience gaps currently are, and what your customers need and expect from your offering.
• Like Dominos, you’ll gain a deeper insight into customer journeys and where your messaging and marketing can best fit in order to make meaningful connections.
• Like Lego, you’ll understand what your brand means to its audiences and how you can amplify and build on it through customer interaction.
• Like Netflix, you’ll be able to crunch your experience data and make predictive analyses that allow you to stay one (or two) steps ahead.

See how Qualtrics XM can help you become an experience company