PoS Feb 2015 | How Complementors Fuel Growth

Sometime in the late 1970s PepsiCo floated Pizza Hut. It was an unusual, even strange, decision for a cola company to venture into an unrelated business.

PepsiCo figured a hungry diner would enjoy a pizza more with a beverage than without it. In turn they would sell more of their fizzy cola. Game Theorists say Pizza Hut and PepsiCo are natural complementors of each other even though they are unrelated by industry definition.

With them and without them

Complementors enhance value for customers of a product or service. That is why institutions of higher education provide students with hostel accommodation (hotel industry), dining (restaurants), and a host of other facilities. They make the college more attractive with them than without. Instead of looking for external partners they become their own complementors.

Cell phones become more valuable to customers when they come with a large number of applications. Firms like Google, Microsoft, and Apple actively encourage and enable third parties to develop apps compatible with their respective operating systems. Millions of these apps make computers, tablets and cell phones more enjoyable and useful.

The interesting thing about these examples is that complementors are from outside the industry, but they need not be.

Competitors can be complementors

Complementors can come from within one’s industry. Jewellery, apparel and high fashion stores, even car show rooms often set up shop near each other. Clusters encourage more customers to visit, reduce promotion expenses, and improve prospects of a sale. Since customers would prefer to visit a store when competitors are in the neighbourhood, competitors become complementors. That is curious, but businesses have always appreciated the value of clustering.

Attracting suppliers

Not only do clusters attract customers, they reduce the cost of service for suppliers. Sometimes, firms compete for customers but set up plants close to each other to be complementors from supplier perspective. That is why three big clusters of pharmaceutical companies in India are in Gujarat, Mumbai, and Hyderabad.

Similarly, automotive plants are bunched together in the states of Tamil Nadu, Gujarat, National Capital Region, and increasingly in Uttarakhand.

Inventive or what!

The famous Irish brewery created the Guinness Book of World Records to make conversation in pubs lively and settle arguments. Michelin provides a restaurant rating service so that motorists would drive to interesting eateries for good food. In its early days the American automobile industry built roads to make driving enjoyable and safe.

These remarkable companies applied the principle inventively to sharpen competitive edge and fuel growth. So, can you.

New ways to add value

Small companies struggle to hire good people. Would more young men and women apply for jobs if competitors joined hands to launch annual job fairs? We put off repainting home interiors because scraping old paint off walls is dusty, time-consuming and unpleasant. Can a paint company partner with an equipment maker to design and develop a mechanized device that would take the pain out surface preparation?

Opportunities for collaboration within and outside our industries are limited only by our imagination. We can re-imagine ways to create greater value for customers if we explore and experiment, and deeply understand the pains and pleasures customers experience.

Write to me to share your thoughts about your firm.