Recently one of my business contacts pointed me towards the Best Global Brands report by Interbrand. In the discussion we had on how to enable new business model implementation he posed the statement that any strong business model basically gave away one of the 4Ps out of the classical marketing mix.
Giving it some more thought there are numerous examples of strong brands, set by convincing business models that basically all have a certain WOW factor. Most of the WOW comes from an empathic component within their respective business models.
More and more companies involve their customers in their business model, stepping away from classical transactional mentality moving towards strong customer experiences. Meanwhile the relationship between company and customer is further tightened, making it almost impossible to switch, not based on product specifications, but on the firm’s lovemark.
By opening up business models to consumers of products and services companies are able to provide experiences that can be tailored to one’s unique preferences. The late management guru Prahalad labeled this as N=1 in The New Age of Innovation.
Empathic business models examples
- Product
Nescafé (#25) let’s you create coffee to your own preferences with their new Dolce Gusto system
Nike (#26) provides customers to design a tailor made sneaker based on the offered options - Price
Google (#7) provides you everything you needs for free, you only need to provide google with your personal data for advertisement purposes
IKEA (#28) is able to offer its’ products at an extremely low price; you have to do the assembly yourself - Place
eBay (#46) provides possibilities to globally auction and bid on running auctions detached from place and time
MTV (#54) is offering most of the content also online, so that it can be viewed anytime, anywhere - Promotion
Amazon (#43) recommends products based on other people’s buying behavior
Nokia (#5) has numerous online fan communities that support users in the use of their devices; totally separate from the company
Being successful is about being connected. For this purpose you as a company do not be in close proximity of your customer 24/7, but you need to find a mechanism that they share their hopes and dreams with you.
Based on those you know where to focus and distinguish between the must-haves, and the nice-to-haves. Then find ways to involve your customers in your business model. Maybe they will not even notice, but they will appreciate it. For sure!
For the last couple of months no news program or website is talking about hardly anything else the the global economic crisis and the effects it has on every kind of business within all sectors. Surviving for many companies suddenly became key rather then expanding portfolios.
Traditionally companies need to grow value in order to keep Mr. Shareholder happy. Growth means higher demand for shares and therefore higher rates. Mr. Shareholder sees his total share value growing.
Most companies have basically two ways to achieve value growth:
- Increase market size and share, by innovation or acquisition
- Reduce costs
The last way is normally not that popular during economic upturn, but is immediately on top of mind during economic downturn. Cost reduction programs tends to be rather spreadsheet driven hunting for the large cost chunks rather than assessing cost versus value.
Together with Daan Giesen I have come to an approach which enables growth by setting a stronger brand experience based on reduction of number of current business models. Organizational functions and capabilities can bebuild around these strong business models, showing opportunities to reduce cost without weakening the organizational capabilities.
Within the coming months more on the Business Model Convergence approach will be shared with you. However, if you cannot wait feel free to use the contact form.
Working together with companies on various innovation projects and reshaping their Business Models it is often the case that a new project explicits a need to move into a different part of the current value chain. With Value Chains in this case I mean different organizations and enitities, consisting of resources and knowledge stream, all involved in the creation and delivery of value to customers (source: ValueChains.org).
Moving up ahead of the current value chain and tap into it requires organizations most often to work together with different parties, already present in the chain. Strange situations occur that organizations that are presently treated as customers, become in fact new channels for approaching end-users further down the chain. The current customers need to become partners with which driving business is taken to the next level. Of course this sounds more simple than it in fact is. Existing relations need to be re-shaped in way that also for the current customer, so the new channel, the still is a sound basis for doing business. Thinking win-win is key here. In establishing new partnerships companies try to reduce risks as much a possible, preferably in a early stage. Concentrating on possible financial benefits, this results in trying to create a position in which most of the value created together with the partner is heading in your direction. In contrast with this real partnerships first try to build maximum value together, and then divide this between them.
Recently HBR published an article about the difference in competition between the US and Europe and emerging markets, China in the article. Where in the US and Europe most customers demand excellent quality in China the largest segment is the “good enough” segment (62% share of market in 2005). The good enough segment is defined as “products of good quality, produced by local companies for a rapidly expanding group of value-seeking consumers with mid level incomes.” Distinguishment is made between premium, good enough, and low-end market segments.
The difference between “good enough” products and premium products is that “good enough” comes with only a limited number of features, rather than the full range, at a price significantly lower that foreign brands.
The shift in China towards “good enough” comes from two directions: Consumer that see their incomes grow shift from low-end products to the “good enough” segment, and consumers with a higher income move away from expensive foreign brands, towards locally produced products at an acceptable quality level.
What should multinationals seeking way into the Chinese market do when entering the market in China? When the market segment’s state is strong, companies should either maintain their premium status by holding of the “good enough” segment by lower costs and innovating to create a niche position. More interesting is the situation where the premium segment is weak or eroding. Then companies can choose to enter the market either from above, enter the market segment in order to hold off local competitors and the erosion of the premium segment, or enter the market from below. Entering from below means seek an alliance or even merger with a Chinese partner or even develop new products specifically for the Chinese market, applying new business model tailored to the Chinese situation. Doing so they can steel share from Chinese players and become market leader.
This all seams quite far away. After all it is about China. Why would “good enough” not apply in non-emerging markets? A large company like Philips now uses “Sense and Simplicity” for a slogan. Underlining the fact the company produces technological products that enhance life, without the hassle, complexity and frustration. The story goes that the company came to this shift in strategy when managers were given a DVD recorder to try at home. Most of them were no able to install it, let alone use it.
It is probably only a matter of time until more and more customers in the US and EU crave for simplicity, cutting out all features they will not use at a lower price, making the “good enough” market segment expanding far out of China. Consumer Vigilantes are already on the rise when their products and services bought are too complex to install it themselves.
Last week news spread that Ryanair’s profit could be halved due to ever risen fuel cost and a weaker UK pound. Last quarter 2007 net profit dropped with as much as 27%. This is not news that is typical for Ryanair. Applying the Southwest business model it is well know for being a “no frills airliner” generating sound financial figures. The business model is mainly focused on the price sensitivity of customers. On the one hand this is created by cutting costs out of the traditional airliner model; use Internet for reducing channel costs, no food served and additional charges for luggage, use of smaller airports and a single model aircraft. On the other hand the business model focuses on stimulating revenue streams by maximise utilisation of air crafts (as much air time as possible with heavy loads of passengers) and yield management pricing strategies (price discrimination or price targeting to maximize revenues from passengers) (source).
The ever rising fuel prices drive costs, but not in the parts of the business model Ryanair controls. And a weakening position of the Sterling has its negative effect on the utilisation of the air crafts, where possibly the cheaper seats will still sell out, but the more expensive ones will become harder to sell. The combined effect in addition to the downturn on the whole industry of these recent developments result in weakening profits and possibly what Ryanair’s CEO Michael O’Leary calls “a perfect storm.”
But is the business model defeated then? According to the financial analysts it is not. Yield maybe flat for next year, or even drop 5%. Budget carriers are most vulnerable to broad economic dips.
Low cost carriers are used by the most economically sensitive travelers, but probably Ryanair’s yields will survive the dip.
According to O’Leary Ryanair now considers hedging of its fuel if oil dips below $80 a barrel in order to be less vulnerable in case of very volatile oil prices. So hedging makes the business model survive in these turbulent times.
