Are your business model decisions aligned?
I had occasion this week to look at a number of different frameworks containing questions that help you design and innovate business models, each one developed by an insightful strategist and each offering advantages. While they varied in details, there was a singular logic that leaders, charged with ensuring their company is competing with winning business models, could benefit from. To illustrate, a story might fit the bill.
All Pleasant Rowland’s advisors argued against her desired channel strategy. A former schoolteacher turned grade-school textbook writer, Rowland wanted to create a doll that would help mothers keep their daughters’ attitudes and dress younger, longer. An aunt herself, Rowland had observed how contemporary culture encouraged girls to consider make-up and the like at earlier ages than had Rowland.
Rowland wanted to sell the doll through direct marketing (just catalogues at the time) in lieu of retail stores. She felt she could not tell the story she wanted to tell about the dolls if she relied on stores like Toys R Us or even specialty retailers. Bankers didn’t believe a direct channel would work for toys, and so “family and friends” equity funded Pleasant Company’s formation in 1986.
The company’s offering – dolls linked to different periods in American history, coupled with storybooks, doll clothing, activity accessories, and period furnishings were a delightful alternative to the circa-1980s versions of Barbie. My daughter Lauren’s Molly, a WWII doll, had a desk, ice skates, brass bed, and simple games.
The direct-to-adults who love girls channel strategy also worked. I remember the catalogue arriving as a wonderful occasion to sit down with my daughter and talk about different times in history, with pictures of girls her own age capturing her imagination. We purchased stories of other dolls, although Lauren only owned Molly. Our experience aligns with the website’s claim, “These nine-year-old fictional heroines live during important times in America’s past, providing ‘girl-sized’ views of significant events that helped shape our country, and they bring history alive for millions of children.”
Over time, Pleasant Company expanded its offering, adding more period-of-history dolls and even a baby doll offering for younger girls. An award-winning magazine for girls was published as well as how-to books that help girls deal with problem situations. In 1998 Rowland opened American Girl Place in Chicago. I had the joy of being among the family and friends at the opening of this store, where moms and daughters could look at all the dolls and their accessories, have lunch in a restaurant encouraging the best manners and watch a musical about girl power. Rowland mastered “experience marketing” before it was a well known a concept.
The store also advanced sales of contemporary clothing for girls in addition to the period clothing that matched each doll’s signature outfit. The contemporary clothing was as high quality as the doll offering, and fulfilled the purpose of keeping girls looking cool but still their real age.
Rowland sold the company to Mattel in 1998, just 12 years after it was founded, for around $700M. The new owner smartly created a line of contemporary dolls, added more historical dolls, and maintained the direct channel. Stores now spread across the US. The last time I visited the Chicago store, it was more crowded than Chicago’s upscale department stores. The company was also renamed American Girl after the doll brand itself. I was not surprised when movies built around the historical characters were added.
Rowland’s strategy paid off because she had aligned, smart answers to the three questions that every business model must answer:
- Why does the business win customers? American Girl helps young girls remain girls, connected to adults and enthusiastic about the world, even as those girls begin the difficult transition into becoming teens. The quality of the offering coupled with its breadth have made it hard for other companies to easily match American Girl’s value promise, which is reinforced with every customer touch point.
- Where does it compete? Its customers are moms, dads, aunts and grandparents who love a girl. American Girl’s offering extends into categories that reinforce and enhance its value promise.
- Why is it profitable? Using a direct channel that avoids retailer mark-ups and reinforces its value promise and an offering that maximizes lifetime customer value, American Girl can ask prices worthy of the kind of product that girls will save for their grandkids. That business model continues to deliver value to the business owners.
Is the story of your business this tight? Is everything, including the deeper purpose of your company, aligned with your value promise to your customers? What needs to change?