Competition in a free market economy favors the lowest cost business model as markets mature and price-driven shoppers grow in size. Design a business model that delivers unique benefits, on the other hand, and you must also focus on efficiency. Because customers only pay price premiums for unique benefits, any inefficiency costs come right off your bottom line. Is it any wonder then that on-line retailing is growing by leaps and bounds, steadily gaining share against in-store retail? E-commerce is far more efficient, something Amazon understood in disrupting the book industry. In addition, on-line sales lower consumers’ indirect costs by saving time and gas money and, during the busy holiday season, avoiding the frustration of fighting crowds. Nevertheless, efficiency and convenience won’t overcome frustrating on-line shopping experiences. So how successfully are on-line retailers satisfying the increasingly demanding consumer? Better and better according to…
Disrupt your business model before you’re disrupted
A well-known case study by Harvard Business Review documents how Dow Corning elected to disrupt its own silicon business rather than allow competitors to steal market share by offering lower price points. The story is worth retelling because Dow Corning’s business model innovation keeps evolving to meet the needs of price-driven customer segments. As the information age took full hold in the 1990s and markets globalized, Dow Corning recognized that its high-end offering of services surrounding its product left the growing number of price-driven customers shopping elsewhere. “We recognized that a number of product lines were becoming commodity-like, and customers were no longer willing to pay a premium for them,” comments 20-year Dow Corning veteran Stacy Coughlin, an architect of the 2001/2 business model innovation project that created a price-driven brand, XIAMETER. Now the head of Global Marketing Communications for this brand, Coughlin…
The good, bad and ugly of ecosystems
Qualcomm Life, a fully owned subsidiary of Qualcomm that focuses on the wireless healthcare marketplace, is on track to create a well-tuned ecosystem to accelerate the adoption of wireless solutions. Wireless healthcare devices will identify problems in patients with chronic diseases earlier and move care to lower cost locations, thereby lowering the cost of care. About ecosystems Ecosystems – a concept appropriated from biology that’s now actively used in business strategy literature and the investment community – are loosely knit networks of organizations that serve to create whole solutions. The network operates through conscious and unconscious collaboration and competition involving the platform company and other organizations using it. Far more than a supply chain, ecosystems also include complementary product and service providers, distributors, government agencies and even customers. For example, Microsoft’s ecosystem includes multiple software and IT-service companies, educators and others that collectively…
Marketing plays a key role in strong business models
The market share battlefield and its weaponry changed considerably as our economy transitioned from the Industrial Age to the Information Age. In particular, the growing sophistication of marketers (and IT needed to support them) has been nothing short of breathtaking. The movement from the Industrial Age to the Information Age increased customer power, expanded offerings and growing competitive intensity. (See Sidebar.) As a result, both of marketing’s roles have become more important. Marketing’s tactical role is demand management, or deciding on the right channels and teeing up the awareness, considerations and positive attitudes that lead target customers to select their company’s offerings. The strategic role is to make sure the company has the right offering at the right price and margin. In the information age, marketing is transitioning from an art to a data-based science highly reliant on the strength of the IT…