Profits at what price? Pfizer had two choices when it discovered that each vial of its vaccine held six rather than five doses. One was to push the FDA to declare a vial contains six doses. With this decision, Pfizer would make more money. Because it gets paid for each dose, each vial could now be priced twenty-percent above the agreed-to purchase price. The premium would all drop to Pfizer’s bottom line. The alternative was to remember the original price met or beat Pfizer’s expected return rate, which would be huge given the quantity of vaccinations involved. Producing a vaccine for an unpredicted global pandemic is a once-in-a-lifetime opportunity for a pharma company. The extra dose could be a contribution, helping nations vaccinate more people than they had planned. Pfizer’s leadership team decided on the FDA route, choosing higher profits over societal benefits….
Is your market niche defensible?
I love niche businesses. Companies pursuing a niche strategy serve narrow target markets with a product or service uniquely designed for that market. Most start-ups are niche businesses, like Exact Sciences. It brought one noninvasive cancer test (for colon cancer) to the market. The company disrupted the invasive colonoscopy market and opened testing to younger patients and those reticent to have a colonoscopy. The only problem with a niche strategy is that there’s no guarantee today’s non-competitors will stay in their swim lanes. If they move into yours, you may not be able to defend your market position. Let’s look at some examples. The New York Times’ coverage of Amazon’s cloud computing business, A.W.S. (for Amazon Web Services) offers one case study. A.W.S. now packages software as part of its web-hosting offering. A.W.S. users find it easier to get their software needs…
Getting the right thing right
My check—in at the Marriott (now Marriott Bonvoy) went quickly. The women at the desk were friendly and the lobby, as for all Marriott hotels, attractive. I had ten minutes to find the elevator, locate my room, change quickly, and meet my board colleague to discuss the management team’s proposed 2020 plan. Simple. Nevertheless, I was ten minutes late. Opening the door to my assigned room, I was surprised to see breath mints on the first cabinet top I encountered, my go—to place to keep my keys in any hotel. “Nice add, Marriott,” I thought at first. Then I saw a coat draped over a chair, an open suitcase on the floor, and a bathroom that looked, shall we say, used? The room’s guest (the appropriate one, not me with an identical key) was gone. Lucky for her, I am not a thief. Lucky…
Define your niche to create a winning business model
Competition is a drag on earnings. Darn, but welcome to life. The key to success comes from reducing or eliminating competition legally. Some companies eliminate competition by being the very lowest cost to meet requirements to be considered by a customer group. High-end bed linen and mattresses are pursuing this strategy with a direct-to-consumer business model, displacing high-end brands sold through retail stores. An approach beyond competing on price is to offer something no one else can do as well. You may be more expensive, but you are worth it. Think of a plastic surgeon with the best reputation in a city. Build loyalty with the customer base you target and then get them to buy more things from you. Independent bookstores have taken this approach in light of Amazon, with Barnes and Noble stuck in an unattractive middle, especially as Amazon opens…
The Returns and Risks to Niche Business Models
Niche businesses are terrific until they are not. If you run a business with a narrow target market or far more-focused offering than your competitors, you are in a niche business. Just look around the Madison, Wisconsin area: Placon focuses on heat-treated plastic (thermoformed) packaging – not cardboard, glass, injection-molded plastic, or other types of packaging. All Placon investments advance excelling at thermoforming packaging; none are diverted. First Business Bank serves businesses and their owners, not businesses and consumers. “They know business” is a terrific brand promise. American Girl sells to pre-teen girls and their doting moms, not boys. You get the picture. Because they are more narrowly targeted than broader businesses, niche businesses can tailor their offerings, investments, and operating systems to deliver differentiated customer value—allowing them to build a very solid customer base. There is a reason Duluth Trading does not…
Online Marketplace Business Models
Marketplaces as physical gathering sites have a long and rich tradition in all economies. There, buyers and sellers meet to exchange goods for money. Public Markets are especially noteworthy. Madison’s Farmers Market, The Milwaukee Public Market, Boston’s Haymarket Square, Seattle’s Pike Place Market, and The Brooklyn Flee Market come immediately to mind as current examples. So do the local markets I’ve encountered biking through small European towns. The Internet, however, has changed our notion of a marketplace. Markets used to require a physical space and, in the case of Public Markets, were created to advance a public good. Walking around Madison’s Capitol Square on Farmers Market Saturdays reinforced the Capitol as the physical heart of Madison and advanced the slow food, local small farming and buy local movements in Madison. Today, online markets pull us away from our communities in the same what…
Are your business model strategy and marketing communications aligned?
A dangerous canyon often arises between business model strategy and marketing. Separate roles, meetings, deliverables, timetables, personalities and consultancies exist on each side of the divide. When business strategy and marketing execution move forward independently – as they often do – spin, distrust, poor customer experiences and commoditization result. A classic case of this problem was the latest branding of Plymouth as “Not your father’s Plymouth,” when the new model was in fact just like the dated car. Needless to say, the brand now belongs to history books. Ty Montague offers a needed bridge across this canyon in True Story: How to Combine Story and Action to Transform Your Business. Montague is co-founder of co:collective, a consultancy that helps its clients develop their strategy and brand story using the principles of Storydoing™. Montague’s premise – and it is a terrific one – is…
Reviving local retail through business model innovation
In the new Broadway-bound musical Hands on a Hardbody, ten East Texans seek to reverse their hard luck lives in a competition to win a Nissan truck. In one song, Used To Be, the contestants lament the loss of independent stores across Texas. “How will we know when we’re home,” the cast croons, “in a land filled with Walmarts and Walgreens and Wendy’s?” The musical captures much of what is hurting in America, the retail landscape being but one example. Office Depot, Staples and Office Max for example displaced local office supply stores while Walgreens, CVS, Walmart, Target and other national chains displaced locally owned pharmacies. National retailers then pressured manufacturers for cost reductions, creating ruthless competition that’s driven every last penny and non-essential US job out of consumer goods companies’ cost structures. The change from local to national had advantages. A developer…
“Occupy Wall Street” should applaud social enterprise business model innovation.
As “Occupy Wall Street” protests capitalism’s greed, social enterprise leaders are thankfully tapping the power of market forces to address capitalism’s thorniest social issues. In 2000, Gerald Chertavian founded the social enterprise Year Up to address the “huge waste of human capital” he observed in poor neighborhoods as a Big Brothers-Big Sisters mentor. Year Up gives a “leg-up” to youth aged 18-24 who have been disadvantaged by low income, family dysfunctions, substance abuse, or a criminal record. The high-expectations program combines a six-month professional skills training program (covering topics like writing, networking, time management, conflict resolution, and personal finance) with project-based internships that teach a technical skill. Over 85% of its graduates go on to earn $15/hour or more. A social enterprise, according to the Social Enterprise Alliance (SEA), is “an organization or venture that achieves its primary social or environmental mission using…
Professional service firms need business model innovation too.
Commodity is likely the last word that attorneys, accountants, marketing agencies and other professional service providers would use to describe their services and knowledge. Their advanced degrees and personalized, professional approaches suggest just the opposite. But professional services are becoming commoditized because clients increasingly see the outcome of a service as standard; that is, differences from one qualified service provider to the next are irrelevant to the client’s desired outcomes. And some professional services are being transformed into on-line products. For example, QuickBooksTM and TurboTax® reduced very small companies’ use of accounting services. With the law, we see LegalZoom.com, an Internet-based law firm that commoditized straightforward legal procedures like wills and business formations, offering them online at substantial discounts. Companies are sending attorneys Requests for Proposals (RFPs) to take a company public or arrange financing, another signal that even more legal services are…