Every organization has what I call a strategic customer. It’s the target market that, if lost, creates peril for the business. For an advertising agency, it’s the businesses that consider the agency their agency-of-record, as these customers cover fixed costs. Many companies, like Amazon, have dual-sided business models: it has two customer groups, buyers of products from its platform and suppliers of those products. Is one more strategic? At Amazon’s start, providers of products and services ranked higher. Why? If publishers and authors had refused to sell their books through Amazon, we’d still enjoy visiting Borders stores. Over time, as Amazon became a required channel for most manufacturers, the company wisely changed its strategic customer to the consumer. Local stores, Prime, same-day delivery, Alexa, and other solutions to better serve us are proof points of the strategic shift. Facebook, like Amazon, has a…
What do Whole Foods, Netflix, and oxygen monitors have in common?
Whole Foods Market, once the darling of the grocery industry, is facing a whole lot of problems. Poor shareholder performance threatens founder and CEO John Mackey’s position. New directors have been added to deter activist investors and improve relationships with major institutional investors. Some argue that for all its previous success, Whole Foods has not mastered Retail 101 and that is why it is failing. Perhaps – no retailer gets away with poor service and unnecessarily high prices these days. From my perch, however, the core issue facing Whole Foods is its business model. Organic and healthy was once a unique niche within the grocery industry, warranting a separate store. Now, fresh and organic are mainstream. Niches are alcoves — protected places. They exist in our natural world. In our economy, they’re specialized markets. By serving a narrower target market (Four Seasons versus…
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…
The right way for a company to be audacious
The word audacity comes to mind when I think of the fine line brand leaders must walk. Audacious actions can mean bold and courageous, which will build brand awareness and positive feelings. Audacious can also refer to impudent or cheeky, detracting from the brand’s image. Financial considerations create the fine line for brands. Strong brands generate price premiums, leading managers to ask, “How do we grow this brand?” But you do not want your growth strategies to muddle your brand’s image, hence the challenge for moving forward. Showing us the right way to be audacious in its brand strategy is Dove Soap’s advertising, using “real” women in its commercials. They are a sharp contrast to the picture-perfect models most often used in the health & beauty industry marketing. Dove broke ranks by showing women of all sizes and complexions. It also offered a…
In Amazon vs. Netflix war, Amazon wins the battle for satisfied customers
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…
Will Netflix’ business model crash as entertainment streams converge?
Netflix’s stock price is falling, fast. My take is that the decline has much more to do with the long-term viability of its business model than the stated cause – recent defections in subscribers owing to a change in its pricing formula and a (since averted) break-up of the company into two parts. Here’s a business model lens on Netflix’s issues. Boundaries are melting in the entertainment world as content that used to be available in only one way becomes accessible in multiple ways. We can see TV shows on the Internet, read physical books on-line, use videogame boxes to watch movies-on-demand and buy hardware solutions that transfer data streams acquired on our computers to our TV screens. Hollywood’s new UltraViolet System will give consumers free Internet or cable access to any purchased DVD. What’s the implication for Netflix of convergence to one…
More than running shoes – a business model innovation Best Buy should model
Amazon’s quarterly revenue rose 51% year-over-year while Best Buy’s revenue remained flat. Is it any wonder Best Buy’s stock prices fell by one-third this year? What’s going on? A high percent of store visitors use Best Buy for decision-making but turn to the Internet to find best prices and make purchases. Without stores and with a government-given competitive advantage called “no sales tax,” Amazon has the lowest cost business model. Best Buy is stuck in commodity-competition quicksand, sinking steadily while customers see little difference between buying from them, Amazon or other reliable suppliers. Of course, lowest price wins. Best Buy is not alone. Most manufacturers and retailers are stuck in this situation. I saw a great solution to this dilemma while helping my husband Nick shop for running shoes at Road Runner Sports, the world’s largest on-line running and walking store with a…
Retail business model innovation prediction easier than Super Bowl bet
While bets are being placed on whether the Green Bay Packers will beat the Pittsburgh Steelers for the Super Bowl ring, I’m placing my bet on a dramatic transformation of retail chains’ business models over the next decade. The football outcome can’t be predicted – both teams are awesome, and we can’t predict players’ energy showing up for the four quarters and their emotions throughout, factors critical to the final outcome. Market changes are easier to forecast because underlying trends shaping market dynamics are observable. Strategic leaders, like good investors, are always on the lookout for changes in dynamics and how they will impact the strength of different business model strategies. “Phone-Wielding Shoppers Strike Fear Into Retailers,” a December, 2010 Wall Street Journal article might as well have been titled, “Retail Store Business Model No Longer Viable.” The article told the story of…
The Corner Gas (Book) Price Wars
Do you remember when gas stations offered auto repair and maintenance services and teenage male employees filled your gas tank without an extra charge? Then you remember the corner gas price wars in which two gas stations located opposite one another on a busy street corner used penny differences in the price of a gallon of gas to lure drivers to their shop. I always drove to the gas station with the cutest boys. My parents shopped price. Can the Amazon Business Model Retain Its Lead? Walmart and Amazon are engaged in the same war today. The first battlefield is best selling books, where the two on-line retailers are losing money for each “Top 10 List” hardcover book they sell and ship to customers. But the war will be waged on a much larger battlefield – leadership of on-line retailing, the consumer channel…