All too often the rationally best alternative comes with subtle trade-offs that reduce the emotional benefits of your purchase. Take the Accura I purchased owing to the high service costs I had experienced with my Audi. Within hours of driving out of the Accura dealership, I grieved the Audi’s zippier feel and realized that I had just paid a huge price premium for a Honda with fancy wrapping. The emotional loss need not always be the case. Take Trader Joe’s, in a class by itself when it comes to grocery stores. Fortune magazine captures the Trader Joe’s experience perfectly in saying, “Trader Joe’s is not an ordinary grocery chain. It’s an offbeat, fun discovery zone that elevates its shelves with a winning combination of low-cost, yuppie-friendly staples (cage free eggs and organic blue agave sweetener) and exotic, affordable luxuries – Belgian butter waffle…
10 best practices of business model innovation leaders
I love the ease with which marketing-guru Seth Godin communicates vital concepts. In a recent blog A Paradox of Expectations he writes: Better than expected might be the level of quality that’s necessary to succeed. Of course, once that becomes the standard, the expectation is reset. The basis of competition has shifted to business models because features and benefits of individual products and services have become so easy to copy. But even business model value promises are subject to the Paradox of Expectations. So how does a leader stay ahead of the commoditization curve? Follow my Ten Commandments for staying out of commodity market quicksand. They form the epilogue of my book about business model innovation, Beyond Price: Differentiate Your Company in Ways that Really Matter. Practice these behaviors in the next year and you’ll better fulfill your unique and highest value role…
AT&T’s business model Achilles Heel
Protected markets are great things, while they last. But when they end, the protected companies pay a huge price. Do you remember when the US car industry lost its near-monopoly position with the entry of Honda and Toyota, who demonstrated that high quality was affordable? When a consumer discovers there is something better after having had no choice, he feels ripped off by the monopoly-like provider. And that ah-ha is disastrous for companies when markets open as customer loyalty is essential to retaining market share. No wonder US consumers waited a decade to recognize that US car quality has improved dramatically. The company that’s going to pay a heavy price for a monopoly-no-longer position is AT&T, the exclusive Apple IPhone network since the to-die-for phone’s introduction. With Apple likely to add other providers in 2011, one would think that AT&T would be working…
What business are you in?
Baby carrot farmers are attempting to transform their vegetable into a daring, naughty snack food. The tiny orange roots are now branded Baby Carrots Rock. New packaging, bold ads and social media are part of a $25M marketing campaign. Two young entrepreneurs start College Hunks Hauling Junk, differentiating the experience they offer from what you’d except when the typical crew of a local mover shows up on your doorstep. Second Harvest Food Bank of Southern Wisconsin, which supplies food pantries with food donated by grocers and others, faces an insufficient number of food pantries to serve a growing number of needy families. Driven by its mission to eliminate hunger, it transforms itself into a mobile food pantry business after purchasing and outfitting large trucks. Harley Davidson changes the concept of its business from motorcycles to motorcycle experiences and the rest is history. Sweden’s…
Intuition Advances Business Model Strategy
A National Public Radio story this week concerned Ludo Lefebvre, a successful Los Angeles chef who got cold feet after leaving established restaurants to create his own. With two Mobil 5-star ratings on his resume, $2 million in investor support and a weariness from working for bosses, why did Lefebvre change his plans? His gut told him to do something very different, something that has turned out to be a huge winner in the highly competitive LA restaurant scene. Instinct is an important ingredient in business model strategy decisions. A winning business model strategy addresses a multitude of questions with answers that fit together seamlessly to carve out a unique space, a task that is very challenging in increasingly cluttered and mature markets. According to New York Times bestselling author Jonah Lehrer in How We Decide, instinct emerges from the part of our…
Business Model Strategy Built on Collaboration Succeeds
Two vastly different news stories, one about Alzheimer’s and the other about dollar stores, together convey an important strategic leadership lesson about the importance of alignment with partners in achieving an organization’s goals. Dollar stores (Dollar General, Family Dollar Stores and Dollar Trees) are growing rapidly at the expense of Walmart. Recently the dollar stores have added a lot more branded products e.g., Kraft, Heinz and others. Better packaged food selections, plus dollar stores’ closer (than Walmart) proximity to low-income neighborhoods has attracted new customers and larger shopping trips as rising gas prices increase the cost of driving to Walmart. Lipton Cold Brew Iced Tea and Jello No-Bake Cheesecake in a dollar store? I suspect that after decades of Walmart’s ruthless purchasing practices, consumer goods companies seek any opportunity to diversify their channels to gain supplier power to fight Walmart’s Herculean purchasing power….
Apple’s Business Model Lesson
The blogosphere is aflutter with talk on Apple’s recent customer satisfaction issues linked to the new iPhone 4’s antenna design. A quiet whisper turned into thunderous noise once Consumer Reports decided to not recommend the phone because calls are dropped if the antenna is covered while in use (for example, by the user’s hand holding the phone). Much of the on-line conversation centers on public relations lessons and a debate about the sensitivity issues of the iPhone versus competitive products. (For a good assessment of the PR lessons for Apple, see The Leadership Playlist blog.) There is more to this lesson than public relations. I think in terms of business model and strategic leadership, and I believe Jobs ignored Apple’s business model in resolving an internal debate about the antenna, a product design decision that I’m confident Jobs now regrets. Apple’s value promise…
IBM’s Smart Is a Smart Value Promise
Image via Wikipedia IT technology companies filled business page news the last few months with press releases leading us to rethink what business these companies are really in. Cisco is moving into HP’s market space. Dell with acquisition funds in hand is soon to follow. Intel whose margins are terribly low for a company so dominant in fast chips is trying to move into low power applications like cell phones where growth prospects look brighter. And IBM whose hoped for acquisition of Sun fell through when Oracle made a surprising and winning bid for Sun must find a new way into Sun’s market space. Business model strategy predicts moves such as these. As technologies mature and become commodity-like (which is possible no matter how sophisticated a technology is), industry boundaries between technologies collapse. Companies stuck in commodity-like competition redefine the definition of the…
Capitalize on Customer Frustration with Your Industry
“What is your bank trying to sneak by you?” appeared in bold letters on my computer screen. The screen was then filled with the complex and confusing words we’ve all seen in small print documents communicating our banks’ fees and financial charge practices. I hate those documents, don’t you? In one of the cleverest business model innovations of the year, GMAC Financial Services, a $180 billion global financial institution built initially upon the General Motors’ brand, has renamed its bank as Ally Bank and redefined its value promise. Like a river seeking lower ground, Ally Bank moved right into the heart of our frustrations and forced compromises with the banking industry, offering a solution that we’ve been waiting for – a bank that’s on our side. Ally Bank’s value promise is relevant, compelling and differentiated: Bank with us and you’ll keep more of…
Value Promise and Profit Potential, Part Two
If you need a differentiated, superior value promise to win customers’ votes, how do you know when your value promise is no longer working and business model innovation is called for? Make sure you measure repeat purchases, your consideration rates and your win rates. Discover where you’re losing business and why you’re losing business, as losses signal a weakening value promise and threats to profit potential. Lost order autopsies can reveal – Nascent industries reducing customer interest in your categories Your differentiators becoming standards to be considered Non-traditional competitors entering your space Subgroups of customers exiting for simpler offerings Reduced profit margins also indicate a weakened or less differentiated value promise. But leaders too often forget that a compelling value promise creates the best context for reliable profit potential. They fix profits by cutting costs, forgetting value promise implications. A vital strategic leadership…