Thursday, April 23, 2009

Business Models that work

Business models will work only if they achieve two objectives, both of which are mandatory!

They provide value to the customer
They enhance (increase / sustain) business for the company

When it comes to providing value to the customer, if the company is one of many players, there is no differentiating factor from other companies and the company is not a stand out. Typically, companies use cost as a differentiator. It will work if quality is on par - otherwise not. There is no simple differentiator solution. Innovative differentiators can be disruptive - in that there is no comparative paradigm to it. For example, I made a credit card transaction for about 7K. Two days later, just in time for the billing statement, I got an SMS from the card company (ICICI) stating that I had the option of paying the bill in easy installments*.



Eventually, if the approach works, [smart] competition will catch up to it and replicate it and the differentiation is lost. So, another implication is continuous differentiation (or innovation). Another example - I was comparing laptops for purchase. Several feature sets were matching across multiple companies and prices wasn't a major differentiator as well. So finally, I came across this offer from Lenovo, where the customer could avail an additional year of onsite support for Rs 499. By default it cost about 5K from other companies. More than the cost difference of 4.5K, it is the need for the customer to have a manufacturer supported protection for the device for an additional year that sealed it.

Increase in business is a natural implication of providing value to the customer. If the customers perceive genuine value in the proposition, it is a win-win situation for both of them. Publicity stunts or gimmicks will only work for the short-term, if at all. In the end, it would anyway lead to a tranished reputation. You will remember the quote "Honesty is the best policy". I saw another quote that stated "Honesty is still the best policy"! Quite true - it will always remain the best policy!

In the scenario today, the killer combination will be Honesty + Sharpness/Smartness + Genuine Care and value for the customer. Leave out the scenario as well. This combination works any day!

* - Of course, it had a "conditions apply" clause to it, which would have probably meant "competitive low rates", but that is another story! It is probably this phrase that did not even make me consider the offer.

2 comments:

Rohit Oonnikrishnan said...

Hi Deepak

True.Honesty+sharpness+genuine care for the customer is the ideal business model anyone can ask for. I guess Somewhere down the line these virtues get blurred and then it conveniently becomes Filtered honesty+Sharpness+filtered care.As they say "when you are up to the butt with alligators it is difficult to keep your mind on the fact that your primary aim was to drain the swamp".

Stumbled upon your blog .Nice blog dude..infact Hooked on :)

Rohit Oonnikrishnan said...

Hi Deepak

True.Honesty+sharpness+genuine care for the customer is the ideal business model anyone can ask for. I guess Somewhere down the line these virtues get blurred and then it conveniently becomes Filtered honesty+Sharpness+filtered care.As they say "when you are up to the butt with alligators it is difficult to keep your mind on the fact that your primary aim was to drain the swamp".

Stumbled upon your blog .Nice blog dude..infact Hooked on :)

 
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