Patterns, Extended Version (book) Flashcards
(32 cards)
Add-On
Additional charge for extras
What?
- free to choose to customise their product according to their individual preferences or disregard superfluous extras.
- optional features
Value?
- customers pay a hefty premium for extra features
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When to apply Add-On?
- well suited for hard-to-segment markets, where customer preferences often diverge vastly
- often for consumer products, where different levels/versions are insufficient
- also B2B context when multiple decision makers are involved
- help certain technologies and accessories break through to the market
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Questions to ask:
- Can we provide a basic product to which customers can be price sensitive and then add on services?
- Can we lock our customers in so that they will buy the Add-On products from us?
Affiliation
Your success is my success
Value?
- influences the sales channels and revenue generation of vendors
- business model for resellers
How?
- customer receives an identifier that allows the vendor to recognise the referring reseller
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When to apply Affiliation?
- prerequisite is a strong ecosystem and passionate customers
- good when you know what kinds of customers you want to attract
- good option if you cannot afford a direct sales force
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Questions to ask:
- Can we capitalise on new customers and retain them in the long run?
- How do we choose the best possible partners for our affiliate network?
- What competencies can we offer our partners to create a superior joint-value proposition?
- How can we create customer loyalty to our ecosystem?
- How do we handle backlash from customers if our partners do not deliver on their service?
Aikido
Convert competitors’ strengths to weaknesses
What?
- products or services that are radically different from the industry standard
Value?
- occupy a position that is diametrically opposed to that of its competitors, obviating the need for direct confrontation with them
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When to apply Aikido?
- requires a lot of courage, thinking outside of the box
- can work in any industry
- careful to heed any signs that no longer on the right path –> market checks are essential
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Some questions to ask:
- Do we have a lead customer who will follow us into the fray if we adopt the Aikido pattern?
- Is the lead customer representative of the target market or so visionary that others are unlikely to follow suit?
- Can we overcome all the obstacles we meet in order to change the rules of the game?
Auction
Going once, going twice… sold!
What?
- buyers never have to spend more than they can afford or are willing to pay for a product
Value?
- products can be allocated more efficiently across the market
- to ensure that vendors get min. what they consider acceptable, some set a reservation price
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When to apply Auction?
- flexibility and vast possibilities for implementation
- own products or create marketplace
- highly scalable
- works well if it creates more transparency for standardised products
- also for selling highly specialised products (if enough traffic)
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Some questions to ask:
- How can we achieve a unique selling proposition that will allow us to steal customers from the big established players such as eBay and Alibaba?
- Can we generate high reach for market players?
- How do we maintain a competitive advantage in a highly competitive landscape?
- How can we ramp up the number of market players quickly and efficiently?
- How can we uphold our reputation and certify that transactions are completed correctly?
Barter
Tit for tat
What?
- serves as a useful tool to boost a brand by introducing more new potential customers to certain products (eg baby food)
Value?
- exchange relies solely on goods or services, without the involvement of money
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When to apply Barter?
- full of potential for businesses with complementary partners
- have to think totally outside the box and approach highly dissimilar partners
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Some questions to ask?
- Is there a mutual interest in the relationship - that is to say, in acquiring consumers without competition?
- Is there a complementary service or product that supports our product?
- Have we considered brand spill-overs from our new partner?
- Are we able to implement the Barter deal within a reasonable cost framework?
- Is the question of culture relevant, and do we have a similar corporate culture?
Cash Machine
Coining money with negative working capital
Cash conversion cycle = Inventory conversion period + receivables conversion period - payables conversion period
(timespan between spending and collection of cash)
Value?
- generates additional liquidity that can be used eg in settling debts or making new investments
- company can lower its interest payments or speed up growth
How?
- needs generous payment terms of goods with suppliers
- make sure customers pay promptly
- keeping the time goods are kept in inventory as short as possible (eg through build-to-order strategy or short stock turnover)
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When to apply Cash Machine?
- works well for company with build-to-order or generous payment conditions with suppliers
- wait as long as possible to pay your suppliers, while getting customers to pay as quickly as possible
- only feasible if offerings have a high perceived value for your customers
- may want to combine with Subscription pattern #48
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Some questions to ask:
- Can we effectively pay suppliers only after receiving payments from our customers?
- What benefits can we create for the customer by establishing a build-to-order process?
- Will we be able to renegotiate contracts with suppliers?
- Is it possible for us to postpone finishing our products and services until they have been paid for?
Cross-Selling
Killing two birds with one stone
What?
- deriving more value from a single source, thus saving on the cost of searching for additional products
- instils sense of security
Value?
- opportunity to leverage existing resources and competencies such as sales and marketing
How?
- leverage existing resources
- maintain customer satisfaction with the new products
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When to apply Cross-Selling?
- great potential where a simple, low-margin product or service addressing a basic need can be combined with high-margin products
- consumer goods, convenience of customers
- B2B where highly specialised products can be bundled with other products or services (often paired with Solution Provider #47)
–> bundles address customers’ desire for one-stop shops
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Some questions to ask:
- Can the product be bundled to the advantage of customers?
- Is the perceived customer value of Cross-Selling high enough?
- Is there a natural need to bundle the products from the customer’s POV?
- Can we achieve consistent pricing of these products?
- Are the market entry barriers against potential new competitors high enough?
Crowdfunding
Taking finance by swarm
Value?
- unique opportunity to broaden circle of investors and therefore increase chances of obtaining advantageous financing conditions for project
- free advertising for its creator and may have positive effect on subsequent success of the product
How?
- limit the influence of professional investors
- starts with announcement that raises awareness
- backers receive some sort of project-specific reward
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When to apply Crowdfunding?
- both companies and individuals
- access to crucial zero-interest financial resources, validation for ideas early on, feedback critique and comments from interested people
- good when have an appealing idea you believe is supported by a lot of people willing to put their money where their mouth is
_______________________________________________
Some questions to ask:
- Is the idea exiting enough to raise the needed capital?
- Should we offer a reward to funders, either monetary or in kind, and how can we ensure that it complies with applicable laws and regulations?
- How do we protect our intellectual property?
- Can the crowdfunders become our new customers, or even product fans?
Crowdsourcing
Exploiting swarm intelligence
Value?
- extend company’s sources of innovation and knowledge
- open up possibilities to develop cheaper and more effective solutions
- discovering more about customer wishes and preferences for future products
How?
- open call that inform external actors
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When to apply Crowdsourcing?
- any company can implement it during the ideation phase, but only if the company is already innovative
- leverage innovation potential by getting help
- intensify your relationship with customers
- via Crowdsourcing platform providers
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Some questions to ask:
- Can we foster a community that will be interested in generating new ideas for us?
- Can we frame our problems specifically enough for the crowd to respond to them?
- Have we stablished clear and transparent criteria with which to select the best ideas?
- Can we define and communicate the process clearly?
- Are we equipped to manage social media dynamics such as evaluation process group dynamics?
As Crowdsourcing platform provider:
- Is there a real market for the selected topic and/or community?
- Will we be able to attract companies and the relevant crowd?
- Have we checked the revenue model carefully?
Customer Loyalty
Incentives for long-lasting fidelity
(usually card-based loyalty programme)
What?
- physical products or rebates on future purchases, goods offered at discounted prices to loyal customers, designed to entice them to return to the store frequently
Value?
- company profits from sales that it would not have been able to make otherwise
- incentive for customers to make additional purchases, given that the rewards generally cover only part of the price of new products or services
- customer data, record of the individual customer’s shopping behaviour (can be analyzed)(Leverage Customer Data #25)
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When to apply Customer Loyalty?
- has become something of a necessity
- bc of the customer-centric culture that comes with it
- winning and retaining customers is both art and science that everyone should strive to master
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Some questions to ask:
- Which channels are the most suitable to engage with our customers and build loyalty? How can we best address our customers?
- How can we interact with them and better understand their needs?
- Can we give something back to our customers that is of value to them?
- How can our customers become fans? Could we as a company interact with our fans the way sports clubs do?
Digitalisation
Digitising physical products
What?
- entirely new offerings to the digitised old ones, offered to customers with a moderate amount of effort
Who?
- new customer groups through faster-paced upscaling and easier access
Value?
- revenue logic, digital infrastructure allows new value-capturing mechanisms
How?
- existing business can be reproduced online as well as some of the business processes and functions relocated to the internet
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When to apply Digitalisation?
- can be applied to all sorts of data and knowledge-driven products
- crucial for time-critical offering (eg news)
- keep in mind power of complementary offerings and other partner organisations (to address fast-paced change regarding digitally-enabled value propositions)
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Some questions to ask:
- Which parts of our product offering would derive value from including software?
- Which parts of our value proposition may be digitalised?
- Can we create and capture value from Digitalisation?
- When and where will this pattern make sense for us?
- Which other developments in our and/or adjacent industries took place regarding Digitalisation?
Direct Selling
Skipping the middleman
What?
- more personal sales experience, the company can better understand customers needs and find new ideas for improving offerings
- better service for customers promptly from the company (esp. for products with extensive explanation needed)
Value?
- elimination of retail profit margins, savings can be passed on to the customer
- more accurate control of sales information and uniform/consistent distribution model
How?
- products are made available directly by the manufacturer/service provider, rather than via intermediary channel
- more control of sales info and uniform/consistent distribution model
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When to apply Direct Selling?
- widely established
- keep tabs on customers and track their changing needs
- optimise internal coordination of sales with marketing/production/others
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Some questions to ask:
- What is the value of increased customer intimacy?
- Can we outcompete existing retail companies?
- Can we create and capture value to compensate the high sales costs?
- How must we train our sales force to ensure that every aspect of the sales process is well managed?
E-commerce
Online business for transparency and savings
What?
- sale of goods and services as well as customer service and support
- market transparency, reviews from others
- large, overwhelming offering that can be filtered
Value?
- customers receive individualised advertisements and recommendations
- company is able to reach many more customers with minimal additional cost
How?
- buying and selling products/services via electronic systems
- electronic offerings with customer service and support
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When to apply E-Commerce?
- almost any B2C transaction can be conducted online
- in B2B, improves cost efficiency and reduces transaction costs
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Some questions to ask:
- Will introducing E-commerce allow us to create value for our customers, or reduce our costs?
- Can we codify information relevant for our customers and put it online?
- Does going online leverage our unique selling proposition, or will it incapacitate our competitive advantage?
Experience Selling
Products appealing to the emotions
What?
- experiences and impressions are created, providing customers with an encompassing experience rather than simply product functionality
Value?
- company actively shapes customers’ observable environment (differentiation)
- customers are more loyal and willing to buy more at a higher price (given related experiences included)
How?
- managing all activities affecting customers’ experiences in concert (promotions, retail design, sales personnel, product functionality, availability, packaging)
- customers must obtain the same experience no matter from which branch
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When to apply Experience Selling?
- retail industry has done well
- differentiate yourself from competitors, forges direct bond with customers by providing holistic experience
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Some questions to ask:
- How can we create experiences for customers that truly reflect what our brand stands for?
- How will we get everyone in our company on the Experience Selling bandwagon?
- How do we create an emotional connection along the customer journey?
- How do we clearly define the experience our product offers?
- How can we create positive emotions and actually convert them into purchases?
Flat Rate
“all you can eat” - unlimited consumption at a fixed price
What?
- unlimited consumptions for customers, with full control of their costs
Value?
- financially sound for business, if customers who exceed the normal rates of use are balanced out by those who use the service only sparingly
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When to apply Flat Rate?
need these 3 criteria:
- manageable costs (eg Internet business with low marginal costs)
- customers are exposed to diminishing marginal utility
- flatrate is more cost-efficient than billing customers for every outlay
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Some questions to ask:
- Is the average customer still within the calculated margin?
- Do we want to increase our market share and grow at the possible cost of reduced profits?
- Can we protect ourselves from customers abusing our offer?
- Have we checked the price elasticity of demand?
- Have we taken the loss of price differentiation as a potential asset into account?
Fractional Ownership
Timeshare makes for efficient usage
What?
- possibility of purchasing products or services that they otherwise might not be able to afford
- more efficient use of assets when shared by several customers
Who?
- wider circle of potential customers
Value?
- reaching wider circle of potential customers
- total sums received should be larger than Direct Selling would have been
How?
- company will oversee the maintenance of the asset as well as the rules/regulations governing the association
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When to apply Fractional Ownership?
- industries where customers are willing to share assets
- becomes more viable and even appealing as assets increase in value
- classically aircraft or real estate industries
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Some questions to ask:
- Can we devise an appropriate sharing scheme that minimises the risks for customers when sharing assets?
- Is dividing ownership likely to make our product more affordable to customers?
- How do we best split usage rights for our products in respect of contracts and transactions?
- Have we included simple and robust exit clauses for those customers who wish to sell their ownership shares?
Franchising
All for one and one for all
What?
- franchisee gains access to a proven business model with all its performance and differentiating features
- entrepreneurial risk is much smaller than that of independently developing a novel business idea
- can take advantage of franchisor’s expertise (professional development, in-depth process knowledge, brand spill-overs)
Value?
- expand business geographically very quickly without having to muster all the resources itself or carry all the risk
How?
- Franchisor sells the right to use their business model to franchisees
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When to apply Franchising?
- consider, if already built up important assets such as knowledge / brand strength and want to leverage these to grow fast with limited risk
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Some questions to ask:
- Are our competencies and assets attractive enough to persuade potential franchisees to play by our rules?
- How do we multiply our business and realise our growth potential with limited risk?
- Are we equipped with adequate standardised processes and IT systems to support our business model and strengthen our partners?
- Are we able to legally and/or technically protect our codifies knowledge in order to safeguard against imitation?
- How do we ensure that franchisees stay with us?
Freemium
Choosing between free basic and paid premium versions
What?
- offering of a basic version of the product/service free of charge while the premium version is made available against additional payment
Value?
- free version establishes a large initial customer base, from which hopefully enough customers will later want to go premium
- Conversion rate (ratio of paying to non-paying customers) should be good, so that premium members will cross-subsidise the free members (cost of offering the basic product should be very low)
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When to apply Freemium?
- popular with Internet-based businesses with marginal production costs and benefit of external network effects
- to test user acceptance of new software releases or business models
- works better when coupled with strong customer focus
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Some questions to ask:
- What do our customers need as a base product/service?
- How can we improve our customers’ experience by valuable upgrades?
- Can we somehow lock our customers in?
- What functionalities provide added value and increase customers’ willingness to pay for our additional premium product or service?
From Push to Pull
Customers create a value vortex
What?
- demand-driven selling
How?
- “customer is king” paradigm, make it central to all decisions within the enterprise
- need to have flexible and responsive value chain
- pull strategy in all aspects of the business, eg in product development processes
- specific marketing to pique customers’ interest and bring them to actively make suggestions
(wieso nicht value: inventory costs go down and non-value-adding activities are eliminated?)
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When to apply From Push to Pull?
- challenge entire value chain and eliminate waste that creates no value for the customer
- can be applied regardless of industry
- for manufacturing companies, biggest potential for application is at front end of value chain (production and logistics)
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Some questions to ask:
- Do our production and logistics systems need to be more flexible?
- Are we currently stocking excess inventory?
- Are we able to truly focus on our customers in every activity of our company?
- Can our suppliers cope with just-in-time production?
- Are our suppliers qualified enough to manage pull production?
- Will this pattern help us to be more flexible?
- Which value chain activities need to be explored first?
- Would centrally planning our activities limit our endeavours?
Guaranteed Availability
Assured access to the product solution
What?
-Reduce costs incurred by breakdown of technical machines or equipment by ensuring almost zero downtime (often with Flat Rate #15)
Value?
- build strong long-term relationships with customers bc they value steady availability
How?
- providing replacement equipment and machines, as well as provision of repair and maintenance services
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When to apply Guaranteed Availability?
- especially in industry where availability is crucial, as well as in B2B context
- need to be able to adept at handling expertly and unforeseen customer crisis
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Some questions to ask:
- Can we afford to adopt this business model? Manage inventory sufficiently well and maintain surplus equipment to be exchanged for damaged items?
- How can we limit the downside risk of technical product failure?
- How can we speed up maintenance and recovery procedures operationally?
- How should we design penalties to handle the downside risks of product failure?
- Could we deal with the potential financial and/or reputational fallout if we were to fail to deliver on our Guaranteed Availability promise?
Hidden Revenue
Seeking alternative sources
What?
- attractive free or low-priced offerings
- many customers will be willing to watch a few ads if this means that they get a better deal on the goods/services
Who?
- integrate advertisements into offering, thereby attracting customers to the advertisers who found it
Value?
- alternative source of income supplements or wholly replaces the revenues generated by conventional sale of products
How?
- primary source of revenue is derived from third party who cross-finances the attractive free or low-priced offerings made to customers
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When to apply Hidden Revenue?
- very hard to assess today, also bc customers are increasingly wary of Hidden Revenue
- still is very popular in advertising and customer data trading
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Some questions to ask:
- Can we separate customers from revenue streams?
- Can we commercialise our assets by other means?
- Will we be able to keep our existing business relations and customers even if we tap into additional Hidden Revenue streams?
Ingredient Branding
brand within a brand
What?
- positive attributes of the ingredient product are transferred to the end product and increase its desirability in the eyes of consumers
How?
- ingredient product is advertised as a notable feature of the final product, so that customers see “a brand within a brand” when viewing the end product
- increased brand awareness reduces possibility of substituting products by others, gives company more bargaining power in its dealings with the manufacturer of the end product
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When to apply Ingredient Branding?
- products with high brand awareness and are of high quality
- esp. when ingredient product is synergistic with or complementary to the final product
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Some questions to ask:
- How can we make sure that the ingredient brand doesn’t overshadow the final product?
- How can we keep competitors from using the same ingredient product and causing our product to become generic?
- How do we differentiate ourselves from original equipment manufacturers (OEMs) and assembly companies?
Integrator
Involvement all the way down the line
Value?
- reduce transactional costs by tailoring the value chain to the industry’s needs and processes
- more efficient value creation and faster reaction times to market changes
How?
- company controls most or all parts of the supply chain
- obviates delays through dependence on third-party suppliers, with consequent decrease in costs
- shorter transportation times / better coordination of intermediate products
- BUT cannot capitalise on specialisation
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When to apply Integrator?
- focusing on the downstream value chain
- customer increasingly demands one-stop solutions
- to be successful, needs a broad knowledge base and risk losing depth and specialisation
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Some questions to ask:
- Is vertical integration more profitable and sustainable for us?
- Will we derive value from integrating other activities in terms of complexity management, IT systems and technical competence?
- Do the advantages of integration exceed the downsides associated with a lesser degree of specialisation?
Layer Player
Benefiting from specialised know-how
What?
- company serves a number of market segments of several industries
How?
- focus on one or just a few activities within a value chain
- often able to influence and develop standards within its specific field to its own advantage
(typical customer is Orchestrator #34)
_______________________________________________
When to apply Layer Player?
- maximise potential inherent in specialising and becoming leader in your particular area of expertise
- in particularly competitive environment, specialisation may be right bc of focus solidly on a core area of expertise and nurture/build strengths
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Some questions to ask:
- Are we knowledgeable enough to spot changing trends and rapidly tailor our business to market needs?
- Do economies of scope play an important part in our area of specialisation?
