Innovate Business Model Around Customer Experience

A wise man will make more opportunities than he will find - Francis Bacon

The quote is equally true for business. Any business exists & grows because they have customers that have a job to be done and they have products and services to help them do that. Sooner the marketplace becomes congested with many ‘me too’ products competing for the same pie of the market. Innovative product / services alone have a shelf life of their own and therefore beyond a point organisations cease to grow & make money with their incumbent products/services.

At this juncture companies that aspire to grow have to foresee opportunities and markets that have not been developed yet and predict new trends and opportunities that might arise in the future. Only by searching out new opportunities can they retain their competitive edge.

Carving Out the ‘Unknown Territory’ to Grow

The heading above sounds like an oxymoron, but nonetheless is a gospel truth. Customer expectation trend, which was decoded by BJ Pine in his work ‘The Experience Economy’1 unfolds following path

Commodity >>> Product >>> Service >>> Experience >>> Transformation

The research reveals that organisations have made more growth opportunities as they moved right along the trend. At each jump along the trend there is a distinct competitive advantage that organisations pull off. All this is done when they wire / re-wire their business model elements to deliver a new value to their existing / potential customers.

A Case of ‘Café-Coffee Day’2

One of the greatest Indian example that has successfully carved an unknown territory to grow and in fact have created a new market that didn’t exist before is Café Coffee Day.

V. G. Siddhartha- its founder was at first reluctant to join his family business of coffee growers as he thought the business didn’t have money making opportunity as it was at a mercy of middlemen to market its produce. It was almost operating at 2-3 % margin with very little opportunity to grow from there. So, the business was almost at the ‘commodity’ stage of the trend.

The idea of selling ground coffee (coffee powder) came the next, by this way there was a more opportunity to grow and make money as a business. It was a tough task selling the product without having a brand name. They put up 20 stores each in Chennai and Bangalore. So, the business started selling a ‘product’, the next step on the trend line from commodity to a product.

Back in early 2000, Bangalore was getting used to new life style and cyber cafes was the upcoming thing. This spawned an idea of providing internet if people can buy a 25 Rs coffee or other way round they paid for the internet for a free coffee. They thus differentiated from existing coffee shop which was selling coffee at 5 Rs. The differentiating value proposition was place to sit with an internet. The business thus moved from ‘Product’ (ground coffee) to Service (“Serving Hot Coffee along with internet”) The competition creeped in but they were blind followers and because their rent to revenue ratio was higher they lost the race in the middle.

Slowly this chain expanded, because people wanted to have ‘third places’ (a consumer trend) which are places between work and home, places that are clean, less noisy, air-conditioned, a neutral place for business meetings and thus the theme sprang “A Lot Can Happen Over A Cup of Coffee”. Indians don’t like to only drink but ‘eat & drink’ (insight) which made them introduce few quality snacks along with the coffee. This stage helped them evolve different formats like Café Coffee Day Express, Lounge, Square etc. as per customer segment and commensurate affordability & prevailing real estate price. Development of highway infrastructure & car sale boom enabled people to travel and as a result stores have come along the highways because the insight that dawned was people wanted good home like washrooms, this lead to highway stores. Thus, business moved to the next stage ‘experience’.

The last stage which is ‘transformation’ was achieved when newer segments were reached out like Schools, Colleges, HoReCaCor (Hotel, Restaurant, Catering, Corporates) with the offerings like vending machines, KISOK etc. The transformation stage is achieved when you take out the jobs that customer previously accomplished with his own resources like for e.g. deploying manpower to make & serve coffee, ordering & stocking, large space to serve & drink etc.

How do you Innovate with Business Models?

Here are some simple steps exploring and exploiting business models3

1)   Who?? (Customers): It’s very important to focus here on what jobs customers are trying to get done & what are their expected outcomes, asking ‘why’ these outcomes are important, will lead us to higher level key intangibles that business model innovators address well & win the game.

2)   What?? (Value Proposition): The idea here is to provide new solutions that will address the jobs and the outcomes better than prevailing solutions or where there is none that exists today. Ideas generated here needs to be converted into a product, process or a service offering. ‘Function Structure’ modelling helps in design various elements of product, process and service that delivers function innovatively. For e.g. element (mobile app), delivers a function (‘call a taxi’) to address ‘jobs to be done’ & outcome ‘book a taxi just before I am ready to go in the least amount of time’.

3)   How?? (Value Chain): This involves the infrastructure (internal & external) & processes (largely internal) to enable business model innovation to execute the offering in efficient & cost effective way. The value chain involves partners, resources, activities and channels.

4)   Why?? (Profit Formula) Innovative pricing models and cost reduction innovations help in setting the winning profit formula.

Coffee Café Day: Seeing Through Lenses of Business Model Elements

Having understood first the opportunity identification part through customer expectation trend and various business model elements, it is now very easy for us to relate to various innovations that café coffee day ushered across business model elements. The core positioning of ‘customer value proportion’ was/is ‘Easy-est’, ‘Big-est, Hot-est’, ‘Fine-est’, The case is a benchmark to help us innovate beyond ‘product & service’ to business model innovation. 

What Next? Call for Action

Your products and services will fall short in ensuring sustainable business growth going into the future. The above discussion is enough to make a case for your management teams to explore and exploit each element of your business model to innovate on.

Carving out an unknown market space (new market) or an unknown element of existing market space may be the starting point, each element then needs to be explored, exploited, & ideated to design & execute a new winning business model. It will require lot of small experimentations, but that’s how the game of innovations is played.

Are you doing this systematically, if not it’s time to start now.

To sum up, in a game of chess black follows white’s moves and suddenly black loses the game. It’s your choice what your business wants to be.

References:

1     ‘The Experience Economy’ BJ Pine II, James H Gilmore, HBR Press

2     Business Model for Indian Retail Sector: The Café Coffee Day Case, Ashis Mishra, Indian Institute of Management, Bangalore

3     The Business Model Navigator: 55 Models That Will Revolutionise Your Business; Oliver Gassmann, Karolin Frankenberger, Michaela Csik, Pearson Publishing