Better Business Models
How the business model you choose can help fuel growth and shape your company
In a previous post, we discussed a few strategies for how you may differentiate yourself from competitors. It’s important to note that your ability to differentiate and how you go about doing so is often directly tied to the business model you choose to employ. Your business model can position you to compete on things like cost, accessibility, and service. Below we give a few examples of how companies have built competitive advantages based on their business model decisions.
Southwest Airlines - Streamlined Operations
Southwest Airlines made multiple operational decisions early on that helped them differentiate themselves as a low cost carrier. Their business model included one fare class, ticketless operation with no seat assignments, one type of airplane (Boeing 737) to reduce maintenance cost, no movies or meals in flight, and hubs at less-congested airports. Southwest attempts to maximize utilization and on-time performance to improve customer satisfaction and keep costs as low as possible. These decisions changed the game for airlines around the globe, who sought to streamline their operations in similar ways once they saw Southwest’s success.
Ritz-Carlton - Premium / Superior Service
At the core, hotels offer a very similar product: a room for the night with a bed to sleep in. The Ritz-Carlton, however, is a great example of how choosing a premium model based on excellent customer service can provide significant competitive advantage. Early on, the Ritz made a decision to be a premium brand, and while it’s true that the amenities, quality of both food and extra comfort at the Ritz help differentiate them, the hotel chain hangs its hat on customer service. Known for their Gold Standards, the Ritz emphasizes strong customer service on a daily basis, which includes policies designed to make the guests feel at home such as always using a guest’s name and ensuring a warm greeting any time you see a customer throughout the hotel. Their decision to be a premium brand and ability to support that decision with excellent service has allowed them to charge more for a night’s stay than other premium competitors.
Bonobos - Smaller Physical Storefronts
The men’s clothing brand Bonobos has made a conscious decision to minimize their physical footprint and handle most of their shopping through e-commerce. Recognizing that consumers often like to try on clothes for fit, Bonobos decided to run its business out of local “Guide Shops” in large metropolitan areas. Each shop has just one item in each size and style for customers to try on, minimizing the SKUs available in store. Employees in the guide shops will help fit each customer and then the customers make their purchases online through their personal fit profile, driving sales via e-commerce. Through this model, Bonobos is able to minimize overhead and inventory, while still providing a personalized in-store experience to their customers that need it.
There are many different business models to decide from. The three above are simply examples of how business model decisions can result in both better financial performance for your company and true competitive advantage. Carefully considering your initial business model is essential to the future success of your company and can drive decisions that you will have to make down the road. Try to take the time to get this right at the beginning, but don’t be afraid to pivot if you find that your initial choice just isn’t working.