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The Benefits of Subscription Payment Models: How They Can Benefit Your Business
In today’s fast-paced digital age, subscription payment models have become increasingly popular among businesses of all sizes. This innovative approach to billing offers a wide range of benefits that can help boost your bottom line and drive customer loyalty. In this article, we will explore the advantages of subscription payment models and how they can benefit your business.
Predictable Revenue Streams
One of the primary benefits of subscription payment models is the ability to generate predictable revenue streams. Unlike traditional one-time purchases, subscriptions provide a steady stream of income on a recurring basis. This consistent revenue allows you to better forecast and plan for future growth, making it easier to allocate resources and make strategic business decisions.
Increased Customer Lifetime Value
Subscription payment models also have the potential to significantly increase customer lifetime value. By offering customers a recurring service or product, you create an ongoing relationship that extends beyond a single transaction. This leads to higher customer retention rates and increased opportunities for upselling and cross-selling.
Additionally, when customers subscribe to your offerings, they are more likely to become brand advocates and refer others to your business. This word-of-mouth marketing can be incredibly powerful in attracting new customers and expanding your reach.
Enhanced Customer Experience
Subscription payment models often come with added perks that enhance the overall customer experience. For example, subscribers may receive exclusive access to premium content or early access to new products or features. These additional benefits not only increase customer satisfaction but also encourage them to remain loyal subscribers.
Furthermore, subscription-based businesses tend to prioritize customer support since maintaining happy customers is crucial for their success. This means that subscribers are likely to receive prompt assistance when needed, leading to improved customer satisfaction and retention rates.
Flexibility in Pricing Options
Another advantage of subscription payment models is the flexibility they offer in pricing options. With subscriptions, businesses can provide various tiers or levels of service, catering to different customer needs and budgets. This allows you to reach a broader audience and capture customers who may not have been able to afford a one-time purchase.
Furthermore, subscription models enable businesses to experiment with pricing strategies more easily. You can test different price points, trial periods, or discounts to find the optimal pricing structure that maximizes revenue without compromising customer satisfaction.
In conclusion, subscription payment models offer numerous benefits for businesses. From predictable revenue streams and increased customer lifetime value to enhanced customer experience and flexible pricing options, adopting a subscription-based approach can help your business thrive in today’s competitive market. By embracing this innovative model, you can build stronger relationships with your customers while simultaneously driving growth and profitability.
This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.
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LEGO: Business Model Canvas and History: How a Carpenter’s Dream Became the Most Successful Toy Company in the World
- by Joanne Moyo
- November 18, 2021
One way or another, you’ve encountered a LEGO piece. If you’re one of the lucky ones, your encounters with the beloved toy were not while clearing a blocked vacuum clean or worse, painfully stepping on one.
The Danish multinational group has been a significant part of many childhoods. In fact, some experts state that for every person on the planet, there exist 62 LEGO pieces. That’s the magnitude of the reach LEGO has had.
With over 80 years in the toy industry, LEGO has been through some ups and downs. At some point, it almost went bankrupt. Thankfully the toy giant managed to turn things around. Today, LEGO is enjoying something of a renaissance after a few brutal decades.
Despite the pandemic forcing retailers to close, 2020 saw 134 new LEGO Stores open globally, including 91 in China. Additionally, LEGO.com saw a traffic increase to 269 million visits last year alone, almost double the number in 2019. By 2020 the total LEGO brand revenue was $7.54 billion, with over 678 open stores in multiple countries.
The fact that a product so simple is still relevant in an increasingly digital world is truly amazing. But this relevance did not come without its fair share of obstacles. So how did an idea as simple as a toy brick become one of the most successful and profitable businesses in the world?
So let’s take an in-depth look at how LEGO has managed to grow and sustain its business model.
1932-1948: The Origin of Lego
The year is 1932, and the Great Depression has just hit Europe. In a little Denmark town called Billund lived a man named Ole Kirk Kristiansen, the tenth son of a poor Danish family.
Ole, 41 at that time, was a carpenter. He supplied Billund with all its woodworking needs such as doors, windows, kitchen cabinets, cupboards, coffins, drawers, tools for digging peat, and bodywork for carts. He had purchased a woodworking workshop in 1924 where he was also building houses and other large projects.
The workshop and his adjoining family home burnt down after a fire that his kids had started. Luckily, he was able to secure a loan to rebuild a bigger workshop. Unfortunately, the Great Depression caused the demand for large-scale projects to plummet.
Ole realized he needed to adapt to keep supporting his kids. So to save costs, he decided to create products that consumers could actually afford, given that no one had money to waste at that time.
He experimented with different wooden products starting with ironing boards, step ladders, and chairs, which failed to get any response from his customers. Eventually, he settled on children’s toys such as piggy banks, pull toys, cars and trucks, and houses. Creating toys was his saving grace as his wife had recently passed away. Making the toys brought him some comfort and a bit of joy for him and his four sons.
Unfortunately, the business was not profitable at first because of the Great Depression. Most of his customers were farmers who had no money and would sometimes trade food for his toys. So Ole continued producing practical furniture in addition to toys to try and stay afloat.
As the mid-’30s rolled by, a yo-yo toy wave gave Ole a brief respite, but it was short-lived. He faced bankruptcy but refused to stop making toys when his siblings tried to make it a condition of a bailout loan.
Ole was not one to be held down long by a disaster. He used his capacity to adapt to find a new solution to the hundreds of unsold yo-yo’s that now littered his workshop. He decided to use the leftover yo-yo parts as wheels for toy trucks which became a bestseller along with toy trains. His son Godtfred began working for him.
LEGO’s Business Model Canvas: The Experimenting Days
At this point, LEGO’s Business Model Canvas looked like this:
- Affordable wooden furniture and a few toys
- Poor rural farmers
- Selling furniture (and sometimes toys)
- Experimenting with different wooden toys
- Manufacturing other wooden products (iron boards, chairs etc)
- Wood suppliers
- Wood (highly available during the war)
1934-1935: Rebranding and LEGO’s first Investment
In 1934, realizing that he needed a strong brand name that appealed to children, Ole held a contest among his staff to name the company. The incentive was a bottle of homemade wine. Eventually, settling on LEGO, the first two syllables of the Danish phrase Leg Godt which means “play well.”
The focus from the beginning was to produce toys with high quality, just like the company did with their other wood products. So, the quality control process that LEGO is well known for today started from the company’s inception.
Ole was convinced that even children deserved toys of high quality, made of the finest materials so that they would last for many years of play. In fact, his son Godtfred coined LEGO’s first motto, “Only the best is good enough.” There was a placard hung on the factory wall reminding employees of the company’s attitude towards quality.
Ole was not one to shy away from new technology which could improve the quality of his products. He had a gift of spotting potential, so he bought his first milling machine in Germany for DKK 3,000. This amount was one-third of the company’s total profit the previous year.
1939: Impact of WWII on LEGO
Using wood to make his toys had been out of necessity. Most toy manufacturers at that time were using metal which Ole or his customers could not afford. However, the use of wood turned out to be a brilliant decision as WWII started.
During the first two years of the war, the demand for toys was greater than ever. LEGO was able to double its sales because all import activity was halted. This naturally favored the sale of Danish goods.
Metal was now being preserved for making war tools. Many traditional European toymakers suffered huge losses, with some even closing. LEGO was one of the few toy manufacturers left making toys for children during the tumultuous period.
LEGO’s Business Model Canvas: The Early Days
- High quality, affordable children toys
- Selling affordable toys (mainly wooden piggy banks, pull toys, cars and trucks, and houses)
- Manufacturing and selling toys
1940-1948: Rebuilding LEGO
1942: the great fire.
Tragedy struck once again, and the whole LEGO factory was gutted by fire. Fortunately, this time around, his home was saved. But it was almost too much for Ole to take. At this point, he considered not rebuilding the factory at all. The insurance refused to cover the loss and construction of a new production facility, so Ole took a two-year break.
1944-1947: Rebuilding LEGO
Probably out of a sense of responsibility towards his then 15 employees, Ole decided to start again. He got a loan from Vejle Bank and rebuilt a bigger factory in 1944, which now incorporated an assembly line. By the end of 1944, the company had over 40 employees and was steadily growing.
When WWII ended in 1945, the traditional materials used to manufacture products were not readily available. Plastic became the next best alternative. Additionally, it was increasingly difficult to source beechwood of the right quality from South Stenderup Forest near Kolding.
Noticing the shifting trend, Ole decided to ride the wave of plastic adoption. He set out to purchase Denmark’s first plastic injection molding machine and began making plastic toys.
Employees began experimenting with plastics soon after the arrival of the plastic injection-molding machine in late 1947. While still getting acquainted with plastic molding, the company introduced its first plastic products in 1948, but it was not until 1949 that plastic production started gaining traction.
In 1947, Hilary Fisher Page, who worked at a London-based company called Kiddicraft, sent drawings and samples of his interlocking blocks idea to Ole. Ole was skeptical at first and didn’t adopt Page’s design.
1949-1969: The Iconic Lego Brick
However, he changed his mind a few years later and, in 1949, LEGO began manufacturing plastic interlocking bricks similar to Page’s model. He called them “automatic binding bricks.”
Ole gave the brick toy an English name as a tribute to the Allied forces, which had liberated Europe and ended World War II in 1945. As with all of the company’s other toys, the bricks were sold exclusively in Denmark because of export restrictions in other countries
This first design was anything but perfect; for one, the blocks were not stable and tended to fall when stacked on top of one another. They were not LEGO’s most popular toy at that time, but they sold pretty well.
This gave LEGO the go-ahead they needed to try and diversify their product offering. The company launched LEGO plastic building bricks in 1949. These bricks were bigger than the Automatic Binding Bricks and intended for younger children aged 1-5.
LEGO markets their new product as “the perfect bricks for daycare centers,” with the packaging featuring Ole’s grandson playing with the bricks as a toddler.
1953: Expansion to Norway
Always looking to the future, Ole tries to predict how the toy market could develop once post-war import restrictions are lifted. So far, LEGO had been restricted to local operations; expanding into exports would mean more revenue.
He begins looking beyond the Danish market. He decides the first step towards global expansion would be to set up operations in Norway. Unfortunately, Norway had strict import restrictions at the time so LEGO could not directly export the finished toys.
To circumvent this problem, LEGO signed a licensing agreement with Svein Strømberg & Co. A/S, a plastics manufacturer in Norway.
Strømberg set up a manufacturing and sales division, called Norske Lego A/S, and licensed the molds and technical knowledge from LEGO’s Billund factory. In exchange, LEGO received royalties from equipment sales, and technical assistance from their Norwegian partners.
1954-1968: The modern LEGO brick
Ole’s son, Godtfred, became the junior managing director at the Lego Group in 1954. While the company was doing okay, LEGO’s customers rejected plastic products at the beginning.
Many preferred wooden or metal toys for various reasons, including durability. LEGO was dealing with many product returns from Danish retailers following poor sales. Godtfred realized the company needed to change and fast!
During a conversation with an overseas buyer, he was struck by the idea of a toy “system for creative play” that would include many toys in a line of related products. Godtfred wanted to market the idea that a child could craft LEGO bricks into whatever they dreamed up.
He realized they needed a solid marketing plan to get sale numbers up and compel parents to buy the LEGO brick. The value proposition for parents was that purchasing a LEGO toy was not just about playing; it was an outlet for their kids to improve their creativity and imagination.
1955: The Town Plan
In 1955, LEGO launched the “Town Plan” as the first of such a system. While they didn’t come with an instruction manual on how to build the town, these sets were the first LEGOs designed with the intention to be built into a specific thing. Before this the company was just designing sets of building blocks, without any specific models in mind.
Fortunately, the Danish economic boom meant that more and more Danes could now afford their own cars. LEGO capitalized on this and marketed its new product as an educational tool to teach children how to behave in traffic.
From the very beginning, LEGO had been producing products that reflected the surrounding society. Unfortunately, the toys received a lukewarm welcome because they weren’t stable, their “locking” ability was limited, and they were not versatile.
Since the original patented design belonged to Kiddicraft and Hilary Fisher Page, LEGO contacted them to ask whether they would object to improvements of the original design. Fortunately, Kiddicraft didn’t have an issue with this. Surprisingly, they wished the company luck with the bricks because they had not enjoyed much success with their product version.
Then, in 1957, LEGO introduced their instruction manual system that gave buyers a step-by-step guideline on how to build the specific LEGO sets. This new system catapulted LEGO into success and made the new sets more appealing because now buyers could easily replicate what they say on the packaging of the sets they bought.
1958: The modern LEGO brick, a roaring success!
It wasn’t until 1958 that the problems plaguing the bricks were solved. LEGO added tubing on the underside of the brick, allowing for more stable construction. LEGO was the first producer of bricks on the market to find a solution to the problem of “hollow” bricks that had a limited locking ability. The patented design was so perfect that LEGO would never alter it again.
Unfortunately, that same year, Ole Kirk Kristiansen died, leaving his son Godtfred at the company’s helm.
The following year, Godtfred decided to set up a separate molding factory in Vejle, 30 km away from Billund, because the original factory was failing to meet production demand. There was a strong need for added production capacity.
This department, together with the tooling department set up the previous year in Hohenwestedt, Germany, supplied the necessary extra precision-made molds.
1960-1969: A complete shift in the organizational structure
Another warehouse fire struck LEGO in 1960, which destroyed most of the company’s inventory of wooden toys. Godtfred had had enough of the fires and decided that the plastic line was now strong enough to replace the production of wooden toys. He was right, and sales soared.
LEGO was now in desperate need of new skills to move the company forward. So in 1961, the company decided to hire several experts to head up different areas such as legal, marketing, and manufacturing. LEGO also hired Hans Schiess, a Swiss plastics expert, who was in charge of developing molds, raw materials, injection molding machines, and the actual molding process.
That same year, LEGO entered into an agreement with an American company called Samsonite who would become their North American producers. LEGO closed off the year by expanding its plastic line by building cars, trucks, buses, and other vehicles.
In 1963, LEGO wanted to improve quality control and the speed of the manufacturing process. So Godtfred set up a quality control department with 13 employees, which significantly improved the company’s manufacturing process efficiency.
In 1964, LEGO switched from cellulose acetate plastic to ABS plastic, non-toxic and less prone to warping, discoloration, and more heat, acid, chemical, and salt resistance.
A few years later, in 1965, LEGO set up a special product development department called LEGO Futura. The department was meant to concentrate solely on developing products and testing their ideas together with children. The department was responsible for one of LEGO’s most successful products, the LEGO train system, released in 1966.
The focus now was on improving products, so the company wanted to add a range of functions to its toy sets. For example, trains and cars needed to do more than just drive, and doll furniture had to have actual cupboards and drawers.
The company also realized that older children needed a greater degree of realism, and that’s what LEGO Futura set out to do.
The company closed off the decade by opening the first Legoland Theme Park in Billund in June 1968. The three-acre park attracted 625,000 visitors in its first year alone.
LEGO’s Business Model Canvas: The Rebuilding Days
- High quality, affordable toys for kids, with step-by-step instructions
- Co-creation with kids (encouraging creativity)
- Local distributors
- Retail stores
- Selling toys
- LEGO theme park entry fees
- Royalties from Norway partner
- Product development and expansion
- Expansion into Norway, America, and across Denmark
- Manufacturing plants and infrastructure
- Employees(especially, Hans Schiess, a Swiss plastics expert)
- Svein Strømberg & Co. A/S (Norway partner)
- Plant and factory maintenance
1970-1999: Expanding, Establishing & Losing Dominance
From 1970 to 1990, LEGO went on a product launch spree:
- In 1971, they began to target girls by introducing furniture pieces and dollhouses.
- In 1972, they added boat and ship sets, with floating hull pieces
- In 1974, they added human figures with posable arms
- In 1975, the “Expert Series” sets were introduced, geared towards older, more experienced Lego builders, followed by the “Expert Builder” sets in 1977.
- In 1978 the “Minifigure” was added.
- In 1979, Lego introduced the Scala series, which had jewelry elements and was marketed towards young girls.
- In 1989 the LEGO Pirates theme was released, and it featured a variety of pirate ships, deserted islands, and treasures.
- In 1990 a new LEGO series designed for advanced builders was launched, and it featured a race car and an off-road vehicle. The level of detail and realism on these sets was utterly new.
LEGO also set out expanding into different countries. In 1974 the company opened its first North American production facility in Enfield, Connecticut, in the United States. A few years later, in 1988, Canada was their next target. In August that same year, 38 children from 17 countries took part in the first Lego World Cup building contest, held in Billund. Finally, in 1990, LEGO expanded into Malaysia.
1992-1999: The Decline Begins
As the ’90s rolled around, LEGO had a firm grip on the toy industry, but the world was starting to change. Digitalization and other fun things like video games were dominating the toy market. It was clear LEGO was losing its grip and could not compete in this new tech-savvy world.
The company panicked and started to make bad decisions. They launched a series of disastrous new product ideas that cost the company its reputation and money. LEGO launched a TV cartoon named Jack Stone, which, unfortunately, nobody watched. Then, they released a live-action, futuristic series called Galidor: Defenders of the Outer Dimension. The show tanked.
By the end of 1992, profits were starting to decline. A few years later, in 1996, LEGO made one of the worst decisions that exacerbated the problem. They let go of many LEGO designers who had created the wildly successful LEGO sets from the late 1970s.
LEGO replaced them with 30 new ‘innovators’ who graduated from the European design colleges around Europe. These new designers knew very little about toy design and even less about LEGO building.
Everything LEGO churned out from this point failed dismally because the new design team was trying to cut production time down. The old LEGO sets could take over a year to progress from the design stage to store shelves. Still, the new designers sacrificed set details for faster building times (with fewer pieces).
The difference was noticeable, and the market rejected the new LEGOS. In 1998 the company posted its first-ever loss of £23 million since inception. That same year, the company laid off 1,000 employees.
1999: LEGO movie characters
In a bid to offset the loss, LEGO landed a licensing deal with Hollywood. This was the first time the company was producing non-in-house LEGOS. They produced LEGO Star Wars and Winnie the Pooh Duplo. This was followed in 2000 by LEGO Harry Potter characters.
This temporarily boosted profits during the release of blockbuster movies; however, sales would taper off after public excitement died down. Furthermore, LEGO was bleeding money paying the license fees for these sets. Because they had passed the cost down to the customer, these movie LEGO sets were more expensive.
The rising costs, reduced availability of comparable sets that were not based on the movie licensing deals, and declining quality spelled disaster for LEGO.
The company had failed to understand the principle of consumer demand. The Star Wars launched LEGO had underestimated the market and had not produced enough toys to keep up with consumers. Within weeks, the products completely sold out.
The following year they got it wrong again by overproducing LEGO-themed toys during a year when no new movie was released. LEGO ended up with too many toys sitting on the shelf.
They had always relied on the fact that their brand was popular. People loved LEGO, not realizing that children of the 90s were now driven by the media they consumed.
LEGO’s Business Model Canvas: The Expansion Days
- Video games, series, and toys for kids
- Selling LEGOs
- Theme park entry fees
- Product launch
- Developing video games and children movies
- Global expansion
- New designers
- Movies related licences (brand, characters, etc.)
- Amusement parks
- Licensing fees
- Distribution costs
2000-2010: Trouble in Lego Paradise & LEGO Renaissance
By 2003 LEGO was in big trouble. Sales were down 30%, and the company was shouldering an $800m in debt. An internal report revealed that LEGO hadn’t added anything of value to its portfolio for a decade.
In 2004, LEGO had a loss of £174 million, things were not looking good. Many within the company management felt that the company should look to Mattel, who was producing Fisher-Price, Barbie, Hot Wheels, and Matchbox toys.
Mattel has a comprehensive and varied portfolio that LEGO tried to emulate. This brought the company to the brink of complete failure. They introduced jewelry for girls, clothes, opened theme parks that cost £125m to build, and lost £25m in their first year.
They built their own video games company from scratch, despite having no experience in the field. LEGO brick toys still sold, particularly the movie character sets; the rest sat on shelves. There was no innovation, and children were getting less and less time to play.
Ole’s grandson Kjeld Kirk Kristiansen resigned as CEO in 2004 and appointed Jørgen Vig Knudstorp, as the first non-family CEO. Under Jørgen’s leadership, the company sold the four Legoland parks to Merlin Entertainment. Manufacturing that had been primarily outsourced was returned to LEGO’s control.
Fortunately, Jørgen knew what he was doing and started to steer the company away from bankruptcy. He heard of Christian Faber, a former art director for an advertising agency known as “Advanced” who had an inoperable brain tumor. He decided to ask him for permission to adapt his story for a new LEGO series.
LEGO Bionicles was a story of robots fighting off a dark presence called the Makuta, an entity modeled after his cancer. The set was a hit and became the basis for a profitable children’s series.
Building on the success of the Bionicles series, LEGO released a new set called the Ninjago. It was followed up by a show based on the same characters, and the kids loved it. This laid the groundwork for the renaissance of the classic LEGO brick sets, the LEGO movie that came out in 2014.
The flailing giant had made it to the other side. From 2015 until now, the “Apple” of the toy industry has been on an upward trajectory.
LEGO’s Business Model Canvas: The Renaissance Days
- Durable, high-quality, and a variety of toys
- Global LEGO subculture
- Online store
- Product sales
- Movie sales
- Making movies
- Product expansion
- Merlin Entertainment
- Hollywood and TV Networks
- Plastic suppliers
The core issue for LEGO wasn’t their business model per se; it was in the execution. They got complacent, relied heavily on their established brand, and forgot that specialization, innovation, and adaptation were vital to longevity. Thankfully LEGO learned that lesson before it was too late and has managed to keep its business model profitable.
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Why lego's business model is so successful.
LEGO business model canvas
LEGO’s Company Overview
Lego is a line of plastic construction toys that are manufactured by The Lego Group, a privately held company based in Billund, Denmark. The company's flagship product, Lego, consists of colorful interlocking plastic bricks accompanying an array of gears, figurines called minifigures, and various other parts. Lego pieces can be assembled and connected in many ways, to construct objects; vehicles, buildings, and working robots.
Foundations date: 1932
Sector: Consumer Goods
LEGO’s Customer Needs
Life changing: self-actualization, motivation, heirloom, affiliation/belonging
Emotional: attractiveness, design/aesthetics, rewards me, fun/entertainment, nostalgia, badge value
Functional: simplifies, Quality, variety
LEGO’s Related Competitors
Lego’s business operations.
An additional item offered to a customer of a primary product or service is referred to as an add-on sale. Depending on the industry, add-on sales may generate substantial income and profits for a firm. For example, when a customer has decided to purchase the core product or service, the salesman at an automotive dealership will usually offer an add-on sale. The pattern is used in the price of new software programs based on access to new features, number of users, and so forth.
Commissions are used in the affiliate revenue model example. Essentially, you resell goods from other merchants or businesses on your website or in your physical store. You are then compensated for referring new consumers to the company offering the goods or services. Affiliates often use a pay-per-sale or pay-per-display model. As a result, the business can access a more diversified prospective client base without extra active sales or marketing efforts. Affiliate marketing is a popular internet business strategy with significant potential for growth. When a client purchases via a referral link, the affiliate gets a portion of the transaction's cost.
The aikido business model is often characterized as using a competitor's strength to get an edge over them. This is accomplished through finding weaknesses in a competitor's strategic position. In addition, it adds to marketing sustainability by exposing rivals' flaws, finding internal and external areas for development, and attracting consumers via specific product offers that deviate from the norm.
Archetypes of business model design:
The business model archetypes include many business personalities and more than one business model linked to various goods or services. There is a common foundation behind the scenes of each unit, but from a management standpoint, each group may operate independently.
Blue ocean strategy:
The blue ocean approach is predicated on the premise that market limits and industry structure are not predetermined and may be reconfigured via the actions and attitudes of industry participants. This is referred to as the reconstructionist perspective by the writers. Assuming that structure and market boundaries exist solely in managers' thoughts, practitioners who subscribe to this perspective avoid being constrained by actual market structures. To them, more demand exists, primarily untapped. The core of the issue is determining how to produce it.
Producing goods in collaboration with customers based on their input, comments, naming, and price. It represents a new form of the socioeconomic output in which enormous individuals collaborate (usually over the internet). In general, initiatives based on the commons have less rigid hierarchical structures than those found on more conventional commercial models. However, sometimes not always?commons-based enterprises are structured so that contributors are not compensated financially.
Innovation is the outcome of collaborative creativity in turning an idea into a feasible concept, accompanied by a collaborative effort to bring that concept to life as a product, service, or process improvement. The digital era has created an environment conducive to business model innovation since technology has transformed how businesses operate and provide services to consumers.
Culture is brand:
It requires workers to live brand values to solve issues, make internal choices, and provide a branded consumer. Developing a distinctive and enduring cultural brand is the advertising industry's holy grail. Utilizing the hazy combination of time, attitude, and emotion to identify and replicate an ideology is near to marketing magic.
Consolidating numerous distribution routes into one to achieve greater economic efficiency. A business model for internet commerce in which a company (that does not manufacture or warehouse any item) gathers (aggregates) information about products and services from many competing sources and displays it on its website. The firm's strength is in its power to create an 'environment' that attracts users to its website and develop a system that facilitates pricing and specification matching.
Channel per purpose:
Creating separate channels for selling and purchasing current goods and services. A marketing plan is a vendor's plan for distributing a product or service to the end consumer through the chain of commerce. Manufacturers and retailers have a plethora of channel choices. The simplest method is the direct channel, which involves the seller selling directly to the consumer. In addition, the vendor may use its own sales staff or offer its goods or services through an e-commerce website.
Simplifying many product kinds inside a product group or set of goods. A technique for doing business analysis in which a complex business process is dissected to reveal its constituent parts. Functional decomposition is a technique that may be used to contribute to an understanding and management of large and complicated processes and assist in issue solving. Additionally, functional decomposition is utilized in computer engineering to aid in the creation of software.
Excluding current clients that are unprofitable or who do not adhere to company principles. Efforts directed towards reducing (not eliminating) demand for a product that (1) a company cannot provide in sufficient quantities or (2) a firm does not want to sell in a particular area due to prohibitively expensive distribution or marketing expenses. Increased pricing, less promotion, and product redesign are all common demarketing tactics.
A digital strategy is a strategic management and a business reaction or solution to a digital issue, which is often best handled as part of a broader company plan. A digital strategy is frequently defined by the application of new technologies to existing business activities and a focus on enabling new digital skills for their company (such as those formed by the Information Age and frequently as a result of advances in digital technologies such as computers, data, telecommunication services, and the World wide web, to name a few).
This pattern is based on the capacity to convert current goods or services into digital versions, which have several benefits over intangible products, including increased accessibility and speed of distribution. In an ideal world, the digitalization of a product or service would occur without compromising the consumer value proposition. In other words, efficiency and multiplication achieved via digitalization do not detract from the consumer's perceived value. Being digitally sustainable encompasses all aspects of sustaining the institutional framework for developing and maintaining digital objects and resources and ensuring their long-term survival.
Direct selling refers to a situation in which a company's goods are immediately accessible from the manufacturer or service provider rather than via intermediate channels. The business avoids the retail margin and any extra expenses connected with the intermediaries in this manner. These savings may be passed on to the client, establishing a consistent sales experience. Furthermore, such intimate touch may help to strengthen client connections. Finally, direct selling benefits consumers by providing convenience and service, such as personal demonstrations and explanations of goods, home delivery, and substantial satisfaction guarantees.
A disruptive technology supplants an existing technology and fundamentally alters an industry or a game-changing innovation that establishes an altogether new industry. Disruptive innovation is defined as an invention that shows a new market and value network and ultimately disrupts an established market and value network, replacing incumbent market-leading companies, products, and alliances.
Electronic commerce, or e-commerce (alternatively spelled eCommerce), is a business model, or a subset of a larger business model, that allows a company or person to do business via an electronic network, usually the internet. As a result, customers gain from increased accessibility and convenience, while the business benefits from integrating sales and distribution with other internal operations. Electronic commerce is prevalent throughout all four main market segments: business to business, business to consumer, consumer to consumer, and consumer to business. Ecommerce may be used to sell almost any goods or service, from books and music to financial services and airline tickets.
Disrupts by offering a better understanding that customers are willing to pay for. Experience companies that have progressed may begin charging for the value of the transformation that an experience provides. An experienced company charges for the feelings consumers get as a result of their interaction with it.
An experience in the sales model describes how a typical user perceives or comprehends a system's operation. A product or service's value is enhanced when an extra customer experience is included. Visual representations of experience models are abstract diagrams or metaphors derived from recognizable objects, actions, or systems. User interfaces use a range of experience models to help users rapidly comprehend what is occurring in the design, where they are, and what they may do next. For example, a software experience model may depict the connection between two applications and the relationship between an application and different navigation methods and other system or software components.
Fast fashion is a phrase fashion retailers use to describe how designs travel rapidly from the catwalk to catch current fashion trends. The emphasis is on optimizing specific supply chain components to enable these trends to be developed and produced quickly and affordably, allowing the mainstream customer to purchase current apparel designs at a reduced price.
Disrupts by 'brand bombing' competitors, often by offering below cost. Hypermarkets, like other large-scale retailers, generally operate on a high-volume, low-margin basis. They typically span a space of 5,000 to 15,000 square meters (54,000 to 161,000 square feet) and stock more than 200,000 different brands of goods.
Providing services to the in-crowd Consumers in mature markets need travel, leisure, and lifestyle businesses to customize their interactions with these customers significantly. For travel, leisure, and lifestyle businesses, their most valuable asset is their brand. The brand functions as a social network navigator as well as a separator between the in-crowd and the crowd. Potential brand ambassadors are the most influential members of a social network. In addition, brand ambassadors collaborate in the selective marketing of high-status goods and services.
Ingredient branding is a kind of marketing in which a component or ingredient of a product or service is elevated to prominence and given its own identity. It is the process of developing a brand for an element or component of a product in order to communicate the ingredient's superior quality or performance. For example, everybody is aware of the now-famous Intel Inside and its subsequent success.
A systems integrator is an individual or business specializing in integrating component subsystems into a unified whole and ensuring that those subsystems work correctly together. A process is known as system integration. Gains in efficiency, economies of scope, and less reliance on suppliers result in cost reductions and may improve the stability of value generation.
Knowledge and time:
It performs qualitative and quantitative analysis to determine the effectiveness of management choices in the public and private sectors. Widely regarded as the world's most renowned management consulting firm. Descriptive knowledge, also called declarative knowledge or propositional knowledge, is a subset of information represented in declarative sentences or indicative propositions by definition. This differentiates specific knowledge from what is usually referred to as know-how or procedural knowledge, as well as knowledge of or acquaintance knowledge.
Companies that add value across many markets and sectors are referred to be layer players. Occasionally, specialist companies achieve dominance in a specific niche market. The effectiveness of their operations, along with their economies of size and footprint, establish the business as a market leader.
The Lean Start-up methodology is a scientific approach to developing and managing businesses that focuses on getting the desired product into consumers' hands as quickly as possible. The Lean Startup method coaches you on how to guide a startup?when to turn, when to persevere?and how to build a company with maximum acceleration. It is a guiding philosophy for new product development.
A formal agreement in which the owner of the copyright, know-how, patent, service mark, trademark, or other intellectual property grants a licensee the right to use, manufacture, and sell copies of the original. These agreements often restrict the licensee's scope or area of operation, define whether the license is exclusive or non-exclusive, and stipulate whether the licensee will pay royalties or another kind of compensation in return. While licensing agreements are often used to commercialize the technology, franchisees also utilize them to encourage the sale of products and services.
The lock-in strategy?in which a business locks in consumers by imposing a high barrier to transferring to a competitor?has acquired new traction with New Economy firms during the last decade.
The long tail is a strategy that allows businesses to realize significant profit out of selling low volumes of hard-to-find items to many customers instead of only selling large volumes of a reduced number of popular items. The term was coined in 2004 by Chris Anderson, who argued that products in low demand or with low sales volume can collectively make up market share that rivals or exceeds the relatively few current bestsellers and blockbusters but only if the store or distribution channel is large enough.
Make and distribute:
In this arrangement, the producer creates the product and distributes it to distributors, who oversee the goods' ongoing management in the market.
Make more of It:
The business invests time and money in developing in-house expertise and development that may be used both internally and outside to sell goods or services to clients or third parties. AWS was created to meet Amazon's cloud computing requirements. They quickly discovered that they could offer their services to end-users. At the moment, AWS accounts for about 11% of Amazon's overall income.
Markets are conversations:
For professional services firms, the difference will be made by converting non-engaged customers into engaged customers. Product development will be obsolete. Customer relations and conversations will replace it. By sharing modular and beta products and services with your current and future customers, companies and their customers interact and collaborate in ongoing conversations. Not only will customers find and follow companies in online social networks, but it will also be the other way around as well.
Mass customization is a strategy that entails using modular goods and manufacturing processes to allow efficient product individualization. Mass customization refers to producing customized output using flexible computer-aided manufacturing systems in marketing, manufacturing, contact centers, and management. Mass customization is the next frontier for manufacturing and service sectors alike. Beyond the physical product, mass customization is utilized by a diverse variety of software products and services with the goal of developing strong connections with customers via personalization and suggestion.
A marketing strategy for a product or service includes characteristics that appeal to a particular minority market segment. A typical niche product will be distinguishable from other goods and manufactured and sold for specialized purposes within its associated niche market. Niche retail has focused on direct-to-consumer and direct-to-business internet sales channels. The slogan for niche retail is Everything except the brand.
An online marketplace (or online e-commerce marketplace) is a kind of e-commerce website in which product or service information is supplied by various third parties or, in some instances, the brand itself, while the marketplace operator handles transactions. Additionally, this pattern encompasses peer-to-peer (P2P) e-commerce between businesses or people. By and large, since marketplaces aggregate goods from a diverse range of suppliers, the variety and availability are typically greater than in vendor-specific online retail shops. Additionally, pricing might be more competitive.
A business concept established by Henry Chesbrough that inspires firms to pursue out external sources of innovation in order to enhance product lines and reduce the time needed to bring the product to the market, as well as to industry or release developed in-house innovation that does not fit the customer's experience but could be used effectively elsewhere.
Product innovation is the process of developing and introducing a new or better version of an existing product or service. This is a broader definition of innovation than the generally recognized definition, which includes creating new goods that are considered innovative in this context. For example, Apple launched a succession of successful new products and services in 2001?the iPod, the iTunes online music service, and the iPhone?which catapulted the firm to the top of its industry.
Shop in shop:
A store-within-a-store, sometimes known as a shop-in-shop, is an arrangement in which a retailer leases out a portion of its retail space to another business to operate another independent store. This arrangement is prevalent with gas stations and supermarkets. In addition, numerous bookstores collaborate with coffee shops since consumers often want a spot to relax and enjoy a beverage while browsing. Frequently, the shop-within-a-store is owned by a manufacturer who operates an outlet inside a retailer's store.
Utilizes a multi-tiered e-commerce approach. The firm first focused on business-to-consumer connections with its customers and business-to-business ties with its suppliers. Still, it later expanded to include customer-to-business transactions after recognizing the importance of customer evaluations in product descriptions. It now also enables customer-to-customer transactions by establishing a marketplace that serves as a middleman for such transactions. The company's platform enables nearly anybody to sell almost anything.
Take the wheel:
Historically, the fundamental principles for generating and extracting economic value were rigorous. Businesses attempted to implement the same business concepts more effectively than their rivals. New sources of sustained competitive advantage are often only accessible via business model reinvention driven by disruptive innovation rather than incremental change or continuous improvement.
Online retailers provide specialized content to various niche client groups via continuing mass-customized customer relationships. The sector of technical content providers is a second client segment. Combining these two factors may result in an infinite number of niches. New material is produced and distributed through online channels, which implies that online retailers must prioritize platform maintenance and marketing in addition to service delivery.
A client is both the manufacturer and the consumer in user manufacturing. For instance, an online platform could offer the client the tools required to create and market the product, such as product design software, manufacturing services, or an online store to sell the goods. In addition, numerous software solutions enable users to create and customize their products to respond to changing consumer requirements seamlessly.
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How Lego Switched from being on the Brink of Bankruptcy to being the World’s Most Powerful Brand told in Business Model Canvas Estimated Reading Time: just 4 min
The Business Model Canvas (BMC) is the structure of a business plan in one single page.
The Canvas is popular with entrepreneurs and intrapreneurs for business model innovation.
Fundamentally it delivers three things:
Focus: since it is more concise than a traditional business plan Flexibility: sitting on a single page, it is a lot easier to tweak than a business plan Transparency: it makes a much easier to understand a business model
This business model design template is based on:
- Customer Segments
- Value Propositions
- Customer Relationships
- Key Activities
- Key Resources
- Key Partners
- Revenue Streams
- Cost Structure
- Social & Environmental
An interesting case study of a successful Business Model Canvas application is The Lego Group .
The Lego Group is a company that went in the spotlight for manufacturing and selling a line of plastic construction toys.
The company is headquartered in Billund, Denmark where its founder, Ole Kirk Christiansen, started crafting wooden toys in 1932. The name Lego derives from Danish “leg godt”, which means “play well”.
The first evolution of the business happened in 1947 when a production of plastic toys was started leading in 1949 to the first version of the now familiar interlocking bricks, called “Automatic Binding Bricks”. The technology used was plastic injection molding while the material utilized at this point was cellulose acetate.
Despite the general feeling that wooden toys were better than plastic ones, Lego succeeded in innovating the market because of the high-quality standards of its products.
The Automatic Binding Bricks were still facing serious limitations in terms of locking ability and versatility.
Ole Kirk’s son, Godtfred Kirk Christiansen, who succeeded to his father in 1954 decided he wanted to overcome these limitations for the Bricks to have a definitive break-through on the market.
As a result of this, in 1958, the modern bricks design was patented, and the material changed to ABS polymer (Acrylonitrile Butadiene Styrene).
In 1978, Lego produced the first mini-figures that are one of the most famous toy characters in the world.
At this point, the business model of Lego Group looked as it follows:
1. Customer Segments: the company targeted a Mass Market made of kids/teenagers and the Segmentation was based on Demographic Factors regardless any other psychographic attribute 2. Value Propositions: Lego aimed to deliver
- Systems for Creative Play (that allowed to build infinite items with a finite set of bricks)
- High-Quality Toys (following the motto “The Best is Never Too Good”)
3. Channels: the company reached its customers using a strategy based on Partner Channels (wholesalers and distributors)
4. Customer Relationships: Lego had really few relationships with the final customers while it was in touch with wholesalers and distributors. This led to inefficiencies along the company due to:
- White Noise in receiving info about final customers’ needs and expectations
- Bullwhip Effect along the Supply Chain
5. Key Activities: the core activities for Lego were:
- Designing Versatile Solutions that could be combined in order to generate an infinite set of items
- Optimizing Operations in order to lower the costs and improving the quality of products
6. Key Resources: the key assets for Lego were:
- Patents and Designs
- Manufacturing Processes
7. Key Partners: Lego’s business model worked thanks the relationship the company had with:
- Wholesalers and Distributors
8. Revenue Streams: revenues were mainly generated by exploiting the Patents and Selling Lego bricks
9. Cost Structure: the main expenses for Lego were due to:
- Patents/Legal Matters
10. Social & Environmental Benefits/Costs: ABS material was not recyclable, and it is arguable if it impacted the environment more than wood. Nowadays, recycling ABS is getting more frequent so that this Environmental Cost could be less impacting
Despite Lego looked unstoppable in the early 80s, the strong competition generated by an increasing number of players on the Toys Market and the introduction of videogames put the company in danger.
In fact, in 2004 The Lego Group was on the brink of bankruptcy as they appointed Jorgen Vig Knudstorp as CEO.
The causes that lead to that situation were a struggle to:
- Give consumers what they wanted
- Effectively manage costs and margins
The first move made by the new CEO was to cut down the number of parts managed from over 12,000 to 6,000. This reduced complexity and freed Working Capital.
The second move was to link Design to Manufacturing Costs so that the company gained control over margins and profitability since the New Product Introduction phase.
The third move was to offload all the products that were unprofitable in terms of market positioning or revenues. This step highlighted that Lego was able to survive only because of the income generated by Bionicle and the Star Wars Series.
Lego launched the first Star Wars kits in 1999 and this represented the company’s first foray into licensed series.
The success of Star Wars kits led to an important takeaway, in fact, Customer Segments were split into:
- Collectors (both Lego and license kits ones)
This switched the company target from a Mass undetermined Market to a Niche Market made of passionate customers looking for specific products.
This led Lego to learn how to get in touch with customers in order to understand what they wanted.
These initiatives brought new energies to Lego that is now one of the biggest players in the world.
In fact, in 2015, the company:
- Reached 600 billion Lego parts produced
- Replaced Ferrari as World’s Most Powerful Brand
Below you can find the new business model synthesized in a BMC.
- Author Details
Business Strategy | Product Marketing | Executive Master eCommerce Management | Business Innovation Master | MSc
I am driven by my personal growth and of people/contexts that surround me. I followed a professional path in Valentino Fashion Group and Luxottica during which, thanks to the ability to understand different businesses and interests, I was able to succeed in Operations, Merchandising and Retail. These organizations have exploited my ability to mediate and translate needs/constraints into practice, assigning me to Project Management roles. Luxottica relied on my ability to analyze, to anticipate things and to imagine/implement solutions by appointing me in Supply Chain Management department and assigning me to the Product Management of IoT solutions for Anti-counterfeiting and Retail digitalization. During this professional path, I also developed my leadership by managing teams to build Processes, Organizations, Systems and Governance Tools.
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LEGO's great business model turnaround story
One of the biggest challenges large companies face is reinventing themselves and remaining successful. Sometimes they fail to do so and their business model expires like a yogurt in the fridge. Learn how LEGO escaped near-death with their amazing business model turnaround story.
In 1949 LEGO began manufacturing interlocking toy bricks in Billund, Denmark. This created infinite possibilities of imaginary worlds for generations of kids and LEGO grew over decades. Yet, LEGO almost faced bankruptcy ten years ago. Watch the video below to learn how LEGO pulled off a spectacular business turnaround, quadrupled its revenues in less than a decade and brought LEGO bricks back to households around the world. Today, they occupy the top spot in the toy manufacturing business (take that Barbie! ;-).
How LEGO created more (value) with less (resources)
One could argue that LEGO turned its business model around by creating more value for customers while using less resources. They first reengineered their operations improving the backstage of their Business Model (Canvas) . Then, they turned to customers and boosted value creation.
Operations focus: streamlining activities and using the resources in the backstage of the Business Model (Canvas):
- LEGO first streamlined its operations and decreased the complexity of its manufacturing processes. In particular, they reduced the number of different LEGO bricks by eliminating those that were difficult and costly to source. LEGO focused on a standard design of their bricks, which made their operations more nimble and allowed them to react quickly to market trends.
- LEGO also decided to get rid of LEGO branded products that were tangential to their business and weren’t profitable
LEGO expanded its business model only after establishing a robust operational base, ensuring a profit on the sets they were selling. Then they turned to customers and designed new and improved value propositions that would create more value for their customers.
Customer focus: creating more value with new value propositions in the frontstage of the Business Model (Canvas):
- Lego adapted their kits to the dreams and desires of kids in the 21st century (e.g. LEGO Mindstorms include smart bricks with both software and hardware to build customized robots).
- LEGO expanded to new markets by designing sets for undeserved segments (e.g. LEGO friends targeting girls) and expanding to emerging countries where their growth was soaring.
Tools & techniques
- Business Model Canvas
- Story-telling one sticky note at a time
Also, LEGOs are so cool that even Scotland’s police use them.
What are your favorite business turnaround stories?
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