The core offering is priced competitively, but there are numerous extras that drive the final price up. In the end, the costumer pays more than he or she initially assumed. Customers benefit from a variable offer, which they can adapt to their specific needs.
Examples: Iconic Cases
Top Industries
Below, the pattern "Add-on" is analyzed based on co-occurrence, in order to get insights into how this business model pattern is applied in combination with other patterns within the firms we studied.
Top Co-Occurrences
Useful for product and pricing strategy: The basic product can be bought and used for a good price and satisfies the core need. Various additional elements are available to enhance the product and cost extra money.
Description
There are two ways to use the add-on pattern.The first approach is to look at the competitive environment: if there are many competitors that offer similar solutions to a problem or when it is difficult to position a company as a quality leader the add-on pattern might be a strategy to differentiate via price. The basic product is offered at a competitive price that attracts the customers’ attention. Different extras can be added to the basic product that drive the final price. Sometimes it is even linked to a cross financing strategy: the basic product is sold below it’s actual value.
The second approach is to primarily use the add-on pattern as a part of the product & pricing strategy: it helps to guide the customer within his decision.
It is a common pattern used in the car industry: the basic car is cheap but usually buyer then start to add extras that make the car the one they really want to have.
Looking at this pattern from a inclusive point of view there is the potential that this business model pattern allows freedom to fulfill on the one hand a basic need (transportation, care,..) and on the other hand allows customization and freedom for fulfilling special needs.
The first approach is to look at the competitive environment: if there are many competitors that offer similar solutions to a problem or when it is difficult to position a company as a quality leader the add-on pattern might be a strategy to differentiate via price. The basic product is offered at a competitive price that attracts the customers’ attention. Different extras can be added to the basic product that drive the final price. Sometimes it is even linked to a cross financing strategy: the basic product is sold below it’s actual value.
The second approach is to primarily use the add-on pattern as a part of the product & pricing strategy: it helps to guide the customer within his decision.
It is a common pattern used in the car industry: the basic car is cheap but usually buyer then start to add extras that make the car the one they really want to have.
Looking at this pattern from a inclusive point of view there is the potential that this business model pattern allows freedom to fulfill on the one hand a basic need (transportation, care,..) and on the other hand allows customization and freedom for fulfilling special needs.
Success factors
Basic Product
Make sure that the basic product fulfills the core needs but also creates the desire for the add ons. If this thershold is overlooked the product is simply incomplete. Use the Kano Model to explore the bottom line quality and features your product needs.Profitability
Develop a balanced pricing strategy that includes the basic product with (usually) a low or no margin and attractive add-ons with high margin.Test new Add-ons
Constantly run tests with new add-ons to keep your product fresh and to learn about changing needs or undiscovered potentials.Customer Relationship
Buyer-seller relationships are imperative with communication, empathy and understanding of wants and needs.
Make sure that the basic product fulfills the core needs but also creates the desire for the add ons. If this thershold is overlooked the product is simply incomplete. Use the Kano Model to explore the bottom line quality and features your product needs.
Develop a balanced pricing strategy that includes the basic product with (usually) a low or no margin and attractive add-ons with high margin.
Constantly run tests with new add-ons to keep your product fresh and to learn about changing needs or undiscovered potentials.
Buyer-seller relationships are imperative with communication, empathy and understanding of wants and needs.
Examples
Cars:
You can choose a basic version of the car for a reasonable price but every extra that makes the car faster, nicer or more special means additional costs.Low Cost Airlines
Basic air travel is very cheap but every extra needs to be purchased additionally: seat reservation, baggage, food, priority check-in. There were even rumors that even using the bathroom will be charged.
Mobile Games
You can download the game for free and purchase various add-ons in an in-app store to be more successful (e.g. additional lives, more resources, special power…)
You can choose a basic version of the car for a reasonable price but every extra that makes the car faster, nicer or more special means additional costs.
Low Cost Airlines
Basic air travel is very cheap but every extra needs to be purchased additionally: seat reservation, baggage, food, priority check-in. There were even rumors that even using the bathroom will be charged.
Mobile Games
You can download the game for free and purchase various add-ons in an in-app store to be more successful (e.g. additional lives, more resources, special power…)
Chances
- Customer Acquisition: a great cheap core product attracts new customers
- Customer Satisfaction: the customer can choose add-ons according to his needs. This offers the possibility to individualize the product and only pay for features that are personally important.
- Attractiveness: with new add-ons you can always keep your product innovative without changing the core product itself
- Customer Acquisition: a great cheap core product attracts new customers
- Customer Satisfaction: the customer can choose add-ons according to his needs. This offers the possibility to individualize the product and only pay for features that are personally important.
- Attractiveness: with new add-ons you can always keep your product innovative without changing the core product itself
Risks
- It is essential to market the add-ons as an attractive feature and as additional value.
- One must regularly remain aware of the customer’s needs in order to ensure the add-on is an appropriate one.
- It is essential to market the add-ons as an attractive feature and as additional value.
- One must regularly remain aware of the customer’s needs in order to ensure the add-on is an appropriate one.
Responsibility
InclusivenessThis pattern can be used as an inclusive business model that helps to make basic offerings affordable for everyone.
https://bit.ly/3lMN0OB
https://bit.ly/3lMN0OB
Add-On Model
Business Dictionary defines the Add On Model as: Fees or charges that are added to the basic price of a good or service for additional features or benefits, such as those added to the price of a car for accessories. The real key is to add on high-margin products or services.
We see this model everywhere!
Buying an airline ticket: Would you like to upgrade to first class? Would you like to purchase flight insurance?
Buying a new iPhone: Would you like to purchase Apple Care?
At McDonalds: Would you like fries with that?
Business Dictionary defines the Add On Model as: Fees or charges that are added to the basic price of a good or service for additional features or benefits, such as those added to the price of a car for accessories. The real key is to add on high-margin products or services.
We see this model everywhere!
Buying an airline ticket: Would you like to upgrade to first class? Would you like to purchase flight insurance?
Buying a new iPhone: Would you like to purchase Apple Care?
At McDonalds: Would you like fries with that?
Why and How it Works
The beauty of the Add-On Model is that your product endures and makes additional money throughout your customer or client’s usage. Acquisition costs seem less substantial when customers feel loyal to and continually pay for your services as opposed to using your product once for a brief spell or only sporadically.
While many “Add-On” companies offer their initial product for free, you may find that if your product encourages serious brand loyalty (as we hope that it does), you can offer an initial cost and then continue to add reliable in-demand features for your clients.
The Add-On Model keeps your product fresh and relevant, and best of all, responding to the demands of your client base. New features are low-risk; you already know what your clients need. Customers will be excited about being heard and about getting more use out of a good product.
As you design your business model, you might keep in mind that you don’t want to convolute your plan.
https://bit.ly/3PMMaiL
The beauty of the Add-On Model is that your product endures and makes additional money throughout your customer or client’s usage. Acquisition costs seem less substantial when customers feel loyal to and continually pay for your services as opposed to using your product once for a brief spell or only sporadically.
While many “Add-On” companies offer their initial product for free, you may find that if your product encourages serious brand loyalty (as we hope that it does), you can offer an initial cost and then continue to add reliable in-demand features for your clients.
The Add-On Model keeps your product fresh and relevant, and best of all, responding to the demands of your client base. New features are low-risk; you already know what your clients need. Customers will be excited about being heard and about getting more use out of a good product.
As you design your business model, you might keep in mind that you don’t want to convolute your plan.
https://bit.ly/3PMMaiL
What’s so great about the add-on business model
What Is Add-on Selling?
Defining Add-On Selling
Tom Duncan, author of "Principles of Advertising & IMC," defines upselling as “encouraging customers to buy a more expensive product than they had in mind.” While this can mean suggesting a more expensive model, it typically calls for the salesperson to offer the customer related products. For example, clerks at a bookstore might ask customers if they also want to purchase a bookmark. The addition of a bookmark makes the book buyer’s reading experience easier, while also increasing the size of the sale.
Successful Strategies
Effective add-on selling hinges on understanding the customer’s needs. A hardware store customer who buys a wheelbarrow will probably not want paint samples, but he might need a shovel. Staying conscious of the customer’s needs lets the salesperson direct him to an appropriate add-on. The add-on should sound like a solution, not a sale. The customer should see how the add-on will solve a problem, not just pad the business’s bottom line. The salesperson should present several add-on options and an explanation of the value for each one, which allows the customer to make an informed choice.
Common Add-on Sales
Standard add-on sales vary by industry, but some add-ons work in a variety of industries. Warranties on parts or products are very common. Many businesses offer upgraded versions of a product for less than the equivalent retail cost, such as a software upgrade on a new computer. Businesses that deal in products installed in homes or offices frequently make service plans available at a discount from normal service call prices.
Benefits
The primary benefit and goal of add-on selling is an increase in the total purchase amount. Businesses that employ effective add-on selling also benefit from increased customer loyalty. Customers who view businesses as providing good service, such as making useful suggestions, tend to return to those businesses for future purchases. The business serves as a resource for information or advice, rather than just a place to shop.
- https://bit.ly/3z10AWp
