55 Business Model Patterns. #17. Franchising

 

The franchisor owns the brand name, products, and corporate identity, and these are licensed to independent franchisees who carry the risk of local operations. Revenue is generated as part of the franchisees’ revenue and orders. The franchisees benefit from the usage of well known brands, know-how, and support.

How they do it: Subway is one of the fastest-growing franchises in the world and, as of June 2017, has approximately 45,000 stores located in more than 100 countries. More than half of the stores are located in the United States. Subway collects recurring royalty fees and an upfront franchise fee from independent store operators.

Top Industries

Below, the top industries for the pattern "Franchising" are displayed, in order to get insights into how this pattern is applied across different industries. We've collected data from 5 firms using this pattern.

Pattern Co-Occurrence

Below, the pattern "Franchising" 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.

https://cutt.ly/36WwSqD

55 Business Model Patterns. #3 Aikido

 

Aikido is a Japanese martial art in which the strength of an attacker is used against him or her. As a business model, Aikido allows a company to offer something diametrically opposed to the image and mindset of the competition. This new value proposition attracts customers who prefer ideas or concepts opposed to the mainstream.

Swatch

How they do it: Swatch’s brand image mirrored off its name, a contraction of ”second watch”. Watches were intended as casual, disposable accessories – diametrically opposed to the mainstream industry’s approach. The Swatch product line was developed as a response to the ”quartz crisis” of the 1970s and 1980s, in which Asian-made digital watches were competing against traditional European-made mechanical watches.

Nintendo

How they do it: When the video console market was dominated by Sony (Playstation) and Microsoft (Xbox), Nintendo introduced the Wii console with totally different attributes and features than the two successful products from Sony and Microsoft. Instead of targeting serious gamers, the Wii targets a broader target group allowing them a more interactive and fun-focused game experience. In addition Nintendo first introduced a wireless controller with a movement detector, creating a totally different product than its competitors.

Below, the top industries for the pattern "Aikido" are displayed, in order to get insights into how this pattern is applied across different industries. We've collected data from 2 firms using this pattern.

Below, the pattern "Aikido" 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.

https://bit.ly/3JjESQx

Inventive problems

The product of company should be equal to the products of competitors in order to woo customers away from the competitors.

The product of company should be different from the products of competitors in order to attract non-customers.

The product should be targeted at a small group of customers in order to fully meet the needs of customers.

The product should be targeted at a large group of customers in order to attract more buyers and get the maximum revenue.

Application examples

In the realm of business one of the first companies to apply the Aikido model was Six Flags, an American corporation that currently operates 21 amusement parks in the USA, Canada and Mexico. In line with the Aikido business model, the focus lies on regional themes and an accessible structure for customers, a strategy that contrasts with nationally oriented theme parks such as Disneyland. The regional proximity of the parks facilitates more frequent visits by local customers, creating higher revenues with less marketing effort. Another plus is that in the low season such parks continue to attract local customers

Founded in 1976, and now part of the L’Oréal corporate group, The Body Shop International plc (known as The Body Shop) is a chain of cosmetic retail stores. True to the Aikido business model, the company adopts a radically different approach within the cosmetics business. Its founder, Anita Roddick, summarised her strategy as follows: ‘I watch where the cosmetics industry is going and then walk in the opposite direction’. A major difference characterising The Body Shop is the absence of glamorous ad campaigns, making do with a marketing budget of no more than a fifth of the cosmetics industry standard. In addition, The Body Shop believes in selling environmentally friendly containers that can be reused wherever possible, also putting natural ingredients into its products and championing an ethical approach by not testing them on animals. All these choices make The Body Shop something of an oddity in the cosmetics industry, but has also enabled it to carve out an entirely new market for natural and environmentally friendly cosmetics for itself.

https://bit.ly/3cSTKt7

Business Aikido: Gaining Strategic Advantage Through Leverage

by Nilofer Merchant

In Aikido, martial arts students study and practice katas—pre-arranged movements that enable them to deal with an opponent successfully. The centuries-old art teaches practitioners to use the force of an opponent against the opponent. This strategy gives the student a definite advantage if attacked.

In a similar way, what were strengths in Web 1.0 have become weaknesses in Web 2.0. Remember when companies had to have legions of developers, dozens of people manning the help desks, and big was best?

In Web 2.0, the flip side is what's important. Agility and intellect are critical. Co-creation provides leverage and risk is shared. Knowledge flows easily, resulting in faster development. Collaboration is pervasive and there are no enemies—just partners.

There are several things a small-to-midsize business (SMB) needs to pay attention to if it's going to gain competitive advantage in Web 2.0. Because flexibility is important, SMBs can beat large enterprises by adding value and making their internal and external environments extremely collaborative.

Some Evidence

The main point is that people tend to move toward ideas.

You can see this in a comparison of two companies: Microsoft and 37signals. One is a software juggernaut that jealously guards its intellectual property (IP). Microsoft still takes an assertive stance toward customers and markets. Its new Windows Vista, large and late, has received mixed reviews—though its contribution to revenue is staggering.

37signals is almost an exact opposite. The company appears interested in attraction and creativity, building software as a service (SaaS) applications that do just enough for the user—not more. Its Basecamp is product management with a collaborative style. Instead of time-consuming, difficult-to-use software, 37signals uses a simple font, open space, and tabs that increase ease of use and productivity.

Adobe Photoshop has been accused of being one of the most difficult applications to use. As a result, Adobe Photoshop Elements was developed—it could be called a "lite" version of Photoshop. A boxed edition of software can have difficulty competing with a great hosted idea.

Shutterfly is a site that allows users to upload photos, share them, and create items with them. With Shutterfly, there's no such thing as just a static individual album. Users are able to create a photo collage and get it printed on a mug, or build a photo album online then have it printed and delivered. It's the completeness of the services that differentiates Shutterfly—so much is possible.

Software development continues to undergo a tremendous shift away from closed platforms by Microsoft and others to the openness typified by Linux, Opera, and Ubuntu.

Corporations have seen the shift and are using open software themselves—often slashing their expenses in the process.

Implications

1. Companies need to look more deeply at how customers might like to use their products. Maybe the company sees the product as a tissue, but the consumer sees it as a health care item, a decorative item, a short-term emergency bandage, an item to use in art projects.
2. Crafts, knitting, sewing, quilting, and art are all enjoying renewed popularity. People are discovering that they like to make things. There's even a magazine called Make.
3. There is a love-hate relationship with mass-produced anything. And people want craftsmanship, the unique, the unusual, and things that make them think and are interesting. While selling mass-produced items is not as attractive as it was, there's still a place for that kind of item—but maybe now it should be personalized in some way.
4. Early customer feedback is important. Waiting until prototypes are done to ask for customer opinions on fit, finish, packaging, flavor, texture, perceived value, or price is too late. Build customer feedback into the product cycle as early as possible.

What to Do Now

1. Find new uses. New uses for products create new markets. Expand your perception and see with new eyes what you've been producing. Put yourself in the shoes of your customer. Come up with additional uses—go out on a limb.
2. Be part of the trend. Find ways your products or services can work with new trends.
3. Personalize it. Find a way to make your product unique to the purchaser. Deliver it the way users want. Make it available on all platforms. Let them adapt the user interface. Give the consumer the ability to change things.
4. Listen to a customer today. Establish systematized customer interaction as a cultural norm within your company. Make sure associates at every level get involved.

Start practicing your own Aikido moves, and use your opponent's strength to your benefit.

https://bit.ly/3bfSbVA

The Aikido Approach to Digital Transformation

Although there is no written-in-stone means of thriving during this chaotic new normal, Softtek welcomes a panel of experts to discuss a strategic approach inspired by a modern Japanese form of martial arts.

Aikido

Like many martial art forms, Aikido is “a type of self-defense, in which you hold and throw your opponent and use his or her own movements.” However unlike many other fighting styles, it does not leverage brute strength and is instead based on the principle of disarming the threat without causing physical harm.

Softtek CMO, Alex Camino, relates the concept’s ideation to the general economic surplus we saw near the end of 2019, which was then followed by a swift decline: “We were in a growing economy… we were on the offensive… And suddenly, the pandemic hits us and puts on the defensive.”

Faux Shields

Among many players, any cost-optimization strategy during hard times is generally seen as a good thing. However, this isn’t always the case, as former Forrester analyst and current SVP of Marketing for Softtek, Stephanie Moore, introduces faux shields— defensive cost strategies that look great on the surface, but derail savings and true modernization in the long run.

1. Maximum spreadsheet cost-out
2. Cheaper is better
3. Lipstick evolution (glamorize tech portfolio)
4. “Concession” deals
5. Mess for less megadeals
6. Trojan horse savings

The future is here, and we have the technology to help us leave these common, yet flawed defensive techniques in the past, replacing them with modern and strategic alternatives. And as we will continue to see reiterated, the trick is to invest with value, not cost, in mind.

Predictable paths to recovery

Shafqat Azim of ISG takes a customer-data-and-research-driven approach to explore how businesses impacted by Covid-19 can realize the highest value in their digital initiatives.

Three Horizons Framework

While Covid-19 has brought liquidity and profitability issues to about 2/3 of ISG’s clients, the remaining 1/3 (particularly those in industries like life sciences and healthcare) deal with the overwhelming increase in demand brought upon them in a very short amount of time. No matter the challenge, survival is key for all players before entering the “Three Horizons” identified through ISG research.

1. Recover and Resolve: After surviving through immediate cost take-outs, companies will use the following 1-2 business quarters to evaluate how to get back up to speed—or in Azim’s words—how to “peel off the band aids without having the blood gush out again.” How can companies balance technology spend, become cloud- ready and continue critical processes, without damaging sustainability?
2. Invest Differently: Costs have been reduced, and future sustainability is looking brighter. At this point (1-3 business quarters), Azim explains while drawing upon a common theme throughout the webinar, that we must “start to invest with value in mind, not just cost reduction.”
3. Business Change in the Next Normal: By next year, businesses will need to evaluate how to behave differently, based on different ways of investing and executing strategies.

The common denominator

Across these Three Horizons, Azim identifies a common denominator: How do you recognize value from your ongoing investments?

ISG leverages a “digital value assessment,” using data from over 550 organizations to evaluate the capabilities, level of investment and business value realized (in the form of revenue, customer retention or operational efficiency) from digital initiatives.

Since the top 25% of these businesses have shown significantly above average numbers, their recipes for success were able to be studied and put into capability groupings:

• Clients who realize higher than average revenue increases:
  • Regularly assess automation’s impact on employees
  • Analyze IoT data streams
  • Co-create digital products with customers and partners
• Clients who realize higher customer retention:
  • Adopt common tech platforms
  • Create end-to-end visibility into product
  • Service backlog in development teams and IoT streams
• Clients who see higher OpEx reduction:
  • Adopt personalized content for employees and clients
  • More strongly leverage automation
  • Adopt common tech platforms

History tells us the best thing we can do is embrace the new norm

Anja A. Allen of Ernst & Young begins by reminding us to take a step back and think about other events that have drawn change on a global scale. Humanity has dealt with plenty throughout history, and we can learn from it (read more).

“As much as we feel that our life is out of our control, there’s typically a pattern to these things; there’s always order and chaos” – Anja A. Allen

Ernst and Young has found with its clients that it’s not good to fall into the cycle of mindless cost cutting, but it’s also not good to be overly tactical. Instead, success comes from coordinating cost-cutting initiatives and transformations for the future; we must embrace the new norm and adopt new ways of doing business.

Unfortunately, embracing today’s change is hard for many organizations. It’s human nature to pursue things that are familiar.

What's the trick?

Embracing new norms and adopting new business models places even more prominence on technology, and fundamentally different approaches to the way that technology is delivered. There are 3 things to consider:

1. Humans are at the center of every strategy. Businesses must determine how to source internal and external talent to tackle various initiatives. Additionally, they must activate strategic partnerships to help one another enable strategies and delivery models.
2. Innovation at scale. “If we had Covid-19 in the 1980s, we would have not been able to work the way we work today.” Now we have platforms, like Microsoft Teams  or Zoom, that allow business to carry on, and we can leverage these platforms to better align our pre-Covid-19 business strategies with the changes taking place.
3. Technology at speed. Many businesses tend to glamorize their technology portfolio rather than modernize, which ties back to the previously mentioned “lipstick evolution.” The better choice, Anja explains, is to simplify the technology portfolio and only consider elements that drive operational efficiency. Finally, these kinds of standardizations should be done with transparency—the last thing businesses need is to lose client trust or upset an entire workforce.

Funding your digital future

Softtek Managing Director for the US Beni Lopez revisits a topic from the past webinar, with a refreshed outlook.

Optimizing costs

If cost reduction wasn’t a primary concern for your organization in January 2020, like the rest of the world, with the exception of a few outliers, it likely secured a top spot in lockstep with the start of the “Great Shutdown.” Cost optimization is also the first step in laying the groundwork for a digital future. This step has ideally been completed already, but includes:

• As soon as the CEO calls for a % cost reduction, CIOs must look to short-term quick hits: (reduce hardware spending; renegotiate maintenance, monthly Saas fees and telecom usage; and rationalize procurement process and the existing vendor landscape).
• Next, optimizing costs involves accelerating the digital labor force with cognitive Robotic Process Automation, enabling AI, clearing a path to scale and integrating new processes and workflows.
  • Big takeaway: these are value-focused, not cost-focused optimizations.
• Honoring the Aikido reference, organizations must use momentum from these optimizations to remain advantageous amidst unfavorable circumstances. Through further digitization and automation of operations, costs can be reduced by up to 30% in just one year.
  • Big takeaway: these initially costly steps have a fast time-to-value metric
• Lastly, businesses should consider divesting non-critical processes to digitally enabled partners. This is becoming more common, as organizations are starting to see the benefits of outcome-based outsourcing strategies like Build Operate Transfer (BOT) CoEs, digital hub nearshoring (with partners in nearby tech hubs like Monterrey, for example), moving from CapEx to OpEx, amongst others.

Invest in the right direction

Also mentioned in a previous webinar, businesses must identify, protect and enable their “A team,” talent who have adopted and adapted with more fluidity and confidence. More analytics and AI are one way to enable these individuals to continue creating above-average value in their projects.

Get ready for the recovery

Organizations who have adopted any combination of the strategies highlighted will have freed up a substantial amount of financial and talent resources, allowing for new business models, new lines of service and an understanding of new expectations related to customer experience.

Conclusion

We live in the best of times to deal with the worst of circumstances. Even before the pandemic, the word ‘disruptive’ has become an exemplary aspect of the aggregate business environment. And in dealing with all things disruptive, we have learned to better adapt. It is through these adaptations that even the most unlikely businesses to survive have shown resiliency—grocery stores have become pickup centers, movie theaters have become streaming platforms and healthcare players have expanded digital capabilities in record time to keep up with unprecedented demand.

Hasty cost take-outs have been proven to destroy future resiliency, demonstrating the need to be strategic in our adaptations. We must leverage strategic partnerships with an “I scratch your back, you scratch mine” attitude. We must avoid tunnel visioning a cost-focused mindset, with the consideration that sustainably reducing costs may require an initial expenditure through hiring consultants or contracting different digital projects. We must stop yearning for the old way of doing things and embrace the inevitable change.

Finally, in returning to the Aikido reference, sometimes the best offense is defense. If we keep an eye on the enemy’s movements, we can use the force imposed upon us to make it out in one piece, or better yet, in a more advantageous position than before.

m

Benjamin Burke

Swatch business model

The Nintendo Business Model In A Nutshell

By Gennaro Cuofano

Nintendo is a Japanese consumer electronics and video company founded in 1889 as Nintendo Karuta – a manufacturer of decorated, hand-made playing cards. By the 1980s, the company made significant investments in a rising technology: video games. It then produced popular titles like Donkey Kong and, later on, Super Mario Bros. Today Nintendo generates revenues through video game franchise sales, e-commerce, and the Unfold System.

History of Nintendo

Nintendo is a Japanese consumer electronics and video company headquartered in Kyoto, Japan.

The company was founded in 1889 as Nintendo Karuta – a manufacturer of decorated, hand-made playing cards. Nintendo would produce these cards for over seven decades, but sales fell after the cards became associated with gambling and Japanese organized crime.

In 1950, 22-year-old Hiroshi Yamauchi took control over Nintendo and expanded the product range to include toys and amusement arcades. Over twenty years later, Yamauchi made a significant investment in an emerging technology: video games. The popular title Donkey Kong was released in 1980, catapulting the company to the global stage.

The even more successful Super Mario Bros. was released five years later, named after the landlord who owned Nintendo’s American headquarters. The success of the game was nicely complemented by the release of the Game Boy in 1989, the first handheld electronic game console. This pioneering success has been built upon with the subsequent releases of consoles including the Super Nintendo Entertainment System, Nintendo 64, Nintendo DS, GameCube, Wii, and Nintendo Switch. 

Today, the company continues to be an innovative player in gaming and consumer electronics. Profits in 2020 were 376.6 billion JPY, or approximately $3.6 billion.

Nintendo revenue generation

Traditionally, console-based home entertainment companies make money via the continual creation and licensing of games.

Let’s take a look at how this plays out for Nintendo.

Video game franchise sales

Nintendo is well-known for regularly adding too many of its video game franchises with periodic releases. For example, the Super Mario franchise has been running since 1985. 

This strategy builds brand loyalty and allows the company to charge a relatively high price for its products.

eCommerce

Nintendo sells gaming consoles, games, and gaming accessories via their online store. 

Games are also available for purchase directly from the gaming console interface. By allowing users to download games with an internet connection, the company saves money on the distribution and physical production of games.

Unfold System

The Nintendo Unfold System is an evolution of the franchise sales model.

Instead of Nintendo paying developers to make and release new titles, the onus is on the consumer to pay to expand a single game. An unfolding game differs from expansion packs or franchise titles in that entire parts of the game are hidden and locked at release. As the customer becomes more invested, they pay Nintendo to unlock additional features, adventures, or lands.

For the company, this is seen as a far less risky strategy than franchising. Rather than building a new game on the same platform as the existing game, Nintendo simply keeps the existing base and charges the customer for any new features it develops.

In theory, the Unfold System expansion method can be used indefinitely. Games may have no endpoint and a new version may only be necessitated by a console upgrade.

Smash Bros: Ultimate

The fighting game Smash Bros: Ultimate is already utilizing the Unfold System. Users must now purchase a season pass to take part in each game iteration – otherwise known as a season.

In 2019, the first season was charged at $24.99. This fee gave players access to exclusive items, stages, and five new characters. The following year, the game was unfolded further to incorporate a second season that was charged at $29.99 for six new characters.

Pokémon – which Nintendo owns a 32% stake in – has also added new lands and adventures using this revenue strategy.

Key takeaways

• Nintendo is a video game and consumer electronics company headquartered in Kyoto, Japan. The company was founded in 1889 as a manufacturer of decorative, hand-made playing cards.
• Nintendo makes money by creating and licensing video games. The company has been particularly successful in building brand loyalty via high-quality franchise releases.
• Nintendo also sells access to additional game features as part of its Unfold System. Instead of paying developers to build new games on the same base, players pay Nintendo to expand access within a single game.

https://bit.ly/3ScG1gK