Applying Technology Principles to Your Business
Most of us have a lot to learn from the technology sector. A fundamental shift is underway, as many companies are recognizing the need to distribute products and services through portals and direct-to-consumer websites.
Consider some of the strategies commonly employed in e-Commerce:
Freemium– While Dropbox’s offer of “free” is compelling, the company offers many opportunities to upgrade such as “Dropbox For Teams”. With a “Freemium” offer, adoption of a free product is disproportionaly high. Yet the provider can profit from an extraordinarily low conversion rate because of the high number of users. It is estimated that there are over 50 Million Dropbox users, and as few as 1 in 50 pay for an upgrade.
Bait and Hook – The provider offers the initial product at close to cost (or cost plus) and profits from maintanance or replacement parts. The strategy is best known as “razors and razor blades” (my wife gets mad at me every time she buys Gillette replacement blades). Bait and hook is often used to fight off commoditization in price sensitive industries.
Long Tail – The initial strategy of Amazon. The provider seeks out individual buyers and ships them very small orders. The strategy was made popular by the book “The 4 Hour Work Week” where businesses could offer pack and ship solutions, and outsource the entire business. The long tail turns the Pereto principle on its head (selling to the 80% who buy 20% of the volume). This strategy requires a very low cost of inventory and distribution.
Open Environments – The inspiration of developers for years, open source offers access to the work of 3rd parties at little or no fee. SalesForce profits from the use of Apps on its AppExchange developed by others which improves the utility of its software. Consider how you may leverage solutions offered by vendors or customers with other customers.
Creating a Community – It is more than social media sites that have created effective communities. Perhaps the most infamous of all such communities was the H.O.G’s (Harley Owners Group) which has nearly 1 million members in the U.S. alone. Communities can be used to build an affinity for your product (such as the HOG’s), or to create a market of buyers and sellers (such as online real estate auctions). The manager of the “community” can double dip by profiting from both buyers and sellers.
Most importantly, we all have to come to grips with the reality that man will be replaced by machine in almost every facet of the supply chain. Companies must seek out levels of automation that will allow for a more efficient distribution of products and services.
In many cases, customers expect (even prefer) self service. E-commerce has taught us consumers that we can more easily order our products in a matter of moments, training our professional buyers how to procure products seamlessly. Consider these tactics to enable growth.