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Business Model Development: From Product To Real Value Proposition

Whether a service is successful in the market also depends on its fitting into an effective business model. The right business model can make a product a success – and an unsuitable product can also doom a good product to failure.

When it comes to how customers experience a product, the product itself plays a role and how it is offered. Traditional companies, in particular, sometimes introduce new products without knowing exactly which customer requirements can be served better than before and whether existing business models are also optimal for this. Only the right business model turns a product into a real value proposition.

We use a traditional timber wholesaler as an example. He planned to purchase a future-oriented machine: a laser system that can use “laser sublimation” to create three-dimensional reliefs in medium-density fiberboard (MDF). Highly individual, from professional surface designs to vivid images. The finished panels can be used as furniture fronts or wall cladding.

Sales Issues Give Business Models A Boost

An interim manager was commissioned to introduce the new offer – due to the very tradition-oriented operation. There was a lack of know-how for complex market launches like this one. It turned out that the new proposal would have had a difficult time in the traditional business model. The timber merchant traditionally sold within a radius of around 100 km. There was a local exhibition. A 100% customizable product could hardly be shown there. At the same time, the traditional delivery process was unsuitable because the new offer was much more complex and required a larger sales market. So a new sales channel was needed.

Based on the underlying value proposition, other elements of the existing business model also had to be modified (cost structure, customer relationships, key activities, etc.). When it comes to whether it is enough to adopt a business model or whether a new business model development is required, customer problems, markets, and trends should be carefully analyzed in advance. Here it became clear: From a sales point of view, the new service in the previous business model would have been too complex and, due to the high degree of customization , too costly for customers.

These problems have been resolved through new business model development and digital opportunities. The complexity of the offer was addressed by an online product configurator, including its web platform, which is used for customization. The platform is connected to the ERP system and converts the inputs directly into control data for the machine. In self-service, the customers communicate directly with the laser system, which can even produce unattended. Application experts are available when necessary. Due to the overall high degree of automation, it was ultimately possible to offer a suitable price for the market. The likely cost point resulted from customer interviews, systematic analysis of willingness to pay, and a market potential analysis.

The Risk Of Developing A Business Model Is Often Overestimated

Many companies shy away from bringing new business models onto the market – the risk of an expensive, undesirable development is overestimated. Especially when there is a well-functioning business model, one then offers new services in traditional offer logic. You may then never reach your full potential. A new business model can, however, be examined comprehensively in advance. Every business model is based on hypotheses, about the customers, the market environment, the sales channels, and much more. These hypotheses can be tested with reasonable effort. If a theory is not confirmed, the business model is changed so that this hypothesis no longer applies.

The result is a logical, self-contained business model that is based on proven hypotheses. This can be further safeguarded in a test market with an MVP (minimally viable product). Traditional companies, in particular, should also rethink how digital possibilities can increase customer benefits or eliminate weak points. For example, at the timber dealer, there was only one positive business case because it was possible to guarantee highly automated processing. After all, the products involved were highly individual. Success was not created by the outcome but by the “trimmings.”

They Are Consistently Thinking Ahead About Product Innovations

Sales issues can be instructive for the creation of new business models. Often innovation only takes place in the production or development process. If you had limited yourself to product innovation, you might have overlooked weaknesses in the offer. From the point of view of the business model, the wood merchant’s laser system was a new capability on which a unique value proposition to existing and new customer segments with a changed sales channel can be applied, no more and no less.

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