business models - fashion industry
DESCRIPTION
This PowerPoint was presented at the 2012 Summer School on Fashion Management at the University of Antwerp. The lecture explains the concept of business models from a theoretical point of view, and illustrates this with an example from the fashion industry.TRANSCRIPT
Agenda
1. Innovation
2. Business models - theory
What are business models?
Business model creation
3. Business models - practice
Application of a business model
4. Q&A
1Innovation
Innovation
Innovation is the process and outcome of creating something new, which is also of value
Schumpeter (1934) argued that innovation comes about through new combinations made by an entrepreneur
Innovation
A new product
A new process
Opening of new market
New sources of supply
A new business model
good ideas are widely distributed, nobody has a monopoly on innovation“
”Prof. Henry Chesbrough, Berkeley
2BusinessModelsWhat are they?
Business models
EasyJet / SouthWest Airlines no frills: low cost, direct flights without (free) extras
Gillette razor and blades: low (no) margin on razor; high margin on blades
Dell built-to-order: choose the components of your pc before production starts
Farmville / Spotify “freemium”: Basic service is free, added services are offered for premium pricing
There is more to it than just a catchy name…
Examples
Business models
Every organization has a business model
Many definitions / many approaches
Interpretation:
The core logic by which a firm creates, delivers and captures value
Role: to unlock the value potential embedded in (new) technologies/products/innovations and converting it into market outcomes
A business model is a logical story explaining who your customers are, what they value, and
how you will make economic returns in providing them that value“ ”Prof. Joan Magretta, Harvard Business School
Value?
What values do we pursue as a company?
What value/benefit do we create, and for whom?
How do we create this value?
How do we transform value into money?
Business models create value
The business model creates value not technology or a product itself
product/technology value/utility
business model
business strategy
enables
defines
creates
X
Business model components
Value creation
Why does your business exist?
Company’s unique value proposition
Value delivery
How can you deliver the value to the customer
Value capture
Whether & how can you make money now and in future
organization consumernetwork
+ profit formulainternal processes and organization + value chain
Business model innovation
Value creation innovationwe offer a better value proposition for an existing or new problem
Value delivery innovationwe reconfigure the value chain so that a better value proposition and value delivery emerges
Value capture innovationwe change the revenue mix and thereby create a better value proposition
Side note…
Often used interchangeableHowever: different concepts
Business plan: statement of a set of business goals + how to attain them
Business strategy: combined choices of how to compete
Business model: operationalization of the business strategy choice
Business plans, business strategy & business models
Value proposition
Value Proposition
Identify the customer ‘pain’ or problem
Indicate how the product addresses that problem
Quantify the ‘value’ of the product from the customer’s perspective
Understanding ‘value’ is KEY!
Generally wholly unrelated to your cost base
What is the value of an MacBook?
What is the value of a (luxury) clothing item?
Well, I know we are in a commodity market where the price is key, but I
believe we can sell the good for 10x as much as before“”
Value proposition
Fashion and quality at the best price
Instant fashion
Other fashion brands?
Business model creation
Two important concepts:
Business models consist of a set of Choices and Consequences
Business models are a variation of the Value Chain
Business model creation
What ‘parts’ are business models made of?
The concrete choices made by management about how the organization must operate, and
The consequences of these choices
Choices & consequences - Casadesus-Masanell & Ricart (2010)
Business model
Business model creation
Choices
Policies
Assets
Governance
Choices & consequences
Consequences
Flexible
Rigid
A business model is a reflection of the firm’s realized choices
Business model creation
Every business model is a variation on a company’s value chain (Magretta, 2002)
The business model encompasses the pattern of the firm’s economic exchanges with external parties (Zott & Amit, 2008)
Value chain
Business model creation
Value creation is a networked process
Business models span across firm boundaries
It involves a complex, interconnected set of exchange relationships and activities among multiple players
Value chain
Business model creation
Where does your business sit in the value chain?
Do you need support/partnership/technology?
Can you go direct-to-customer?
If you are reliant on others, how will you capture your part of the value created?
And build lasting relations?
Value chain
Business model creation
Identify the specific group of customers (aka ‘market segment’) you will target
Understand that different market segments have different needs, preferences and purchasing criteria
Understand the value that they desire
Create an optimal delivery system of that value
Quantify, quantify, quantify
Value delivery and capture: customers
Business model creation
How is revenue generated?One-off purchase?
Subscriptions?
‘Freemium’ model?
Advertising?
How does that tie back to the value chain?
What is your cost structure?
How does that tie back to the value chain?
Value capture
Business model creation
Start with a provisional business model
Validate; then revalidate and revise
The “right” business model is rarely apparent early on… entrepreneurs/managers who are well positioned and can learn and adjust are more likely to succeed
Discovery, learning, and adaptation
Business models
To be a source of competitive advantage, a business model must be more than just a ‘logical’ way of doing business
A model must be honed to meet particular customer needs and requires deep understanding of the customer/consumer and their values
It must be constantly revalidated and adjusted
Designing a business (model) is a creative act!
Some conclusions
3CaseExampleFragileNathalie Vleeschouwer
Case example
Fashion designer from Antwerp
Female entrepreneur of the year 2011
Main brand: Fragile Maternity fashion
Nathalie Vleeschouwer
Fragile delivers contemporary fashion that enables pregnant women to feel
comfortable, free, and attractive“”
Fragile
Product:
High fashion for pregnant women
High quality fabrics specifically Chosen for sensitive skins
Durable products
Cut and shape adjusted for pregnant shapeBut also wearable afterwards
Value creation
Fragile
Personal contact:
High emphasis on personal contactWith boutiques and suppliers/producers
Establishes goodwill
Establishes calm / steady relations
Value creation
Fragile
Maternity Boutiques
Flagship stores
Provide a unique experience
Provide a complete offering of maternity products
Value delivery
Fragile
Standard sales format
But in addition:
Durability leads to cast-offs
Word of mouth
Many request for non-maternity clothing
Second line: Nathalie Vleeschouwer
Value capture
Nathalie Vleeschouwer line
Builds on good name designer
Builds on style Fragile
Builds on previous customer base
Attracts regular and maternity boutiques
Nathalie Vleeschouwer
Clear initial choice for maternity high fashion
Untapped market, possibility for personal contact with retail
Choice for a complete offering maternity wear
Supports and enables delivery of value proposition
Choice for as much local production as possible
Fast, convenient, goodwill
Some choices (and consequences)
Nathalie Vleeschouwer – business model
4 Q&A
OPENING MINDSTO IMPACTTHE WORLD
Slides and references available on:
www.waltervanandel.com/fashionmanagement