Ten Different Types of Innovation (cont.) 1

A. Configuration (focus on the innermost workings of an enterprise and its business systems -  1st of 4 types)

1. Profit Model (how making money)

Using the following tactics:

- premium prices (price at a higher margin than competitors, usually for a superior product, offering, experience, service or brand)

- subscriptions (great predictable cash flows by charging customers upfront, one-time or recurring fee, to have access to the product or service over time)

- auction (allow a market and its users to set the price of services)

- cost leadership (keep variable costs low and sell high volumes at low price)

- forced scarcity (limit the supply of offerings available, by quantity, timeframe or access, to drive up demand and/or prices

- membership (charge a time-based payments to allow access to locations, offerings, or services that non-members don't have)

- micro-transactions (sell many items very cheaply to drive impulse purchases)

- scale transactions (maximise margins by pursuing high-volume, large-scale transactions when unit costs are relatively fixed)

- switchboard (connect multiple sellers with multiple buyers; the more buyers and sellers joining increases the value of switchboard)

- ad-supported (provide content or services free to one party while selling it to another party)

- bundled prices (sell in a single transaction two or more items rather than sell them individually)

- disaggregated pricing (allow customers to buy exactly, and only, what they want)

- financing (capture revenue not from the direct sale but from structured payment plans and after-sale interest)

- flexible pricing (vary prices for a product or service based on demand)

- float (receive payment prior to building the offering; earn interest on their money prior to delivering the goods and/or services)

- freemium (offer basic services for free while charging a premium for advanced or special features)

- installed base (offer a core product for a slim margin, even a loss, to drive demand and loyalty; then realise profit on the sale of additional products and services)

- licensing (grant permission to a group or individual to use your offering in a defined way for a specific payment)

- metered use (allow customers to pay only what they use)

- risk sharing (waive standard fees or costs if certain metrics are not achieved and receive significant gains when they are achieved)

- user-defined (invite customers to set prices they wish to pay), etc

 NB The above tactics can be used individually or in combination.

Indicators of success are when the organisation

- is different from competitors and from the industry norm, eg sell a service rather than a product

- has multiple revenue streams for different customers

- has significantly different margins & costs (fixed and variable) from competitors

- is quicker at generating a cash flow

"...by selling the enduring part of the system at a low-cost (or even a loss), then enjoy re-occurring revenue by selling the disposal parts at a premium..."

Larry Keeley et al, 2013

Some examples include

- Gillette's 'razor and blades', ie sell razor cheaply and blades expensively; later this was reversed with razors expensive and blades cheap

- 'printers and print cartridges', ie sell printers cheaply and cartridges expensively

- 'coffee makers and capsules', ie sell coffee makers cheaply and capsules expensively

- 'medical equipment and follow-up appointments', ie sell machines expensively and offer free follow-up appointments and service

- 'photocopier machines and copies', ie sell machine cheaply and charge expensively for photocopies, etc

 

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