The Auction business model is based on the price of a product is not determined by the vendor alone, but buyers actively influence the final price of the goods. Finding a price starts with a potential buyer bidding a certain amount based on his/her willingness to pay. When the auction is over, the customer who has made the highest bid is committed to purchasing the product. The chief advantage is that they never have to spend more than they can afford or are willing to pay (WHAT?). The advantage for the vendor is that products can be allocated more efficiently across the market (VALUE?).

Auction. Going once, going twice... sold!

The Auction pattern’s allure and potential lie in its flexibility and vast possibilities for implementation. You can either offer your own products, or create a marketplace for sellers and buyers available to all sorts of products (think of eBay) or targeted towards niche products. In general, the Auction business model is highly scalable and can serve millions of users around the clock. These users invariably benefit from the network effect this scenario creates. The pattern works well if an auction creates more transparency for standardised products, such as C-parts or raw material.

When and how to apply Auction

Aikido refers to products or services that are radically different from the industry standard (WHAT?). In company terms, this means that it seeks to occupy a position that is diametrically opposed to that of its competitors, obviating the need for direct confrontation with them (VALUE?).Aikido principle is a form of differentiation, but a very provocative one. Differentiation factors that have been taken for granted in an industry are eliminated and completely new ones are created.

Aikido. Convert competitors’ strengths to
weaknesses

<ul><li class="ql-align-justify">Who is your customer and which customer segments do you mainly serve?</li><li class="ql-align-justify">Who are your most important customers?</li><li class="ql-align-justify">Who are other important stakeholders that need to be considered?</li><li class="ql-align-justify">What kinds of relationships do your customers expect and how do you maintain them?</li><li class="ql-align-justify">Who influences your customers (opinion leaders, stakeholders, users)?</li><li class="ql-align-justify">Do different departments address the same customer segments differently?</li><li class="ql-align-justify">What distribution channels do you use to serve your customers?</li><li class="ql-align-justify">What actors are behind your customers? Will the same people be here for the next ten years?</li></ul>

WHO? (customers)

<ul><li class="ql-align-justify">Cocooning: In a globalised world, people are looking for a respite from hectic environments and closed societies.</li><li class="ql-align-justify">Resource shortages : The supply of resources will reach its limits – the current CO2 and global warming discussions are only the beginning.</li><li class="ql-align-justify">Pursuit for identity : In our pluralistic society, individuals will continue to seek uniqueness.</li></ul>

Business models that deliver the right
answer to social megatrends (4-6)

<ol><li class="ql-align-justify">Who are the relevant actors in your business model?</li><li class="ql-align-justify">What are their needs and what factors influence them?</li><li class="ql-align-justify">How have they changed over time?</li><li class="ql-align-justify">What does this imply for your business model?</li><li class="ql-align-justify">Will changes in the competitive environment create opportunities for a new business model? If so, which one(s)?</li></ol>

Checklist for actor and influencing factor analysis (Part 1)

<ol><li class="ql-align-justify">What, if any, significant business model innovations have occurred in your industry in the past? What were the catalysts of change?</li><li class="ql-align-justify">What technologies currently influence your business model</li><li class="ql-align-justify">How are technologies changing? What will technologies look like in three, five, seven or ten years?</li><li class="ql-align-justify">How are future technologies affecting your business model</li><li class="ql-align-justify">What trends in your ecosystem are relevant to you?</li><li class="ql-align-justify">How do these trends affect the various actors in your business model?</li><li class="ql-align-justify">Do they tend to amplify or minimise the weaknesses and strengths of your business model?</li></ol>

Checklist for actor and influencing factor analysis (Part 2)

The Add-On business model is especially well suited for hard-to-segment markets, where customer preferences often diverge vastly. Simply dividing products into different levels or versions is insufficient; and no optimal value proposition can be guaranteed for a large number of customers.The Add-On pattern can also work well in the B2B context, when multiple decision makers are involved. The Add-On pattern can be used to help certain technologies and accessories break through to the market. Often this requires add-ons to be cross-subsidised.

When and how to apply Add-On

<ul><li class="ql-align-justify">Can we provide a basic product to which customers can be price sensitive and then add on services?</li><li class="ql-align-justify">Can we lock our customers in so that they will buy the Add-On products from us?</li></ul>

Add-on. Some questions to ask

<ul><li class="ql-align-justify">Do we have a lead customer who will follow us into the fray if we adopt the Aikido pattern?</li><li class="ql-align-justify">Is this lead customer representative of the target market, or so visionary that others are unlikely to follow suit?</li><li class="ql-align-justify">Can we overcome all the obstacles we meet in order to change the rules of the game?</li></ul>

Aikido. Some questions to ask

<ul><li class="ql-align-justify">How can we achieve a unique selling proposition that will allow us to steal customers from the big established players, such as eBay and Alibaba?</li><li class="ql-align-justify">Can we generate high reach for market players?</li><li class="ql-align-justify">How do we maintain a competitive advantage in a highly competitive landscape?</li><li class="ql-align-justify">How can we ramp up the number of market players quickly and efficiently?</li><li class="ql-align-justify">How can we uphold our reputation and certify that transactions are completed correctly?</li></ul>

Auction. Some questions to ask

<ul><li class="ql-align-justify">How is the value proposition created?</li><li class="ql-align-justify">What key resources are behind your offerings and value proposition (e.g. physical, labour, financial resources, intellectual property)?</li><li class="ql-align-justify">What competencies and key activities do you need?</li><li class="ql-align-justify">Does your value chain make full use of your core competencies?</li><li class="ql-align-justify">Who are your most important partners? What is their relation to your business and what do they bring you?</li><li class="ql-align-justify">Who are your most important suppliers and what do they contribute?</li></ul>

HOW? (value chain)

<ul><li class="ql-align-justify">Knowledge society : In mature societies, the basic needs are disproportionately highly satisfied. As a result, topics concerning the individual fulfilment of a person are becoming increasingly important.</li><li class="ql-align-justify">Networks and connectedness : The decline in transport and communication costs is bringing the world together as never before. The Internet, in particular, is giving our society an opportunity to discover itself in a new way.</li><li class="ql-align-justify">Centralisation: Urbanisation will continue at a faster pace, not only in the wealthy countries but the poorer ones too.</li></ul>

Business models that deliver the right
answer to social megatrends (1-3)

<ul><li class="ql-align-justify">Can we capitalise on new customers and retain them in the long run?</li><li class="ql-align-justify">How do we choose the best possible partners for our affiliate network? </li><li class="ql-align-justify">What competencies can we offer our partners to create a superior joint value proposition?</li><li class="ql-align-justify">How can we create customer loyalty to our ecosystem?</li><li class="ql-align-justify">How do we handle backlash from customers if our partners do not deliver on their service?</li></ul>

Affiliation. Some questions to ask

The Aikido pattern is very seductive, but it requires a lot of courage. If you want to use your competitors’ strengths to turn the business upside down, you really need to think outside the box. This pattern can work in any industry. You must be careful to heed any signs that you’re no longer on the right path. There might be some very good reasons why your competitors’ way of doing things is working so well for them. Market checks are always important, but when applying Aikido, they are crucial.

When and how to apply Aikido

<ul><li class="ql-align-justify">Security : Natural catastrophes, terrorism and political uncertainties will continue to trigger the need for security.</li><li class="ql-align-justify">Self-administration : As a backlash to globalisation, in some areas decentralisation and local issues are gaining renewed importance and adherence.</li><li class="ql-align-justify">Demographic change: In contrast to the BRIC countries, the wealthy industrial nations are facing higher average ages and declining birth rates.</li></ul>

Business models that deliver the right
answer to social megatrends (7-9)

A company uses a successful business model for another product range (for example, from Nestlé Nespresso to Nestlé Special.T and Nestlé BabyNes).Only the most innovative businesses can pull this off.Major advantages: ability to capitalise on experiences and synergies; manageable risk.Major challenge: balancing change and stability

Strategy 3 for new business model ideas. Leverage

Customers may wind up paying a hefty premium for extra features (VALUE), which may cover additional attributes, accompanying services, product extensions, or even individual customization of the product.They are free to choose whether they want to customize their product according to their individual preferences or prefer to disregard superfluous extras (WHAT).Customers may end up paying more for the final product than they would have for similar competing products because they chose additional optional features (WHAT).

Add-On: Additional Charge for Extras

Transfer and combine two business models.Especially innovative companies can even use three business models simultaneously (for example, Nestlé uses the Razor and Blade, Lock-In and Direct Selling patterns for Nespresso).Major advantage: synergies decrease the likelihood that competitors will imitate your business model.Major challenge: planning and execution become more complex.

Strategy 2 for new business model ideas. Combine

A strong ecosystem and passionate customers are a prerequisite for this pattern. Affiliation with partners enables companies to offer superior joint-value propositions. Affiliation works well because it generally leads to a win–win situation for all the parties involved. Merchants can drive traffic to their business and only incur costs once these efforts translate into actual sales. At the same time, the customers or other merchants who are funnelling the traffic are enticed by financial rewards. Choose Affiliation if you know what kinds of customers you want to attract.

When and how to apply Affiliation

In the Affiliation business model, the company’s focus lies in supporting other parties to market products in order to benefit from successful transactions. With this, the company gains access to a diversified customer base without additional sales and marketing efforts. Affiliates usually operate on the basis of some form of pay-per-sale or pay-per-display system, and generally online.

Affiliation: Your success is my success

<ol><li class="ql-align-justify">Social media. </li><li class="ql-align-justify">Sharing community. </li><li class="ql-align-justify"> Freemium and add-ons. </li><li class="ql-align-justify">Digitally reloaded products. </li><li class="ql-align-justify">Integrated digital and physical experience.</li><li class="ql-align-justify">Big data.</li><li class="ql-align-justify">Gamification.</li><li class="ql-align-justify"> Digital identification.</li><li class="ql-align-justify"> Digital platforms.</li><li class="ql-align-justify">Peer-to-peer transactions and smart contracting.</li></ol>

Technology trends that have
triggered new business models

An existing business model is ported to a new industry (such as Razor and Blade to the coffee industry).Major advantages: other companies serve as blueprints and their mistakes can be avoided, enabling you to become an innovation leader in your industry.Major challenge: leaving enough room for experimentation and adaptation. Here, avoid the temptation to copy and paste.

Strategy 1 for new business model ideas. Transfer

<ul><li class="ql-align-justify">What do you offer to the customer?</li><li class="ql-align-justify">What customer problems do you solve and what needs do you meet?</li><li class="ql-align-justify">What are the products and services you put in place to accomplish this?</li><li class="ql-align-justify">What is the perceived customer value? (Usually this is not the same thing as a product or service’s technical specifications.)</li><li class="ql-align-justify">What value or benefit do you create for customers? How do you communicate it?</li><li class="ql-align-justify">How do your offerings differ from those of your competitors? What alternatives do customers have?</li><li class="ql-align-justify">Does your current business model meet your customers’ needs fully?</li></ul>

WHAT? (value proposition)

<ul><li class="ql-align-justify">Why does the business model generate profits?</li><li class="ql-align-justify">What are your main sources of income?</li><li class="ql-align-justify">How is the income generated? What are customers willing to pay for?</li><li class="ql-align-justify">What are your main costs and the most significant cost drivers?</li><li class="ql-align-justify">What are the main financial risks in your current revenue model?</li></ul>

VALUE? (profit mechanism)

A strong business model is the bedrock to business success. But all too often we fail to adapt, clinging to outdated models that are no longer delivering the results we need. The brains behind The Business Model Navigator have discovered that just 55 business models are responsible for 90% of the world's most successful businesses. These 55 models – from the Add-On model used by Ryanair to the Subscription model used by Spotify – provide the blueprints you need to revolutionise your business and drive powerful change. As well as providing a practical framework for adapting and innovating your business model, this book also includes each of the 55 models in a quick-read format that covers:<ul> <li>What it is </li><li>Who invented it and who uses it now </li><li>When and how to apply it</li></ul> “An excellent toolkit for developing your business model.” Dr Heinz Derenbach, CEO, Bosch Software Innovations

When and how to apply Affiliation

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When and how to apply Add-On