Monday, July 08, 2013

If You Cannot Beat Them then Adopt Them - Extending Your Business Model

Book-music-movie retailing in India has hit hard times with almost all the major chains shutting down. The online ‘menace’ of the free availability of movies and music; increasing popularity of digital books/ e-readers and discounting by online retailers has resulted in such a situation.

Take the case of Music World (MW) – part of the RPG Group. MW was the leader in the distribution of music, movies through CDs etc. The online phenomena literally killed the concept. Music was freely available on the net and that closed the largest revenue stream possible. Movies were available for downloads through torrents and that closed another huge revenue making opportunity.

Landmark, Odyssey and other chains which built their businesses on the retailing of books, tried to expand its scope to include music, movies, entertainment devices but the onslaught of the online business put paid to its business. There is a Flipkart or a Homeshop18 which is willing to offer home delivery with a wider variety and a double whammy of better discounts. If that’s not all, e-readers along with tablets have taken the remaining breath away from these chains.

The seemingly obvious changing business landscape has caught these chains on the wrong foot. They have sought to change their businesses by restricting themselves to the brick and mortar. There is lethargy and fear compounded with apprehension which have made these organizations restrict and prune their operations.

The question is that why in the face of impending danger companies still continue to drag itself with existing models which are non –viable.

However not all organizations across the globe have been late in reacting. Walmart initially did not understand the online space and its business was slowly eroded by the likes of Amazon and others. When it responded it was in a unique way. It responded with a hybrid approach. Merchandise ordered online could be drop-shipped for same-day pickup at local stores. This and other creative solutions have totaled over $9 billion of online sales to Walmart. Interestingly facing the might of Walmart, Amazon which has no physical store fronts moved in the opposite direction and are installing lockers in neighborhood stores to allow for direct pickup.

While DVD rental chains like Seventymm have folded up albeit making some changes, Netflix, has begun producing its own content. This programming has turned out to be popular and this has attracted customers to order more from the rest of the catalogue.

The point is with appreciation of business challenges, a willingness to respond quickly, and being open to all models, chances are that companies which will survive will be those who blend its existing business with a business model which is threatening its existence.

In India perhaps the best examples of the hybrid model has been in the education sector. The traditional brick and mortar institutes like IIMs have expanded their scope of education by offering distance education through satellite and online mediums. Traditional brick-and-mortar schools suffer from fixed costs on account of infrastructure and the inherent weakness that restricts it to imparting education in a fixed space, at a fixed time. On the other hand, online education can be imparted anywhere & anytime. However credibility of the online courses is far below the traditional schools. The prestige of being associated with a premier school is aspirational. Hence there was a marriage of both worlds. IIM Kolkata offers courses in various disciplines in the management field through online partners thereby spreading itself across the country and leveraging its repository of knowledge and excellent faculty. Something which is left unsaid is that the online partner seem to have better marketing muscle and is able to get a larger number of students.

In the recent past Yebhi, an online marketplace tried to kill two birds with one stone by placing virtual store walls across outlets of Café Coffee Days. Not only did it serve as an excellent marketing story it also enabled the customer to browse and then scan the QR code to access the product through smartphones. India has a very young online customer base and Yebhi capitalized on a key catchment area by taking the whole exercise to the next level.

There are basic tenets which these hybrid models are based on:

a) Each model/company needs to leverage each other’s strengths to solve a business problem.
b) The dynamic business shifts can be addressed faster without losing the core competency. For example – one of the strengths of Walmart is its sourcing capabilities.
c) Hybrid models can be either insourced or outsourced, while education has been outsourced, shopping has been insourced. It eventually depends on the strengths & weaknesses of the organizations.

The fundamental objectives of hybrids are:

a) Allows organizations to address changing market paradigms without losing the key success factors in its existing avatar.
b) Turns disruption to the present business model into an opportunity
c) Leads to a strategic shift which can actually redefine the way the business is run.

This is certainly not a panacea of all organizations which are facing tough times due to disruption and changing times. For moving to a hybrid model there are some questions which need to be asked:

a) Are the existing services or products good enough to dovetail into a hybrid model?
b) Is the proposed hybrid offering showing a direction which hitherto was not possible?
c) Can the proposed model be handled comfortably by the organization?
d) Is the solution too far away from the existing competencies?
e) Is the new model going to slow the whole business down?

A last piece of advice- do remember it is best to compete with yourself rather than let your competition eat you up!


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