Made.com

Product Model







Made.com

Made.com represents an “exemplar”product business model in the designer furniture sector eventhough it connect different sides. The model revolves around an online platform which links (a) innovative designers and b) end-customers seeking design-led furniture pieces at a much lower price than existing competitors. Importantly, Made.com fully mediates the transaction between furniture purchasers and furniture designers, and these two groups would generally not be able to bypass Made.com’s intermediation. This differentiates Made.com’s business model from one that would be categorized as a market, in which the focal firm merely facilitates connections and transactions between buyers and sellers of particular products, who could already buy and sell form each other anyways.

The platform is used to market commissioned designs – e.g. chairs, beds, tables, etc. – to end customers until a minimum order quantity for a specific piece is achieved. At that point, the order is sent to a pre-selected manufacturer, and then shipped from the factory to each customer’s house via a UK depot, keeping overheads, production and intermediation costs to the minimum. The complementary aspects of the model include: 1) close monitoring of sales trends by allowing customers to upload their own designs as well as to vote on new concepts before they are accepted into the collection; 2) effective cash flow management since designers receive no upfront payment but only 5% royalties on successful orders; 3) an affiliation programme for enhanced word-of-mouth paying 10% commissions to marketing partners.

HISTORY

Made.com was launched in March 2010 in Notting Hill, London, by three partners with important prior experience in online furniture websites, venture capital and start-up management. The company received nearly immediately around £2.5 million funding from investors like Lastminute.com founder Brent Hoberman and Bebo co-founder Michael Birch, and then £6m in series B financing in 2012. As of November 2013, Made.com had 130 employees, over 1.5 million unique visitors per month, 2000+ exclusive designs developed in house, and a growing network of established as well as young designers and manufacturing partners around the world. Although its revenues are still undisclosed, in 2013 Made.com had an average order value of £400 and around 200,000 customers. It successfully launched in France at the beginning of the same year and in Italy towards its end.

Made.com blends elements close to traditional models followed e.g. by Alessi – the leading Italian manufacturer of designer kitchen utensils which orchestrates a similar network of external designers, or Ikea – the globally renewed Swedish furniture manufacturer which popularized low-price designer furniture, as well as to more recent online models such as Achica – a member-only luxury lifestyle website with buyers handpicking designer home products in bulk which are then heavily promoted until stock lasts, and Naked Wines – a fast-growing web-only distributor which connects end-customers paying upfront to support the production of niche winemakers around the world. Another model with many similar attributes to Made.com is Dell – the global computer brand which focuses on branding and distribution while connecting end-customers to third-party manufacturers and technology developers via online channels.

CUSTOMERS – WHO THEY ARE:

The business model represented by Made.com serves TWO groups of customers: a) mid-market consumers with preferences half-way between unique, luxury (and high-priced) furniture and mass-market, Ikea-style products; b) innovative, mostly young designers in search of market access for their ideas. Made.com has, to date, successfully proved that such a market exists and offers substantial opportunities for scalability (e.g. it is already replicated in France and Italy).

ENGAGEMENT – VALUE CREATION PROPOSITION:

On the one hand, the value proposition is to offer mid-market customers high-end, reasonably unique designer furniture at a substantial discount vis-à-vis established luxury (online and high-street) retailers. Made.com allows these prospective customers to buy from a constantly renewed supply of specially designed furniture on a hassle-free website which also transparently communicates information on minimum orders and expected delivery in real time. Customers enjoy a sense of co-creation with designers and of exclusivity of the products they buy, which are not available elsewhere. On the other hand, young designers have the opportunity to quickly prototype new concepts, benefiting from crowd-sourced feedback, to test them on the market and, if successful, build their own product portfolio and thus future personal reputation.

The model is built on a mix of “bus” architecture – e.g. products are manufactured only if a minimum quantity is achieved – and “taxi” customization – e.g. each product is generally produced in limited quantities and customers have the possibility to propose their own design. There are some direct network effects because discount and product availability are directly linked to minimum orders. Customer rating systems are also implemented to push demand of popular products and to evaluate the attractiveness of early-stage concepts before contracting prototypes to professional designers. End-customers have also the opportunity to download and use an augmented reality iPhone/iPad app which allows them to see how products would look like in their final location before purchasing.

DELIVERY – THE VALUE CHAIN:

The value-chain of Made.com is rather straightforward. Consumers use the website to scan available products, vote on new concepts, and upload their own ideas as well as place and track orders. They also have the opportunity to check products before buying via the app or, for London-customers, a dedicated showroom in Notting Hill. The design of each final product is finalized leveraging a growing network of external designers which includes both established and upstart ones, thus offering a constant intake of fresh ideas and competences. Made.com then deploy a just-in-time manufacturing system in which products are manufactured by one of the several partner manufacturers based in China, South-East Asia, India and Europe. To protect the British nature of the brand and also keep waiting times as short as possible, 25% of the orders are usually manufactured in the UK. As of 2014, the company does not have any warehouse nor does it plan to have one.

In terms of marketing, in the first years Made.com has grown mostly via word-of-mouth and targeted billboard campaigns (e.g. on the Tube in London). In 2013, though, to sustain its international growth, it launched its first TV campaign, a collaboration with London’s Design Museum, and a new ‘Emerging Talent Award’ as part of London Design Week to give very young designers an opportunity to get their concepts into production. Finally, since the outset Made.com has tried to leverage a network of affiliates which may obtain a 10% commission for each order placed via their external website.

MONETIZATION – VALUE CAPTURE:

Made.com does not disclose its financials, but it uses a rather simple monetization model based on mass customization and invested cash flow (i.e. the customer pays before production starts), with no warehousing or inventory costs and limited logistics costs. As mentioned, the company’s cash flow position is also enhanced by the recognition of 5% of sales to designers as well as 10% to affiliate partners only once products are successfully sold.

Written by Dr Alessandro Giudici and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016

Published 21 April 2016



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