This Pathway Requires
A dyadic relationship where the Organisation engages with a Customer about a problem that the Customer faces, and provides an integrated solution to that problem. The value proposition is relational.
Compared with the product pathway, the solutions pathway requires much greater customer engagement by the Organisation with its Customer. The Customer has to trust the Organisation to deliver the product-service that is typically key to the Customer’s business (B2B) or enjoyment (B2C).
In B2B markets, users of airplane engines, machine tools or computers are provided services on a solutions basis such as ‘power by the hour‘, ‘machine time as a service‘ and ‘software as a solution‘. In B2C markets, services such as a haircut or an interactive premium priced online video game are solutions. In government markets, we see solutions being offered in some Private Finance Initiative (PFI) contracts. The boundary line between Solutions and Products is sometimes a matter of degree – not absolute. This pathway requires:
- Identifying potential customers
- Creating a high level of trust with those customers, that allows identification of unmet needs
- Tailoring the product or service delivery to fulfil those needs in the context of the customer
- Charging mechanisms are almost always value based rather than cost based
- Customer engagement is rarely outsourced; in contrast there are many possible supply arrangements including outsourcing for the component products or services.
Scalability – Difficult: greater volumes often lead to higher unit costs.
Profitability – Typically excellent among selected customers.
Risk – Developing relationship with a customer and tailor-made solutions require upfront investments in time, money, and relationship building.
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Solutions Business Model
The BusinessModelZoo™ provides insight to help you understand and navigate the opportunities and rewards as well as risks and threats to the solutions business model it faces from the other business model pathways.
Most physical solutions business models such as a management consultant or a full-service restaurant are challenged to operate at scale. Adding a product business model version of the offering may be an effective way of creating more volume and scale, with perhaps lower margin.
Adding a physical market place (or better a digital market place) that allows customers to buy not just my offerings but also those of rivals is an addition to my business portfolio. By definition, a market place uses a matchmaking business model that allows me to engage with a wider group of customers and to learn more about rival offerings, but typically demands more resources and a much more-nimble approach to management. Amazon’s market place is not a very profitable business considered separately, but this matchmaking business model has allowed Amazon to create complementary businesses such as AWS that are very profitable.
Adding a new customer group that brings a new additional revenue stream on account of their interactions with my current customers is an essential element of becoming a multi-sided business model. Such actions will be challenging, costly and is typically only achieved in stages, but might be a very profitable final end point. The new customers are likely to be advertisers, and whoever they are it is essential that they engage with my existing customers in a value adding manner. I will need enhanced capabilities to service this new group of customers (the advertisers). Once again, to be really effective as a multi-sided business model, I will have to digitize many elements of my offering.
My physical solutions business model is at risk from rivals offering simple low-priced physical product business model alternatives. Product business model companies typically have much lower costs and can operate at larger scale. I should consider this move when I can turn my complex solution into a simpler product business model that is attractive to my customers, and as a result reduce my costs and raise my volumes.
If a market place appears in my industry, my sales could be increased by participating in this matchmaking business model, but I might lose my direct customer relationship that may reduce my profits. (see text above).
It may be very difficult to counter an effective multi-sided business model competitor, especially if the multisided organisation is able to use one of its customer groups to subsidize the costs (and prices) of its offering. If the appearance of the extra customer group debases the offering in the eyes of customers (as in say advertising supported educational offerings) you may be able to resist by maintaining the integrity of your offer. Otherwise you might be forced to change your business model to either a multi-sided business model (see text above).
Adding a simple digital product business model offering to complement my solutions business model may be attractive if by doing so I can lower my costs and engage with a completely new set of customers. However, I need to be careful, digital solutions business models typically give higher value and higher prices.
Adding a digital market place that allows customers to buy not just my offerings but also those of rivals is an addition to my business portfolio. By definition, a market place uses a matchmaking business model that allows me to engage with a wider group of customers and to learn more about rival offerings, but typically demands more resources and a much more-nimble approach to management. Electronic games producers often run market places, and this aspect of their business is typically not a very profitable business considered separately, but the matchmaking business model allows the games producers insights into market trends and competitor offerings not otherwise easily obtainable.
Adding a new customer group that brings a new additional revenue stream on account of their interactions with my current customers is an essential element of becoming a multi-sided business model. Such actions will be challenging, costly and is typically only achieved in stages, but might be a very profitable final end point. The new customers are likely to be advertisers, and whoever they are it is essential that they engage with my existing customers in a value adding manner. I will need enhanced capabilities to service this new group of customers (the advertisers).
If I am offering a digital solutions business model at scale, it is unlikely that a rival with a product business model will be a real threat, unless the rival product offering is significantly less expensive. In most instances, a digitized solutions business model is superior to the product counter-part but there may be exceptions.
If a market place appears in my industry, my sales could be increased by participating in this matchmaking business model, but I might lose my direct customer relationship that may reduce my profits. Airbnb expanded the sales of its smaller rental firm participants many-fold, but threatened traditional hotel chains who were reluctant to participate because they no longer “owned the customer”.
It may be very difficult to counter an effective multi-sided business model competitor, especially if the multisided organisation is able to use one of its customer groups to subsidize the costs (and prices) of its offering. If the appearance of the extra customer group debases the offering in the eyes of customers (as in say advertising supported educational offerings) you may be able to resist by maintaining the integrity of your offer. Otherwise you might be forced to change your business model to a multi-sided business model (see text above).
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