We do not sell products, we sell credit lines.

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In a previous blog there was some mention on the change in business model that some companies in Mexico and around the world are implementing. This new strategy is to use its established platform to turn their business into a provider of financial services.

In the blog above mentioned particular reference was made to several companies in Mexico such as  Ara, Casas Geo & Homex which core business actually is no longer the build and sell low-cost housing projects. The business name is now called to get the credit (end) so the user can buy his home (mean). While this strategy has been cleverly used by these companies, they  the first nor the most effective in carrying it out.

In fact companies like Electra &  Coppel  could give some advice on how to convert your business from a basic supplier of goods into a model focused on the sale of a financial instrument. These companies have several common features:

a) They are companies that sell consumer goods and services to a mass market, and generally a low-income base.

b) They have hundreds of thousands of captive customers. Electra gradually began to give credit to their customers through weekly payments. Credit is dedicated to the sale of appliances, they started out  when no one else was doing it. That allowed him captive to a huge base of loyal customers who were the first target  market once opened Banco Azteca ( owned by Electra ).

c) The same scheme handles Coppel who after establishing their stores across the country  they have been engaged, through Bancoppel, to give credit for the purchase of a variety of products and services.

People might view this as a business opportunity impossible to achieve. The vast majority of SMEs in Mexico do not have a customer base of that size. However, competition among banks to capture customers is increasingly difficult so that they are open to partnerships with mid-sized businesses to provide financial products and services to end users (credit lines, credit cards etc).

If a business succed to pass the barrier of understanding that in the end their products and services are just a means to reach an ultimate goal: to create customer satisfaction and customer value. This business will have taken a clear step into its consolidation.

www.clarensyst.com.mx

Turn-key Business Model

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Turn-key Business Model.

The concept of  turn-key business model has been too long identified with a tactic within the project management realm. In construction and real estate development industries is widely used: it is aimed to outsource a service or finished product through a third party. The point is that this product is in turn composed of a number of disciplines, processes and raw materials.

Using the concept of turn- key makes sense in some industries and in others less so. For a real estate developer in Mexico, a small or medium size firm, its core business is providing financial returns to its investors or business owners, so  they can focus on buying land bank to develop their projects instead of focusing on construction & sales processes. From the point of view of their business model, doing so will only lead to problems and do not leave any real value to their business: providing a financial instrument acceptable to their owners.

In simple terms one can see it from different perspectives. If you are making a birthday party for your child age 7, would not you like to hire one person, even with a higher price to take care of absolutely everything?, ie from the room arrangement, through invitations, music, games and ending up with the cake. This would prevent you had to hire 3 or 4 different people to do everything individually and hardly would be coordinated among themselves.

Of course, this concept does not apply if your business is treated by customers as a commodity, ie the lowest selling price is usually what determines one company to get the largest market share. This  is well know  by companies like Wal Mart or Tesco as they have developed and negotiated the supply chain with all its suppliers so that their prices are always lower than competitors.

In Mexico, companies like Casas Geo, Homex or Ara have developed the same strategy and operational way  as they not only buy the land but also build the housing projects & urbanization through qualified suppliers who provide them with even the construction materials of housing. The same, thanks to economies of scale, cause their final selling prices to be the lowest in the market.

In conclusion, although the concept of "turnkey" applies perfectly in small and medium businesses, where the operational complexity and the final price is not the key business, it is also true that there is a tendency for large companies to move this concept in its supplier development program.

The challenge looks rather a tricky one.

www.clarensyst.com.mx

Guerrilla Marketing: Evolution.

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While the concept of Guerrilla Marketing has evolved considerably since JC Levinson was coined by his literary work, it has undergone a conceptual evolution that takes a different path from the original idea of ​​Levinson.

The Guerrilla Marketing started out as a strategy implemented mainly by small and medium businesses that did not have sufficient resources to deploy a marketing campaign to position themselves within the market. The main approach of Guerrilla Marketing focuses on innovation and the optimization of the basic resources (effort, time and energy of people). The tactics are well understood: from stickers pasted all over the city, to create false situations in public places (demonstrations, protests) until facing the customer directly at their doors. Anything is worth trying, goes the old adage, if it helped to position your product in the minds of people.

However, this same practice has been considered now by large retailers worldwide and therefore, in its peculiar way, began to be packaged and implemented in their respective businesses. Now marketing gurus call this approach "market saturation" and walks away a little from the spirit of the original idea.

Big chains like Starbucks, Dominos Pizza, KFC seek to eliminate their competition to exponentially increase its presence through franchises in almost any city in the world. Just as chains such as Seven Eleven  &  Oxxo  fight each other to get the best street corners where people trafficking is significant so as to occupy a strategic space before your competition does.

Another clear example of market saturation is implemented by Office Depot as they open their mini espresso-type branches which are located mainly in residential areas and thus customers do not have to drive on for several minutes to get to an Office Depot if they just need to get a pack of white sheets. Now the concept is to be closer to the customer, increase service quality while physically occupy the same space that could have been taken away from competitors.

Wal-Mart, Soriana and large retailers in Mexico are now getting the message and start building smaller stores, nicer and closer to  people (mainly in the urban zones). If the client does not come to you, then you should go to them.

Interesting variation of a strategic Guerrilla Marketing. Who would have thought that an strategy for  micro businesses could be transformed into a powerful tool for large industry?

www.clarensyst.com.mx

Amazon: The long-term profitability.

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Amazon: The long-term profitability.

Since its release the book by Richard L. Brandt called "One Click: Jeff Bezos and the rise of Amazon.com" it has been criticized by several readers eager to discover something new about the company or the personality of the founder. It is logical that they would feel disappointed: the book does little or nothing new that has been previously written about Amazon.

Once the  clarification  is done, the book has several interesting approaches that makes reading it (just over 200 pages)  worth the effort. Brandt focuses much of its energy as writer trying to differentiate Jeff Bezos apart from other founders of technology companies, particularly in the middle of the nineties with the advent of the internet mass, and to some extent achieved the task.

According to the book, Bezos stressed out the need as a company that Amazon should have a long-term vision before thinking about the profits in the short run. Bezos' obsession was to incorporate a seamless supply chain, with little or no inventory at all, an innovative technology platform quite powerful for its time and an incredible customer experience. Of the three pillars Bezos has always been more attracted to the last: its goal is for the company that has the best customer service of any industry.

But Brandt also recounts the hardships that Bezos has been through to achieve that mission. It aims to avoid short-term care but the latter brought him a number of issues, from media criticism specialized in technology and supply chain to the eternal pressure from investors who had put their resources in a company that after 5 years had billed hundreds of millions of dollars but did not have a penny of profit and reported millions in losses every year, even after getting a dominant position in the market.

This leads to reflection on the idea that many entrepreneurs or business owners trying to do with their own businesses. Few people are willing (or allowed) the delay positive outcomes of their business in order to provide a competitive advantage over its competitors or improve the product or service they offer to their customers, much less think about trying to improve their business processes to meet the best possible customer retention and achieve the same that allows an insight into the minds of consumers so powerful that it could hardly be beaten.

In a world in a hurry, where resources are increasingly more expensive, competitors increasingly well prepared and where short-term expectations are the order of the day, the vision and precision of Bezos and his Amazon´s team are an oasis in the desert.

www.clarensyst.com.mx

Locked-in : seller´s dilemma

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One of the most successful strategies developed in business is to keep your customers captive through your products or services.

The clearest example is that of printing equipment. The business is not just in selling the equipment but in the consumables (ink cartridges injectors, spare parts) and after-sales service (repairs, maintenance).


Of course there are many more examples in other industries. From Guillette´s razors that actually make their profit rather selling  blades  than razors themselves. Same thing happened   to cell phone companies which slowly understood that the business was in the sale of prepaid cards rather than the sale of mobile handsets.


In English, the term is known as "locked-in" and is widely used in the technology industry. The clear and convincing example is undoubtedly that of Microsoft, as the default operating system for PCs, it requires you to renew the license or the same operating system to a newer version. This has caused undue Microsoft capitalize on its dominant position in the market for operating systems, which has a platform for users who are hundreds of millions, to be charging extra for the new version of their product.



Some companies take this practice to the very end. It is said that the Amazon Kindle Fire retails at a price even lower than that of his own manufacture (though this may seem absurd) because  Amazon gains mostly from the sale of content which can be accessed by purchasing the device.



The latter can be seen in a company like Google where many of its products on its platform are free because the income come from other sources (advertising sales) via products offered on the platform. In this case the apps are mere vehicles for reaching a mass market that will produce revenue through other means (advertising sales).



It is certainly an interesting strategy, especially in industries that minimize costs through economies of scale. However, the scenario should be thoroughly analyzed and the ability of the company to bear the costs with the aim of bringing long-term strategy to fruition.