Business models in fashion

Theory & practice

August 28th 2012 – Walter van Andelwalter.vanandel@ams.ac.be

Agenda

1. Innovation

2. Business models - theory

What are business models?

Business model creation

3. Business models - practice

Application of a business model

4. Q&A

1Innovation

Innovation

Innovation is the process and outcome of creating something new, which is also of value

Schumpeter (1934) argued that innovation comes about through new combinations made by an entrepreneur

Innovation

A new product

A new process

Opening of new market

New sources of supply

A new business model

good ideas are widely distributed, nobody has a monopoly on innovation“

”Prof. Henry Chesbrough, Berkeley

2BusinessModelsWhat are they?

Business models

EasyJet / SouthWest Airlines no frills: low cost, direct flights without (free) extras

Gillette razor and blades: low (no) margin on razor; high margin on blades

Dell built-to-order: choose the components of your pc before production starts

Farmville / Spotify “freemium”: Basic service is free, added services are offered for premium pricing

There is more to it than just a catchy name…

Examples

Business models

Every organization has a business model

Many definitions / many approaches

Interpretation:

The core logic by which a firm creates, delivers and captures value

Role: to unlock the value potential embedded in (new) technologies/products/innovations and converting it into market outcomes

A business model is a logical story explaining who your customers are, what they value, and

how you will make economic returns in providing them that value“ ”Prof. Joan Magretta, Harvard Business School

Value?

What values do we pursue as a company?

What value/benefit do we create, and for whom?

How do we create this value?

How do we transform value into money?

Business models create value

The business model creates value not technology or a product itself

product/technology value/utility

business model

business strategy

enables

defines

creates

X

Business model components

Value creation

Why does your business exist?

Company’s unique value proposition

Value delivery

How can you deliver the value to the customer

Value capture

Whether & how can you make money now and in future

organization consumernetwork

+ profit formulainternal processes and organization + value chain

Business model innovation

Value creation innovationwe offer a better value proposition for an existing or new problem

Value delivery innovationwe reconfigure the value chain so that a better value proposition and value delivery emerges

Value capture innovationwe change the revenue mix and thereby create a better value proposition

Side note…

Often used interchangeableHowever: different concepts

Business plan: statement of a set of business goals + how to attain them

Business strategy: combined choices of how to compete

Business model: operationalization of the business strategy choice

Business plans, business strategy & business models

Value proposition

Value Proposition

Identify the customer ‘pain’ or problem

Indicate how the product addresses that problem

Quantify the ‘value’ of the product from the customer’s perspective

Understanding ‘value’ is KEY!

Generally wholly unrelated to your cost base

What is the value of an MacBook?

What is the value of a (luxury) clothing item?

Well, I know we are in a commodity market where the price is key, but I

believe we can sell the good for 10x as much as before“”

Value proposition

Fashion and quality at the best price

Instant fashion

Other fashion brands?

Business model creation

Two important concepts:

Business models consist of a set of Choices and Consequences

Business models are a variation of the Value Chain

Business model creation

What ‘parts’ are business models made of?

The concrete choices made by management about how the organization must operate, and

The consequences of these choices

Choices & consequences - Casadesus-Masanell & Ricart (2010)

Business model

Business model creation

Choices

Policies

Assets

Governance

Choices & consequences

Consequences

Flexible

Rigid

A business model is a reflection of the firm’s realized choices

Business model creation

Every business model is a variation on a company’s value chain (Magretta, 2002)

The business model encompasses the pattern of the firm’s economic exchanges with external parties (Zott & Amit, 2008)

Value chain

Business model creation

Value creation is a networked process

Business models span across firm boundaries

It involves a complex, interconnected set of exchange relationships and activities among multiple players

Value chain

Business model creation

Where does your business sit in the value chain?

Do you need support/partnership/technology?

Can you go direct-to-customer?

If you are reliant on others, how will you capture your part of the value created?

And build lasting relations?

Value chain

Business model creation

Identify the specific group of customers (aka ‘market segment’) you will target

Understand that different market segments have different needs, preferences and purchasing criteria

Understand the value that they desire

Create an optimal delivery system of that value

Quantify, quantify, quantify

Value delivery and capture: customers

Business model creation

How is revenue generated?One-off purchase?

Subscriptions?

‘Freemium’ model?

Advertising?

How does that tie back to the value chain?

What is your cost structure?

How does that tie back to the value chain?

Value capture

Business model creation

Start with a provisional business model

Validate; then revalidate and revise

The “right” business model is rarely apparent early on… entrepreneurs/managers who are well positioned and can learn and adjust are more likely to succeed

Discovery, learning, and adaptation

Business models

To be a source of competitive advantage, a business model must be more than just a ‘logical’ way of doing business

A model must be honed to meet particular customer needs and requires deep understanding of the customer/consumer and their values

It must be constantly revalidated and adjusted

Designing a business (model) is a creative act!

Some conclusions

3CaseExampleFragileNathalie Vleeschouwer

Case example

Fashion designer from Antwerp

Female entrepreneur of the year 2011

Main brand: Fragile Maternity fashion

Nathalie Vleeschouwer

Fragile delivers contemporary fashion that enables pregnant women to feel

comfortable, free, and attractive“”

Fragile

Product:

High fashion for pregnant women

High quality fabrics specifically Chosen for sensitive skins

Durable products

Cut and shape adjusted for pregnant shapeBut also wearable afterwards

Value creation

Fragile

Personal contact:

High emphasis on personal contactWith boutiques and suppliers/producers

Establishes goodwill

Establishes calm / steady relations

Value creation

Fragile

Maternity Boutiques

Flagship stores

Provide a unique experience

Provide a complete offering of maternity products

Value delivery

Fragile

Standard sales format

But in addition:

Durability leads to cast-offs

Word of mouth

Many request for non-maternity clothing

Second line: Nathalie Vleeschouwer

Value capture

Nathalie Vleeschouwer line

Builds on good name designer

Builds on style Fragile

Builds on previous customer base

Attracts regular and maternity boutiques

Nathalie Vleeschouwer

Clear initial choice for maternity high fashion

Untapped market, possibility for personal contact with retail

Choice for a complete offering maternity wear

Supports and enables delivery of value proposition

Choice for as much local production as possible

Fast, convenient, goodwill

Some choices (and consequences)

Nathalie Vleeschouwer – business model

4 Q&A

OPENING MINDSTO IMPACTTHE WORLD

Slides and references available on:

www.waltervanandel.com/fashionmanagement