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Business models

How does your organisation deliver value to your customers and your owners?

Over the Christmas period, our minds turned to kitchens (new floors rather than completely new kitchens luckily). Howdens Joinery Co have been advertising in expensive magazines, “Bring your dream kitchen to life”. A catchy headline, but the second line reads “through your local builder” a bit that seems to get overlooked. This advert must be aimed at the readership which, from the magazines I have seen, are presumably more affluent women. In this respect they have done well. The kitchen looks spectacular and we even remember the company’s name. But how does the business model work in practice?

Down at the local Howdens depot there is a sign “trade entrance”. So what about the retail customer? On closer inspection, this is the only entrance, so in you go. Inside I think you would be pleasantly surprised, the room is filled with sample kitchen designs, not as large and well displayed as B&Q, but the product is well presented and the quality is there for you to see.

But what happens next? There is a trade counter. So you can’t get prices, those are for the trade, and you can get a builder, Howdens don’t recommend. So you pick up a catalogue – another beautifully presented and expensive propositional document – and go down the road to a Builders Merchant or DIY shed that will talk to you.

So what is the business model here? Howdens makes its money from builders. It deals with trade customers only and from the actions of the depot and the staff, this is effectively delivered. I can’t imagine any builder using this depot being worried about Howdens going directly to the customer and cutting them out. So I expect that their traditional business model works.

So why advertise? I assume this is because the company wants to grab a bit of the huge refurbishment market for high quality kitchens. But from our perspective this is the point at which the business model breaks down. The existing model isn’t compatible with retail customers walking in off the street in response to the advert. The assumption is that we all have a regular tame builder and most of us don’t, so the model breaks down and all the advertising and promotional expense (in my opinion) is largely wasted. OK, Howdens have produced a beautiful catalogue that builders can show to their clients and given them an advert they can point to, and it may leave a name people remember, but the direct result is that the customer interest raised by the advert isn’t directed towards making a sale.

So a thought for the New Year.

  1. Is your business model still effective,
  • or has your latest set of marketing modified your proposition?
  1. If it has, do you still have confidence that your customer will respond to the new proposition
  • and if so is the business set up to deliver it?

Or

  1. Are you working really hard to deliver something your customers are becoming less interested in?
  2. Have you identified a new customer need but failed to change the the business model so that it can be effectively delivered?

I think the New Year is a really good time to reconsider your business model again because there are lots of companies where people are working hard but the results don’t reflect the effort being put in.

Mike Bourne

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