Business model innovation: choosing the right pricing & distribution for your product
Darren Moffatt (00:08):
Imagine a state of perfect tranquility, a place free of stress and the common frustrations of modern life. A world, before flat pack furniture. Yes. If you live in a developed economy and you weren’t born into an insanely rich family, then at some point you too have probably enjoyed the unique joys of assembling a flat pack furnitire. In the age of e-commerce and our collective mania for home improvement, the almost instant gratification of the flat pack is ubiquitous. But did you know its current popularity can be traced to a business model change by one global household brand. Who can you blame for your flat pack frustration?
Darren Moffatt (01:04):
Hi there, and welcome to the Nerds of Business podcast. My name is Darren Moffatt. I’m a director at WebBuzz, the Growth Marketing Agency. And I’m your host. It’s great to have you with us for Episode 7 of the Product Development Series. Now it might seem like a flat-pack furniture has always been with us, but of course that’s not the case in the so-called olden days like maybe 20 or 30 years ago. You could mostly only purchase furniture that was preassembled in heavy, solid timber. It was expensive and difficult to ship. Delivery often required a truck and several burly men to get the goods from the shop to home. But in our opening story, we reveal the origin of flat pack furniture and how a business model innovation changed the economics of furniture production forever.
Darren Moffatt (02:15):
The remote district of Småland in Southern Sweden is defined by a Stoney rugged landscape that makes living difficult. Many inhabitants are forced to get by on limited means and learn to make as much as possible from next to nothing. Smålanders are said to be thrifty innovative and possess a no-nonsense approach to everyday problem solving in 1943 a 17 year old local boy called Ingvar Kamprad embraces this philosophy to become an entrepreneur. He launched as a mail order, business selling pens and stockings, and he called it Ikea, which is an acronym of his initials and the family farm, where he was born. By 1948, the company begins selling furniture produced and assembled by local manufacturers in 1951, Kamprad is selling enough of these by mail that he publishes the first Ikea catalog. A few years later, Ikea’s fourth employee Gilis Lundgren joined as catalog manager.
Darren Moffatt (03:26):
And soon after he is tasked with delivering a new leaf shaped table called the Lovet it to a nearby photo studio. So it can be shot for an upcoming catalog but when trying to fit the table into his small post-war car. He gets frustrated. His solution is to take off the legs so that transporting the furniture becomes easier. It’s the light bulb moment that changes everything. Lundgren becomes such a tireless advocate for flat pack furniture that he soon convinces Kamprad to make it the cornerstone of the furniture maker’s business model. Going flat pack uniquely positioned RQ to grow from a relatively small business operating out of the Swedish countryside. They are now a multinational empire spanning 433 stores across 52 countries. In 2018, Ikea turned over $45 billion. Now only possible because they developed a radically different business model.
Darren Moffatt (04:43):
They say imitation is the greatest form of flattery and these days I’m sure you’ve noticed there are thousands of Ikea imitators flat pack [inaudible] gone mainstream. But I think it’s useful to quickly unpack, sorry. That’s a very bad pun. I know. The full implications of Ikea’s flat pack business model. I think the most brilliant part of this innovation is that they’re outsourcing the assembly labor to the customer. That’s very cheeky when you think about it, but imagine the drop in production costs that they would have enjoyed when this first went live. It was a massive competitive advantage back in the 60s and 70s, and it remains so today. With everything packed in flat boxes, shipping costs from factory to retail outlet also would have plummeted, which again feeds into lower prices for customers. And by making the products more easily transportable from the shop to home, they’re essentially expanding the distribution and increasing the size of the addressable market. If you’re developing a new product or perhaps you’re refining an existing service, business model innovation is a massive opportunity, but what can you do to create a value proposition? That’s so attractive. It shatters industry convention and set you up as the market leader.
Speaker 2 (06:10):[ Music ]
Darren Moffatt (06:30):
This is Nerds of Business. We’ll start the show in a minute, but first a word from our sponsors.
Ben Carew (06:40):
Hi everyone. It’s Ben Carew here. I’m a director at WebBuzz, the growth marketing agency. I work alongside the host of this podcast, Darren Moffatt. if you’re a business owner who wants to grow, but you don’t have the spare funds to invest in marketing right now, you’re not alone. Since COVID hit, we’ve noticed more clients suspending campaigns or delaying their marketing altogether due to cashflow issues. In response to this, we developed a solution called Buy Now Pay Later Digital Marketing. It provides eligible small businesses with nothing to pay on SEO, digital marketing, and website development for up to three months. We think it’s perfect for entrepreneurs who need a helping hand getting sales flowing. Again, I’ll be back later in the show to explain how it works, but if you can’t wait, you can download a free info pack now at webbuzz.com.au/bnpl that stands for Buy Now Pay Later. That’s webbuzz.com.au/bnpl
Darren Moffatt (07:43):
So the title of today’s episode and the problem we’re trying to solve is Business Models: Choosing the Right Pricing and Distribution for your Product.” It’s a fascinating topic today, and we’ve got some truly inspiring guests on the show. You’ll hear from a prop tech founder, who’s been a product designer for Uber and Google, a leading venture capitalists who invests in early stage companies and the founder of one of the fastest growing healthcare companies in Australia. We’ll also completely nerd out with our two product design experts, of course, but first here’s just a quick reminder that if you’re enjoying Nerds of Business, tooplease hit the subscribe button on your podcast player. It means you’ll automatically receive each new episode every fortnight and it makes it easier for us to stay in touch.
Darren Moffatt (08:34):
When it comes to pricing and business models. It turns out there is some standard frameworks that you can use to help choose the right approach for your product or service. Ross Gales is Director of Design and Strategy at Sydney agency Pollen. Ross is one of our two product design experts for this series. And he’s designed product solutions for some of the biggest brands in Australia, including Gumtree, which is owned by global giant eBay. I asked Ross, what are the key concepts that entrepreneurs should understand and what frameworks are best for designing business models.
Ross Gales (09:13):
Pricing and business models can be very complex, and it really depends on the type of product or startup you’re offering. So there’s some key models and well-known frameworks for monetization out there that a lot of platforms use. So subscription is a great way of getting recurring revenue from your customers and then ad funded or a free version, is also, or can be quite beneficial for certain platforms. Um, pay to download is in other words, I’ve said more of a freemium model where you get people in for free, then maybe level them up. Um, thinking about upsells, I paid unlock content, um, paid to unlock value. So there might be new features or functionality handling all that sort of stuff. So there’s tons of ways of thinking about it. The key thing is focusing on getting the right type of value for the users that’s actually worth paying for in the first place.
Ross Gales (10:03):
So it is really critical and I sort of advise a lot of our clients is don’t get too caught up in monetization upfront depending on your runway and how much money you’ve got to before you need to start recouping and making some profitability, really focus on the creation of the value, make sure your software and service is doing what it needs to do. And then we can look at how do we monetize that value? So certain, products like B2B products is one example where they typically have a tiered model and that tiered model can be based around either the size of the company, the number of users. It can also be based on the types of features and functionality that get unlocked at every stage of the tiered model. So it can get really complicated. And there is companies out there that specialize just in pricing algorithms and models to ensure that you’re getting the most value out of it, out of your customers.
Ross Gales (10:55):
It’s a two-way exchange, so you’ve got to be providing value to them and they provide value to you in terms of money, right? So it’s really, it’s really and B2C is another one. I mean, we advocate sort of a freemium model in terms of getting people to connected with your product, get them in the door without too many barriers or hurdles to sign up registration, supplying credit card details on the database, get them on the database, get them using the product, get them to experience the type of value that that product delivers to them. And then you can look at how you tier them up to pay for the services that you offer.
Darren Moffatt (11:30):
I’m going to throw a pretty out there, example of pricing and business models to you. Um, I can’t speak for you Ross. I think you were a bit younger than me, but I was a child of the 70s. And, there was a famous restaurant in the 70s in Australia called, and the 80s actually called Sizzler. Now their innovation with processing was that it was an All You Can Eat buffet. And I think I just want to use that example, get your thoughts on that. Like sometimes the innovation in the business model can, can, it can be in the, the pricing itself, how it’s delivered, you know, that, that business scaled massively in the eighties simply because they flipped the conventional business model pricing model. How often do you see that in the work that you do as is a real opportunity when it comes to sort of taking the product to market? Yeah, so that’s
Ross Gales (12:26):
Yeah, that’s pricing model innovation, and I think, you know, for Sizzler, it was all about the Parmesan Toast really was the value added upsell you get all you can eat, but you pay extra for the Parmesan toast.
Darren Moffatt (12:36):
You are obviously a Sizzler fan.
Ross Gales (12:37):
I was a big Sizzler fan. So the model exists that you can, you can flip things on its head and try different ways to frame up the value that you offer and work out different ways to price it. So I love the you can eat sort of analogy is the freemium model. It’s getting you in getting you to experience and get addicted to that. Oh, I need the dessert bar in the salad bar and yeah, and now all day, you got to pay for those things and you can think about different ways that they can frame that as a value that they’re delivering to their customers. And what’s, what’s worth paying for what’s worth extra.
Darren Moffatt (13:10):
Ross, you know, when it does come to the business models and pricing, what are some of the key frameworks or the theoretical concepts, um, that you think entrepreneurs should know or should at least understand?
Ross Gales (13:25):
I think beyond the actual monetization models themselves, the frameworks that we use are really around measurement. So understanding what’s working and what’s not. And really one of the key things we use around that is, is a methodology it’s called the pirate methodology. Aaaar.
Darren Moffatt (13:42):
Oh, wow. That’s super nerdy. I love it. The pirate methodologies. Okay.
Ross Gales (13:47):
Yeah. That’s a great one. So it’s Double A, Triple R. ARRR! It’s phonetic. that’s it. So it’s about Acquisition. So, so where are users coming from and how are they getting to your product or service? How do we measure that? So, so putting just, I like to keep this really simple, this, this model, I don’t like to over measure things, but understanding where users are coming from activation. So what are they doing when they get there and how do we convert them? Looking at things like Retention, say how long are we keeping them engaged with our product or service, um, the Referral, how much are they recommending us or helping us to grow the size of the pie, um, and then ultimately the Revenue. So the value that they’re bringing to us as well, um, and their five key key measures that you can think about two or three things within each of those that are worth measuring and use those as a benchmark and watch them and watch how they change over time and look at how you can increase retention, how you can increase referral.
Ross Gales (14:47):
There’s, there’s always ideas and solutions about how you might move the needles on those things. But it’s a nice little framework just to get set up. I use a Google Analytics dashboard, and I just set up some key measures, make sure everything’s nice and connected. And just, just see how those things change over time and interesting. What I’ve been doing a lot with lately with some of our customers is actually flipping that model around on its head a little bit. And moving, uh, retention further up. What I’m finding is that a lot of growth potential actually comes from reducing the churn in your platform. And sometimes it’s by focusing on getting the people that you’ve got they’re doing more is actually where you can get the most value rather than constantly chasing new acquisition and new clients, which can be costly and take a lot of time to invest in and conversion funnel optimization and all those sorts of things come into play when you’re really trying to get those new people in the door and get them through the processes.
Ross Gales (15:41):
And the reality is you’ve got a leaky sieve and people are leaving out the back. So there’s a, there’s a really nice, theory behind why you would focus on making the people that you’ve already got. They’re happier, getting them to make more referrals, getting them to do more, getting them to spend more and increasing the value of those customers, because ultimately that’s the focus on value creation that I’m so passionate about. Yeah. It’s all about growth. That’s, that’s why we’re in business. It’s really about how do we increase and scale the products and services that we’ve got to get more value and ultimately more profitability from them. Um, so it’s a really important measure to, to understand the benchmark and ways to improve those measures. So how do we increase referral? How do we increase retention, how to increase revenue and lifetime value of customer. Yeah.
Darren Moffatt (16:25):
And you stole my thunder Ross because I was just about to ask you about, the lifetime value of the customer. So this is obviously where this comes in.
Speaker 4 (16:33):
Yeah. That’s right. So, so the, the, the key thing is, is getting more people to spend more money on your platform means that you need to continually re-engage with them. Um, you need to have a value that’s worth coming back for time and time again, you want them to keep using it. You want them to love your product. So that’s that, that lifetime value is really important to understand what that is and, and, and how you can extract more of it. And that’s obviously tied to how good a product you’ve gotten and how much it’s solving their problems.
Darren Moffatt (17:01):
Okay. So there’s a bunch of super useful tips there from Ross, but how important is pricing and business model actually to the end product design? Carrie Peters is the second of our two product design nerds for this series. She’s product design principal at Sydney agency Ustwo, originally from Oregon via New York, where she’s designed for the likes of Nike and ClassPass. She’s now a leading exponent of human centered design. Listen to Carrie, explain why this is so important. And also when entrepreneurs need to be thinking about this component in the product development process.
Carrie Peters (17:40):
So as far as the business model goes, you need to think about it from the beginning. It’s that third lens, you know, the feasibility, usability, viability, it’s this viability piece need to understand what your value exchange is between all the different players are upfront. So you know what that’s gonna look like at the very least, if you’re going to walk in front of a potential investor, they need to know this. They won’t even look at your product if you don’t know what that is. I think the pricing variable is actually something you can shift later. Pricing is a variable that you can shift up or shift down to flex, or like, change exactly what the outcomes are. So pricing is not necess. I mean, and I’m saying this I’m not a business person. I would just say, you have to look at business modeling upfront. Um, and pricing will be a little thing, a little detail of that, and potentially something that down the line you need to finesse.
Darren Moffatt (18:35):
And now for the first of our entrepreneur guests, Mina Radhakrishnan is the founder and CEO of PropTech :Different.com.edu. Amina was amazing to talk to. She herself has a design background and was a product designer for Google, and also for Uber when they had just 20 employees. Any real estate investors out there will know that property management can be incredibly painful. Mina has bought design thinking to solve this problem for investors by creating a platform solution that really does revolutionize the conventional business model of property management. So for instance, instead of charging 8% of gross rent, :Different can do it for just $100 per property per month. They’ve raised millions in capital so far, including from the likes of leading VC from Square Peg Capital. I asked Mina to explain the pricing innovations that they’ve developed and how they went about it.
Mina Radhakrishnan (19:33):
Yeah. I think one thing that we saw as we were exploring this market is you actually cannot go to any real estate agent and look at their website, or look at their online web presence and know what they charge. Like you just care. You can try and like, then it’ll be something, but if you talk to them, they’ll negotiate it down because there’s [inaudible]. There’s lots of [inaudible] in the business. People already get the biggest thing they can. Now I saw a property manager or a property management company that at some point was trying to, was running, running, like a session or a, um, uh, facilitating session on a fee maximization, right, where it’s just like, Oh, you know what? You could charge an extra $5 a month. If you, if your statements, you can charge an extra $6 a month for postage fees, all of these things add up over time.
Mina Radhakrishnan (20:16):
And I’m like, to me, that feels like completely the wrong thing to do. So you’re just going to find ways to like, tack on additional like nickel and dime services for people so that they can, they can put this into play. I don’t believe in that. I don’t think that it’s a, it’s a fair thing to do. So for me, one thing that was important is like, we don’t have to make, we have to make price clear. And that’s why for us, like our, our fees are very simple. There’s not much, there’s not much to argue and we don’t discuss them. There are a hundred dollars a month for management, and there are one one-time thousand dollar fee for leasing. That’s it? There’s no, there’s no negotiation that no discounts, because it’s a fair price. And that’s where we go. So it’s like, if you want to argue with us on price, like that’s not a good use of our time.
Mina Radhakrishnan (20:52):
So a good use of your time, quite frankly, right? It’s like, it’s a fair price. And we know, because we, we thought through, we’re not, we’re not here to build a non-profit, right? That’s not our business. We’re trying to create a sustainable long-term future business at a fair price for customers. [Inaudible] We believe that we can also do well and create a good business and pay our employees well and make sure that people ultimately are successful. Um, and that’s what we, that’s what we think our price is. And so we, we go from there and sort of go down that path where we don’t want to have the discussion about prices. It’s like, it is what it is, you know, take it or leave it. And then let’s talk about service. Let’s talk about value. That’s what we really want to focus on.
Mina Radhakrishnan (21:26):
And so I, I think that’s a really key thing where it’s just like, you have to establish what you think is a fair price and kind of go down that path. Like, you don’t really want to be in a position where you’re sitting there like negotiating discounts. And no, I think that this, this is different for SAAS Businesses [inaudible] for us, but like SAAS businesses, you don’t have very common things where it’s like, hey, this is the monthly price, but here’s like the annual discount or if you’re like move to an enterprise model, obviously it’s like volume discounts and things like that. And I absolutely think you can, you can put those kinds of things together. I just think that it’s important to be clear on price so that it doesn’t become the discussion when you’re in your sales process,
Darren Moffatt (21:59):
Venture Capitalists or VC, as they’re known are a key source of funding, mentorship, and networks in the startup ecosystem. Often they’re run by ex-entrepreneurs themselves. And the investments they make into early stage companies give them unparalleled insight into what investors want to see in a startup. Emlyn Scott is the co-founder of CPE ventures. CPE ventures are a leading VC for early stage companies. And in 2018, they were recognized as the top VC fund in the world, listen to Emlyn, explain the VC perspective on business models and pricing.
Darren Moffatt (22:40):
Why are they especially So for digital platforms and sort of first in category products, and what models do do you guys favor in your portfolio as a VC?
Emlyn Scott (22:54):
Wow. There’s so many components to that. So in terms of why it’s so important, I think it’s important for all businesses and we often, and it’s a big problem. We see a lot of businesses that haven’t thought about it enough. They spend so much time on their product getting the product, right. And then they don’t think how they’re gonna market it or distributed, or, you know, get that business model right. And it’s kind of just, Oh, we’ll figure it out in time. And it’s like, well, no, you’ve actually got to really think about this. And then where you start and where you get to changes. So, you know, you want to know your customer really well, right? At the beginning, you want to be talking to them, getting the feedback, evolving your product. You’ve got to get that customer relationship later on, you can get different distribution models. Why is it really important? Because on, in digital, everything moves so much faster. So if you get it wrong, it can be cataclysmic for your business because another competitor can get it right. And quickly gobble up and move of you. So I would say, you know, you don’t have any room for error, in this world pretty, you know, in this space. So that would be the key reason, I think, why it’s so important.
Darren Moffatt (23:55):
And are there particular models, you know, business models, like, you know, SAAS subscription, or are they those kinds of, you know pricing and business, a lot of frameworks that you favor.
Emlyn Scott (24:05):
Yeah. So why that’s kind of, there’s a whole lot of components, but one of the reasons it’s so important, that’s often overlooked is that when you invest in a business, you need to know that it’s attractive for the next round. Otherwise it just conks out especially if it needs capital to keep moving forward. So when we’re looking at it, SAAS is usually the favored one for VC. Um, that’s not always the case for us. So, um, I mentioned earlier that there’s four components to what makes a successful VC. One thing that you don’t ever hear very much talked about is portfolio construction, and that is really critical. And so for a pre-seed seed stage fund, like us, you construct a portfolio very differently to the way you would construct a series A, series B. Now, in terms of the business model, you know, we’ll invest by geography by different sectors, but also by different business models.
Emlyn Scott (24:52):
So the SAAS one is very attractive. It’s one of those ones that, you know, every month the revenue comes in and looking at the metrics on it, you know, you’re looking at your MRR, so your monthly recurring revenue and then your annual recurring revenue, and you do a multiple of that for valuation. So all of that’s pretty easy, and it’s all about the stickiness of your customer and your conversion rates and things like that. And it’s just month in, month out, great. So it’s, you know, they’re pretty great businesses and they’re very easy to capital raise for. Different from those will be something that will be, um, what I probably would term more like say maybe a moonshot business. So this will be something that’ll sit in R&D much longer. It will chew more capital, it’ll stay in stealth. It’ll be, so, you know, your med tech businesses, your deep tech businesses, it takes a lot more to get them going at the beginning, but if they get it right, it’s a moonshot, you know, you’re there to, you know, billion dollar business.
Emlyn Scott (25:40):
If you can, you can do that. So if you’re looking at a SAAS business, you might be having like a Xero or a Canva, for example, in terms of your, you know, your, your, you know, your moonshot businesses, you know, you’ll be looking for something, well, we’ve got a couple in our portfolio, so we sprinkle those. So the SAAS businesses will be bringing in the multiples of the valuation and increasing our RR or our return rates. And then the w we’ve got these sprinkle of these deep tech, you know, health tech, mid tech businesses within our portfolio, that if they pull off they’re home runs.
Darren Moffatt (26:12):
Wow. Okay. So Emlyn when it comes to business models, right. So particularly if you’re looking at a very promising startup that you might bring into the portfolio. Yes. How often is that question of business model matching to the product design itself? How often is that not resolved and how often do you guys have to get in and kind of workshop that with the founders and get that right?
Emlyn Scott (26:40):
That’s actually interesting. So often it’s resolved because, you know, rule of thumb, it’ll usually take sort of the first 12 months of go live for them to figure out that kind of product market fit, which is, you know, how I’d sort of see it. But PR right at the beginning, when we were kind of taking this journey and the evolution we would often go in there and try and help the business, kind of figure it out. What we found is that the really, really good businesses that we want to invest in, we don’t have to do that because the founders are just so awesome that they are just super smart, they’ll figure it out. You know, we’ll go in there and have a workshop with them, but we don’t really need to get too involved. You know, it’s their business to grow.
Emlyn Scott (27:22):
That’s why we’ve invested in them because they’re incredible individuals or groups of people to get that business going and they’ll figure it out and they’ll test. And as I said, it actually evolves over time. So right at the beginning, I mean, you know, I’m thinking of one business with our portfolio, that’s absolutely smashed it. They spent the first three years of their life doing organic growth, you know, paid advertising, getting a bit, you know, directly into their business. Once they got to sort of that three-year market, they started to bring in partnerships, massive distribution, but the partnerships wouldn’t have been possible really before that, I was certainly not on the terms that they negotiated until the companies could see the scale and the company had better down its process and got it. Product market fit. Right. So where you start and where you evolve to can very much changes over time.
Darren Moffatt (28:07):
Yeah. I think that that’s a very interesting topic because a big mistake that I’ve certainly made this personally in my, in my businesses, in the past, thankfully there haven’t been fatal, but I’ve seen other entrepreneurs make them as well. And it’s where the scope of the ambition is out of sync with the nature of the business, you know, like sort of maybe there’s an over-investment in infrastructure or brand advertising or whatever it might be, but just at the ambition is fantastic, but it’s out of sync with the reality where the businesses at the moment. So is that something you see much in your world?
Emlyn Scott (28:47):
It usually won’t get through the first filter? But we do see it definitely, you see people that come up with fantastic products, they’re in the right place. They’re just not the right founder. And that’s because they may just love their product too much. And then they’re not concentrating on their business. And they’ll always be about the next feature and the next improvement. And they love to tinker, but they don’t want to go out and actually sell it. And you know, we invest them into businesses, not products, so that won’t give us what we need. And so we’ve walked away from, you know, a number of potential deals because of that. And you go, wow, someone else was running. This, this could have been great.
Darren Moffatt (29:27):
In the last episode, you might recall. We spoke to a healthcare entrepreneur whose business has taken off like a rocket here in Australia. Her company has just received the Deloitte Technology Fast 50 Australia Star Award for achieving an astonishing 21,540% annual growth. Jessica Sepel is the founder and CEO, and she’s a health and wellness expert. Jess is a qualified nutritionist. Who’s built a massive online community, which now encompasses more than 400,000 people across Instagram, Facebook, and email. In 2018, she launched a Vitamin range and that’s the product that’s really exploded.
Darren Moffatt (30:12):
And you know, the other thing that I noticed with you guys, it’s a little innovation. It really caught my eye. I really liked it on your site. You make, make it easy for people to subscribe to a product. Okay. So it’s product subscription. Now that might not sound revolutionary. I mean, the subscription model is pretty old these days, but in the context of a business where there’s lots of different products and we’re talking fast, moving consumables here you’re actually making it easy for people to subscribe to the product. Um, tell us about that. How did you come to that? Why did you, why did you choose to market the product on your site in that way?
Jessica Sepel (30:56):
So obviously you can choose to subscribe or not subscribe. It’s definitely not mandatory, but what we found is that people just love the vitamin so much and how they make them feel. They just want to have it by their side and they don’t want it. You know, they, they wanted us to know that it’s going to arrive every month, every two months. And that’s really why it’s just because people just feel so good when taking a particular product. Whether, you know, for example, a lot of people cannot live without our detox [inaudible] vitamin because bloating can be such, such a tormenting thing, you know, it can make you feel so uncomfortable. You [inaudible] out, um, can really affect women’s confidence in so many ways and just makes you feel awful and sluggish and a project. So they don’t want to run out of that formulation. So that subscription was just there to make it really easy to have the product on demand. And therefore then when they need it, it’s really, it really in the beginning was just for that. It wasn’t, you know, like to be a clip, to have a clever marketing or business tool. It was really just because people love the product and we wanted to make it easier for them, but subscription, some people love it. Some people just love the ease and convenience of it.
Darren Moffatt (32:06):
Yeah. Well, I think, that’s a great story in itself that, that particular little innovation there, in terms of how you’re selling the product, you’re not just selling it by one, purchase one to three units at a time checkout, right. That’s the conventional kind of purchase or pricing strategy. Right. But you’ve actually said, okay, you can subscribe to this particular product and get it delivered every month, but it’s come from the user need. You’ve clocked another problem there.
Jessica Sepel (32:36):
Yes, exactly. It’s all because you know, what JS Health and that’s where it’s had its best success when we tuned into the customer and the community and what they want and what’s, what’s gonna make their life easier. Really what’s going to make their life what is going to make them feel very excited and committed to the brand. If we deliver our vitamins with ease every single month, every two months, they will have even more love and respect and loyalty to the brand. So what I’m most proud of with how the team and I work so hard every single day to do everything we can to make the customer happy. And that’s definitely another big piece of advice for anyone out there starting a business or product company is you really do want to try your best to focus on the customer rather than just growing the business and working out all these different things.
Jessica Sepel (33:26):
Like if you have, I always have the customer in my heart and in my mind at all times, and every product, every issue, every system is there just to help them, you know, if you have a heartfelt intention and you stick to that throughout the process of product development or building a business, I feel like it’s always led me in the right direction because my heart and my intentions are in the right place. it’s all for the customer. How do we make the customer experience better, more useful, just easier for them.
Darren Moffatt (34:03):
And now another word from our sponsor.
Ben Carew (34:10):
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Darren Moffatt (35:17):
So the problem we set out to solve in this episode was Business Models: Choosing the Right Pricing and Distribution for Your Product.” Our product design experts, Carrie Peters from Ustwo and Ross Gales from Pollen revealed some valuable frameworks and theoretical insight into the design of business models. And we’ve also heard some fascinating, real life stories from our entrepreneur guests Mina at :Different, Emlyn from CP ventures and Jessica at JS health. I hope their wisdom and insight have given you ideas to crack the code to growth in your own venture. For me, there are three important conclusions that we can all take away from this episode. Number one, start thinking about business models early in your product development. Remember what Emlyn said, It’s another problem to solve and all the best entrepreneurs or founders who are truly investible solve it well before they pitch to investors.
Darren Moffatt (36:17):
Number two, match the right model to the value proposition. As Ross suggested, there are plenty of frameworks out there that allow you to innovate your business model design. But the main goal is to make sure it matches up with your target market and the overall value proposition of the brand or product number three, talk about value and not price. As Mina said, if you’re only competing on price, you’ve already lost. Whatever business model you choose should give you the freedom to focus on the creation of amazing value to your customers. As we heard at the top of the show in the Ikea story, truly innovative business models are complete game changes and not only can they change the destiny of companies, they can completely revolutionize whole industries within the product development cycle pricing and business models might seem like one of the last steps before you go to market, but they should actually be one of the first things you’re thinking about. Indeed, the mix of pricing, production and distribution that underpins any business is often highly dynamic and subject to change in market conditions. So it’s actually really an ongoing process of evolution. Not everyone can be an Ikea, but if you can design a business model that drives referral growth retention and maximizes the lifetime value of your customers, then your business will scale. And ultimately that’s what it’s all about.
Darren Moffatt (37:51):
We’re coming to the end. But before we go, it’s time for our regular segment, Nerd Under Pressure where a guest has to share one killer hack or tip, they recommend for you, our listeners. Now you didn’t hear this particular nerd today. He wasn’t in this episode, but he has been on the show before. So let’s find out who our nerd under pressure is today. Okay. Ben Thompson from Employment Hero. We now come to a recurring segment here at Nerge of business called Nerd Under Pressure.
Darren Moffatt (38:26):
So this is Nerd Under Pressure and, Ben today, you’re the employment nerd, we’re very keen to hear your thoughts, as the founder and CEO of a SAAS business. So software as a service business, what’s one killer hack you can recommend for our listeners on pricing and business models. I’m going to give you five seconds thinking time.
Ben Thompson (38:55):
Okay? Okay. Platforms that save people money by aggregating buying power. So you don’t necessarily even have to charge for them so free as a price point. Yep. Make them free and use leverage buying power, leverage to give people the things that they need at a lower cost yet, because you’ve built the aggregated buying power. You can still make a clip. Yeah.
Darren Moffatt (39:25):
Right. So I guess the best example of this might be Groupon or something like that.
Speaker 11 (39:30):
I think Amazon’s a great example, you know, you know, look at, look at the cost of goods on Amazon. That’s just, they’ve driven prices down. Yeah. Um, but they’ve made it easier for all of us to buy things online and the things that we may or may not need. Um, but at lower prices and they’re making a clip. Yep. Fantastic.
Darren Moffatt (39:48):
So, thanks for listening to Episode 19 of the Nerd of Business podcast. If you’ve enjoyed it, please leave a review on Apple, Spotify, Google, or wherever you listen to your podcasts. It helps us climb up the ranks and become more visible to other people. Just like you remember. We really want to help as many entrepreneurs and businesses as possible. If you’ve got a question, awesome feedback. We’d love to hear from you. You can engage with us at webbuss.com.au/nerds That’s webbuzz.com.au/nerds
Darren Moffatt (40:15):
So feel free to reach out and say hello. I want to thank all of our guests and the team at WebBuzz for helping me put this show together. We’ll be back in two weeks with our next episode, which is a really big one. It’s Raising Capital for Startups. How, when and what venture capitalists are looking for in a product. Until then I’m your host, Darren Moffatt. And I look forward to nerding out with you next time. Bye for now.