Model #2 – Premium, Personalized, and Service-focused

Part Two of a Five-Part Series

Our blog series about business model innovation continues…

In case you missed it, you can read part one about Accelerators and Incubators here. Today we look at Model #2 – Premium, Personalized, and Service-focused.

This model is all about catering to customers individually and/or by segments – it’s about differentiation in an increasingly commoditized world of store brands, private labels, knockoffs, and product proliferation. It’s also about making personal, human connections with customers online.

Why would you pursue this model?

In a nutshell, to increase margins and market share. Competing on price is a losing proposition long term. With this model your company is creating deeper value and building loyalty, one customer at a time. Premium does not have to mean high end, nor does it require new-to-the-world breakthroughs. It means offering value that customers are willing to pay more for. Once you understand your customers on this level, you can also learn what they will want in the future.

How does it work?

The three major components of this model are premiumization, personalization, and a focus on service.  Ideally all three of these components are built into your business, but you may use each in varying degrees depending on the product or application. Here’s the basic idea:

1. Premiumization

Premiumization is not just “new and improved.” It’s making products and experiences special. Chocolate is a simple example  People will buy expensive chocolates because they look, taste, and feel like a treat. They satisfy an emotional need. As David Sprinkle, research director for Packaged Facts, put it: “There remains consumer devotion to confectionery products and the role of chocolate candy in particular as an accessible luxury, creating many opportunities to trade consumers up to premium products.”

For most everyday products, like paper towels or cereal, finding the underlying psychological value to customers is a tougher challenge. Six potential paths are outlined in the chart below. We also think there’s a multi-sensory aspect. Touch, taste, visuals, smells, etc. make a difference. Communicating that difference is key, especially online.

6 Paths to Premium
(source: Greenbook blog, February 26, 2019)

2. Personalization

While custom-made products are far from new, the advent of digitalization and 3D printing has enabled personalization at an affordable level on a much larger scale. The degree of personalization can range from online messaging such as “other products you may like” (Amazon) to choosing options on a mass-produced product (Dell computer) to completely personalized products/services (L’Oreal CUSTOM D.O.S.E. skincare products).

Smartphones, tablets, and mobile apps have played a key role in allowing businesses to engage directly with customers while gaining deeper insight into their needs and behavior. Wearables and tracking devices are also making it possible for consumers to personalize their experiences through voluntary data sharing. Going a step further, home testing kits including those that analyze genetic information has opened the door to personalization based on biology. As a result of these trends and developments, brands can create specialized products, services, and experiences that directly meet customers’ needs – and command a higher price.

3. Servicefocused

The importance of this component cannot be over-emphasized, particularly as more and more business is conducted online. Amazon has clearly raised the bar on ‘frictionless’ commerce. And customer service that feels personal and human goes a long way in a world of chatbots; Chewy.com has won customers’ hearts by doing things like sending flowers, sympathy cards, and refunds to owners whose pets have died.

Knowledgeable, caring sales associates are a key differentiator in-store as consumers are often confused by the sea of choices. Best Buy, for example, has upped its game in terms of consultative sales. If self-service is your strategy, then providing amenities to make choosing and buying easy (and maybe even entertaining) will go a long way. Not every store can be Apple, but companies can learn from their retail approach. Everything from how stores are designed physically to the concierge service influences consumer spending.

Finally, it’s not just retailers that need to think about service. With the Internet of Things and smart products becoming the new norm, complete experiences (including services) are integral. Manufacturers need to build the service factor into products right from the start; this usually involves collaboration across the value chain.

What capabilities do you need to be successful?

To deeply understand and respond to customers, you need data analytics and interpretation skills along with strong customer engagement approaches. Technologies to consider include flexible manufacturing and 3D printing, sensors/scanning tools, AI and machine learning, CRM, and data mining.

Bottom line

For consumers the value of customized products, services and experiences is high and growing. These consumers are potentially more loyal once trust has been established. The data they share could guide future product development. Margins are higher since inventory is reduced. This model could be right for you if your brands are suffering as a result of low-priced competition and/or you have specific consumer markets where you want to grow.

For more insight: Download our new briefing report 5 Business Models for Sustainable Growth (here) and keep following this blog series which builds on the report.

We welcome your questions/challenges anytime; will either reply personally or address in future blog posts. Email me at cperkins@innovationedge.com or give me a call at 920-205-3297. 

Next up: Model #3 – Platforms and Ecosystems

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