So Amazon unveiled on Thursday its Fire tablets, a 7-inch quadcore computer for only US$50, and if you were to order a six pack, you get it for US$250! This is too good to be true? Yes, and no. In this article, we look at what's behind the 7-inch Fire offer, and see how innovative the company is in reinventing its business model to gain market share. It also challenges us to look at our model, and see how we can also do likewise to win market share.
Not everyone wants to spend on an Apple
Amazon recognised that not everyone wants, or can afford, to buy an Apple. So it decided to design a suite of Fire tablets, from its basic 7-inch model for US$50, an 8.1-inch for US$149 and a 10-inch for US$299 - less than half the price of an Apple. They have even bundled a 6-pack for the price of 5 for the base model, allowing them to catch the entry level market even more. By analysts' reckoning, Amazon is not likely to make a profit off the 7-inch but they do see the intent as getting more people onto the Amazon and sell them other items like its books, music and movies. To this end, Amazon has programmed apps into the tablet to flash ads for Amazon services. These ads help to pay for the tablet, and keep customer rebuys up.
Global tablet sales are sputtering
Why would Amazon launch a suite of tablets when the global market for tablets is not hotting up? For one, some people are betting that this will help spur growth in this sector, and a strong retailer like Amazon could well lead a 10-15 percent uptick. For others, it is a means to upsell other services, even leading consumers up the value chain. This has a long-tail impact on sales. So while Amazon might not be able to recoup the full cost of their basic model, they can help to grow customer base, and from there, market share. Hence, their strategy in offering the cheap tablets is more long term, and the price they pay in securing the customer may be small versus the total lifetime value of a new one.
Tweaking your business model
One thing we can learn from this, if we don't already know, is that tweaking the business model may be able to lead to a growth in new customers. Gone are the days when a straight-forward pay-for-product model will suffice. Business model innovation does not have a fixed framework to operate out of and that is actually the beauty of it. Different businesses can use different techniques to innovate business growth. So, if there is no fixed framework, how do we approach business model innovation? Well, by starting from first principles, we can innovate our business model; and these principles are who, what, when, where, and how.
Who do we sell to?
Who do you think the 7-inch Fire tablets are for? Certainly not the Apple Aficionados! Amazon has realised that their e-reach to the price sensitive lower-end market is limited without a tablet or a smartphone. So by giving them a means to connect with Amazon, and by extension, permission to market to them, they have extended their reach to the lower-level market which may have avoided them. Hence, the investment of selling the 7-inch for $50 may pay off quite handsomely, and create a new business model for this group of consumers.
What do we sell?
The tablet is just the hook. By creating strong demand for a product that is a conduit for further expenditure, Amazon would be able to constantly put out new promotions, using big data to tie in these expenditure by product type, price and time of purchase. This can create micro-promotions that will attract this group of customers, thereby keeping them on the line continuously. Hence the tablet is a great product to sell to create even more sales.
When do we sell?
The beauty of getting the lower end consumers online and connected with Amazon, is the ability to connect with them at all the right times. Knowing when they are online, and what they do online, allows us to position more products and pitch them to the right audience, at the time they will be receptive to these offers. Changing the way you sell to your customers at the time that they are most receptive provides you with the best opportunity to make that additional sale. And that is what it is all about, isn't it?
Where do we sell?
Obviously Amazon sells online, but there may be a need to reach out in the more traditional way to the lower-end people who might NOT yet be online. Hence, the decision of where to sell, and how to sell to them, will need to be tweaked when answering this question as they redefine their business model. This may call for a channel that is not associated with Amazon, yet still allows them to onboard new customers onto their traditional platform.
How we sell?
Changing the way we sell changing our business model in a big way. Using mobile apps to sell through their Fire tablets is a great way to bridge the gap between Amazon and the lower-income consumers. By allowing them to understand just how easy it is to buy from Amazon and how safe it is, they would be able to convert more new customers, and they will ultimately bring organic growth to the company.
Shouldn't you be engaging in business model innovation too?
All businesses should be engaged in business model innovation because it is one of the fastest and easiest ways to create change, and grow organically. The who, what, when, where and how of selling is one of the easiest ways to achieve this. After all, if you are not asking these questions, your competitor will be. Wouldn't you like to have a jump over them, instead of them over you? So do look at how you can innovate your business model.