This post is about the Low Cost Business Model, which are very popular and… the unsaid High Cost Business Model. The two kinds of models have common points although they address two different levels of the market.
— The Low Cost Business Model
Its targeted customers are people who would like to buy the same kind of services or products for less money. However, as the quality aspects are more and more regulated by norms and standards, vendors have to find new ways to reduce their prices. The main issues are:
- Either reduce their expenses, for example by:
• Eliminating unnecessary processes,
• Automating the production,
• Hiring less personnel,
• Shortening time-to-market cycle with the use of Internet tools
• Etc.
- Or offer pa ckages restricted to the customer’s core needs, by proposing:
• Rental-on-Demand
• Side services for pay
• Mass volumes
• Etc.
However, as the market is getting more and more challenging, diferentiators are necessary and the vendor’s value offer must be really attractive, even with low prices.
The examples of MVNO (Mobile Virtual Network Operators) selling cheaper communications and offering smarter phones cells.
Figure: The Lo & Hi Cost Business Model
— The High Cost Business Model
This model works the other way as the targeted customers are ready to pay more for the same kind of services or products, providing they want to feel that they belong to another class! However, the game is to deliver goods or services without increasing the operating costs and to get customers greedy to consume!
When offering for example:
- More room and comfort to clients,
- Or products designed by famous artists,
- Or top quality articles,
the vendor’s production costs are rising and the Business Model is no more a High Cost Model.
Generally, this model applies mainly for products. In the domain of services, when a customer is ready to pay more, he also requests premium services.
The vendors have very few trumps. He may rely on:
- Either his reputation,
- Or the scarcity of the product.
For these reasons, the High Cost Model is always underlying a main Business Model linked to fashion, entertainment, tourism, etc. For example: An ice-cream seller who’s got a shop in one of the smartest landscape may fix his prices at highest level because a majority of tourists would like to have the pleasure to take a picture of his kids having an ice-cream at this place.
Anytime there are a Hi and a Lo sides, someone would rise the question: "Where’s the Right side?" But there is no Right Cost Business Model because there are much more in a sale than the price itself! What would "Right Cost" refer to? To the service level? To the quality? The only point is the customer’s satisfaction… and it doesn’t depend exclusively on money!
