Reconstructing business models with consumption chain analysis

904 followers of the CEConline WeChat Official Account (ID: CEC_GLOBALSOURCES) recently participated in a test of "What is the potential for your business model to be restructured?". The average score of 21.6 out of 30 points indicates that their existing business model is facing disruptive changes to the point of "refactoring or out".

An answer to a dilemma like the one above can be found by business managers from Rita Gunther McGrath. This test is mainly created by her. In her view, to effectively reconstruct the business model, it is necessary to use the consumption chain analysis method to break down the market barriers.

McGrains also believes that the premise of business model refactoring is the discovery of disruptive new opportunities. “I think the first job is to always scan the environment to find those opportunities that pop up in interesting ways,” she said in a phone interview with the author across the ocean.

McGrath, who is currently a professor at Columbia University Business School, was named one of the top ten management thinkers in the world by an international authority in 2013, and according to the voting results of the global business community, he won the "" Outstanding Achievement Award (Strategy)". She pointed out that business leaders should not only scan the business environment from the perspective of the traditional value chain, but more importantly, scan from the perspective of the consumption chain. The scan results will provide enterprises with the basis for business model decisions.

What is the consumption chain

McGlans and his collaborators put forward the concept of "consumption chain" as early as 1997. The so-called consumption chain, as the name implies, is the chain formed by the various activities that customers participate in in the process of interacting with product suppliers in order to meet their own needs. A product produced by a manufacturer whose consumption chain is a series of different activities in which a customer consumes or uses the product to satisfy their own needs, including: awareness of their needs, searching, selecting, ordering, purchasing, financing, paying, receiving , installation, storage and transportation, use, repair and return, service, and final disposal.

Accordingly, if manufacturers want to gain insight into the consumption chain of their products, it is necessary to answer the following questions: How do people realize that they need your products? How do these potential customers discover your product? How do these potential customers decide to choose your product or that of another business? How do customers order | buy your products? How is your product delivered to customers? How is your product installed? How does the customer pay for the goods? How are your products stored and shipped? What is the real purpose of customers using your product? What help do customers need with your product? How are you doing with product recalls or exchanges? How are your products repaired or how are product services provided to customers? What happens when your product is abandoned by a customer or is no longer in use?

On the surface, these issues are so simple that many manufacturers ignore them. However, the ups and downs, the glory and the nightmare of countless manufacturers have repeatedly proved that it is in these links of the consumption chain, how the manufacturer's performance and the customer's reaction determine the final fate of the manufacturer.

The purpose of consumer chain analysis is to help you identify opportunities for product differentiation that have the potential to allow you to go beyond what your own or someone else's business is currently doing. More importantly, when every link of the consumption chain intersects with the value chain of your enterprise, the opportunity for business model reconstruction is very likely to be presented in front of you.

Reconstructing the business model

From the test options, scoring rules and their corresponding conclusions in the sub-column of this page, it can be seen that manufacturers are performing poorly in the consumption chain of their products The more links there are (in other words, the poor performance of its value chain), the more complaints from customers, and the greater the possibility of customers leaving. In this case, the more urgent it is for manufacturers to restructure their business models, which means the greater the potential for business models to be restructured.

McGrans believes that in many industries, especially high-tech industries, due to the ever-shortening birth cycle of disruptive technologies, the strategic logic of the past based on durable competitive advantage is becoming more and more important to companies. Outdated, replaced by strategic logic based on transient advantage. She points out that companies that effectively manage wave after wave of short-term advantage are the winners in the marketplace.

McGrath's research found that under this trend, the continuous reconstruction of short-term advantages has become a major way for companies to reconstruct their business models. Milliken & Company is a good example. In the 1980s and 1990s, almost all of the global textile manufacturing activity moved to Asia. When foreign competitors, especially those in China, attacked the U.S. market, Milliken & Co. rhythmically closed multiple factories, devoted resources to new technologies and new markets, and successfully conducted international sales with advanced materials and waterproofing products. expansion.

Since the beginning of this century, when the advantages of advanced materials and waterproof products are no longer obvious, Milliken has reconstructed the new advantages of special materials and special chemicals, and its business model has been sublimated again. . McGrath commented: "If Milliken can transform from textiles to a high-tech business model, then there is hope for other companies that are also facing declines." Another major way for companies to reconstruct their business models is to rebuild the consumption chain. She cited the example of Amazon.com. Amazon has made big changes to almost every link in the book-purchasing consumption chain. For example, it added new hyperlinks to the pages of its official website, offering a "recommend book to a friend" function. Using this method of customer recommendation, it greatly strengthens the first link of the consumption chain - demand awareness. Another example is that it makes it easier to pay for shopping through a "one-click" payment system. It even offers customers a way to sell used books, allowing them to make money from it. Although Amazon is a service-oriented company, its thinking of rebuilding the consumption chain is worth learning from Chinese manufacturers in the context of today's "Internet +".