Want some fresh advice on how to grow your online business? Now, before you decide there's nothing new under the sun, hear us out.
Many of the very best companies have found ways to grow profitably with moderate risk by building new offerings that take advantage of the assets they already have
We recently interviewed Dan McKone and Alan Lewis, authors of Edge Strategy: A New Mindset for Profitable Growth and managing directors at L.E.K. Consulting, a global consulting firm. Their book provides new strategies for expanding and growing your business.
What they had to say was very interesting and it could work for you.
Entrepreneurial missteps spark book
Schepp: Why did you write this book?
McKone and Lewis: We've seen many of our clients, which include some of the world's best-known companies, stuck in a self-destructive cycle. They keep trying to improve their core businesses. Yet despite herculean efforts, the best they can hope for is a few more points of market share in competitive markets with ever-declining margins.
When those efforts inevitably reach the point of diminishing returns, they make big and risky moves, such as leaping into entirely new businesses. Far too often these moves become expensive, time-consuming failures.
We've noticed that many of the very best companies have found ways to grow profitably with moderate risk by building new offerings that take advantage of the assets they already have. Often the best opportunities lie at the border between what companies do already and what they don't do. We call this framework that is used to discover these opportunities "Edge Strategy."
Schepp: In your book, you describe three lenses merchants can look through to leverage their core offerings. Where are they, and how should they be used?
McKone and Lewis: Product Edges represent optional offerings that coexist alongside your core products. These can be accessories, warranties and other upgrades. It is the scone to go with the coffee, so to speak.
Journey Edges involve products and services that address customers' broader missions, which often involves steps both before and after they buy your core product. Think about training, installation and whatever else helps customers achieve the goal that your product is part of. [For instance], an airline can make vacations more relaxing by arranging a limo to take customers to the airport or theater tickets for after they arrive.
Enterprise Edges are entirely new opportunities that are harvested from foundational assets (e.g., capabilities, expertise, data) that can be restructured to serve a different market need. By way of casual example, a brick and mortar retailer with unused space in off hours might rent it out for parties and events.
Grocers increased margins by offering washed and chopped vegetables that are ready to use. Even a corner store can do the same
Strategy works for companies of any size
Schepp: Many of the examples in the book are from large companies. How can smaller companies use these ideas?
McKone and Lewis: Edge Strategy is an approach that helps companies of any size because it asks how you can use what you already have better…
We write about how grocers increased margins by offering washed and chopped vegetables that are ready to use. Even a corner store can do the same so long as it has a sink, a knife and a chopping block. Local shopkeepers often know their customers better than big chains and can focus on preparing the foods most in demand…
For online retailers, the challenge is to curate the best options to offer each customer. Edge Strategy is an excellent approach to optimizing bundling, i.e., making it natural and intuitive to buy batteries and a carrying case along with the device. This extends to services as well, such as warranties and financing options.
Schepp: How can a business use your strategies to improve upsells?
McKone and Lewis: Traditional upselling is based on what is known as the "Good-Better-Best" strategy. Companies create a product line starting with a basic model, adding several upgraded versions, each with improved features and a correspondingly higher price tag.
In today's hyper-competitive marketplace, this approach is often too limiting. You make it harder for your customers to get exactly what they want and easier for competitors to copy any innovations you have.
We suggest you start by challenging or even breaking up these pre-set bundles. Instead, consider offering a base model product, combined with a menu of discrete products and services that can be added to create more precisely the features each different customer wants.
Consider offering a base model product, combined with a menu of discrete products and services that can be added
In the book, we talk about Apple. The company sells myriad devices, but also built an enormous profit stream by upselling music, movies, apps and accessories for its devices, which allows customers to calibrate the utility of those devices to their liking.
Now, apply these strategies
Schepp: How can a company use existing assets to grow new business lines?
McKone and Lewis: Start by taking an inventory of all of your capabilities and assets—your facilities, your expertise, your customer lists, and even your people.
Then ask what companies—other than your direct competitors—would pay you for access to those assets.
Sometimes the opportunities already exist if you just look for them. For example, in the online retail world, if you have your own website you can partner with other companies to generate affiliate income.
In other cases, you'll need to do some incremental work to yield additional revenue from these assets. Some experienced sellers consult with new businesses looking to set up shop on eBay, Amazon or OpenSky. Others teach courses as adjunct professors or create e-books based on the knowledge they've gathered over the years.
Companies can de-content to a lower common denominator so people only pay for what they need and can elect into additional benefits
Schepp: What have we missed that's important for small businesses to consider?
McKone and Lewis: Your product might be too good. If there are some features of your product that are only appealing to some customers, consider converting them into optional extras.
…Companies can de-content to a lower common denominator so people only pay for what they need and can elect into additional benefits (only if needed) at an additional cost. Jet.com, the online retailer, offers lower prices to customers who forgo the right to return products they don't want.
The discipline of Edge Strategy is to use all of the assets of your company to configure your offerings to most fully satisfy every customer. That's what leads to profitable, low-risk growth.
Schepp: Thank you, Dan and Alan. Basking in that sunlight are some new ideas after all!