- Add on – core product is priced competitively with the option of numerous extras (i.e. SAP, SFDC, Ryanair): an equipment manufacturer could offer content and digital solutions on a turn key basis similar to a freemium model. In turn the operator could offer mirrored services to the end user either on a subscription basis, pay as you go, or tiered membership structure (whether in or out of the gym services)
- Hidden revenue – sources of revenue come from a third party such as advertisers or other service providers (i.e. JC Decaux, YouTube): instead of the B2B buyer paying full price for hardware, software or content, the manufacturer could build an advertiser base who would target in facility users or perhaps the actual operator on back end CRM interfaces. Another option would be adding partners to the eco system of a platform that impact a consumers health journey (for example insurance companies or other health care providers). This is similar to the banking as a market place concept
- Revenue sharing – sharing revenues with other stakeholders such as complementors or even rivals (i.e. Apple app store, Amazon Kindle): manufacturers could work with app developers to offer comprehensive solutions to facilities that impact ROI such as member retention. In particular AI and ML based training will have a huge impact on adherence to exercise and the way trainers interact with customers. Suppliers could work with operators on developing journeys that tangibly affect their business and create outcome based contracts where revenues generated are shared among the stakeholders. This could also be applied to operational efficiency whereby a manufacturer is able to demonstrate better TCO (total cost of ownership) based on analytics which improve equipment uptime and decrease usage costs.
- Affiliate programs – usually based on some kind of pay per sale or pay per display (i.e. American Express, Amazon affiliate program) – a manufacturer could work with B2B customers on selling in home fitness equipment and solutions on a commission basis
- Fractionalized ownership – sharing of assets among a group of owners (i.e. Netjet, mobility car sharing): with equipment being one of the most capital intensive parts of setting up a facility, including the need to update/refresh (usually around the 5-7 year point) equipment to offer new or changing solutions to customers, suppliers can offer options to swap certain equipment between one customer and another much more frequently than the typical refresh date. This would motivate suppliers to offer comprehensive solutions around maintenance and upkeep whilst offering customers renewed options to members who seek different experiences. This could also be applied based on peak usage times. A hotel for example could get more equipment during the peak season as needed
- Ingredient branding – refers to a specific component or ingredient originating from another specific brand (i.e. Intel, Bosch): Les Mills is the classic example of a supplier creating brand pull for the facility. Peloton could be the next player in the commercial space to achieve this with content (perhaps a mix of live and virtual). How can incumbent suppliers use this to engage B2B buyers and more importantly the end user? For now, this seems exceptionally challenging
- Aikido – offering something that is essence opposite of what the market has been doing (i.e. Swatch, Southwest Airlines, Nintendo): so called lower quality (featured) products can do well if the value offered is based on features that are demanded in the market (the strategy canvas from Blue Ocean strategy maybe useful here). If, especially for cardio equipment, products are becoming highly commoditized and the battle ground is moving to the platform and eco system then manufacturers could consider making scaled down hardware with easily interchangeable consoles which act as the platform to deliver a differentiated offer. An obvious benefit is low cost production and scale economies
- Cash machine and mass customization – in the cash machine the customer pays upfront for the product which leads to improved liquidity (i.e. Dell). In mass customization (again Dell but we have seem many others including Nike and Scholl), modular products and production systems enable the efficient individualization of products: Many facility operators are looking for ways to differentiate their club from the one 1000 metres down the road. Whilst service and programming form a large basis of this differentiation, so could mass customized equipment. With the technology enabled infrastructure of IIOT and advances in e commerce capabilities along with 3D printing developments (and rapid prototyping), it is feasible to see many components of fitness equipment (without moving parts) being customized to order. There are already some examples in the car industry (such as BMW and Porsche). The overall adoption of 3D printing in mass customization is still low and challenging for traditional manufacturers. One possible alternative is to use 3D printing to print moulds used for injection moulding techniques. Not specifically related to this pattern example, I can also see in country service departments 3D printing replacement parts at much lower costs than currently and of course drastically improving after sales metrics for customers
- Flat rate subscription – here a supplier charges a customer a flat fixed fee over the tenure of a contract regardless of usage (i.e. Spotify, Netflix, Vodafone, Hilti, Porsche): This would involve a supplier having detailed TCO models and the capabilities to manage install bases across large geographies and customer types plus the willingness to accept the lower returns initially involved in this type of business model (see the Hilti example above). Recurring revenue model businesses seem to outperform traditional transactional driven firms and create certainty of expenses for operators. Such models may also involve guaranteed availability and uptime
- Guaranteed availability – in this model the customer risk is minimized by a supplier offering almost zero down time (i.e. Hilti, IBM, SAP, AWS, Otis): This is often combined with the subscription model. Using equipment sensors, big data and data analytics, manufacturers are able to monitor and respond even before equipment breaks down. The benefits for the operator and the end user are clear. If a piece of equipment cannot be fixed the supplier will replace it immediately with in country stock. This requires well developed predictive and prescriptive analytic models to accurately forecast and manage part needs. This type of service could be bundled into an all inclusive pricing model or one which separates hardware costs vs service fees, perhaps on some kind of outcome based contract
- Leverage customer data – value is created by using customer data and preparing it in beneficial ways (i.e. Airbnb, Apple app store, Facebook, Google ad words): information collected by a digital eco system about member usage and operations could provide many benefits for a business owner. Understanding how often a member uses the facility, which facilities he/she uses, and being able to test A/B interventions for different personas/user groups could have a significant impact on retention and secondary spend. This would be driven by improved member experiences where an evidence based customer journey is developed and then hyper personalised. This information can also be fed to third parties (such as health insurers and physicians) who have a stake in the adherence to a healthier lifestyle of a user. Again, the emphasis here for an operator should be on ROI and they should be asking for demonstrable evidence that the data collected is useful
- Lock in – when customers are locked into a vendor’s family of products and solutions (i.e. Dropbox, Microsoft, HP): if a manufacturer builds an eco system of connected fitness products supported by a digital application that manages not only the information from its products but the information from various 3rd party providers that both operators and consumers use then switching to another vendor would involve considerable time, energy, psychic and monetary costs
- Prosumer – vendors enable customers to be producers themselves and can be integrated into the value chain (i.e. block chain, YouTube, Instagram, Smart Grids): obvious examples would include software support so that operators can add their own content to a suppliers digital offerings such as on demand workouts. Extending this further and fitting in with the concept of peer to peer interaction (another BM pattern), exercisers could connect with exercisers anywhere in the world (assuming they are on the same digitized offering) who have similar goals and challenges to share success stories and tips. This would be driven by AI and creates strong social bonds, another nudge towards exercise adherence
- Performance based contracting – the price is determined by the value delivered in terms of outcomes as instead to the cost of the physical product (i.e. Rolls Royce, Phillips Lighting, Xerox): whatever solution a vendor installs including equipment, digital, education or concepts, the vendor will be motivated to either reduce usage costs and/or improve revenue for the customer. This differs substantially from the more traditional fixed price service or extended warranty contracts. The term power by the hour was coined around 20 years ago by Rolls Royce and such contracts are used by firms such as GE. This type of contract has a variety of options form part fixed cost and part performance based to full performance based. This type of approach requires a deep understanding of costs and performance capabilities in order to be profitable. Of all the BMI examples, this pattern probably creates the greatest cultural challenge
- Solution provider – the vendor offers a full suite of products and services to cover the end to end needs of customers building closer and in depth relationships (i.e. Tetra Pak, Salesforce, SAP): an equipment vendor can add education, training, consulting services etc to the hardware it sells. Once the life of equipment is over the vendor can also take care of trade in and disposal. This could be extended to the operators customers in the forms of health and wellness advice/services
- Orchestrator – the company’s focus remains on its core competencies in the value chain and then actively outsources and coordinates the other activities (i.e. Nike, Uber, Osim, P&G): a fitness equipment manufacturer could focus on the traditional hardware manufacturing activities it is good at and then outsource the rest whilst managing the total value chain in order to deliver a solution/product to a customer. For example, instead of building their own digital platform or making their own content, a manufacturer could contract with a number of partners/suppliers to create the solutions needed and offer this as a seamless solution for the customer. In a more extreme example, a vendor could focus on only parts of the manufactured product (say the consoles or motors on cardio equipment) and outsource the rest to other OEMs who may have better efficiencies
- Integrator – alternatively to the orchestrator, the integrator owns most of the activities in the value chain and if the capabilities exist may benefit from economies of scale and scope. The integrator should also benefit from lower costs and value chain stability (i.e. Zara, Exxon Mobil, Netflix): instead of partnering with content providers and digital solutions vendors the manufacturer would own these elements and be responsible for developing the solutions and products needed by customers pretty much in their entirety. This strategy could help the company be more responsive to customer needs and reduce cycle times due to internal control
- Self service – part of the value process is passed on to the customer in order to lower costs. This maybe areas that deliver little perceived value but incur high costs (such as installation or repairs). The customer can add this step and hence add to the efficiency of a process (i.e. Ikea, Car 2 Go, Fast food restaurants): manufacturers could offer online portals for B2B customers that provide technical training on simple repairs and maintenance without voiding warranty conditions. CAD files of needed parts could be delivered on line and customers can use local 3D printing firms to make parts quickly and cheaply compared to ordering and shipping ‘original’ parts. The same could be done for installation with modular products and specially designed packaging which makes install much more simple then it is currently. This may not apply to all products but could certainly apply to a significant portion
- Pay per use/dynamic pricing – in this model the customer actually pays for what they use (like a metred concept) which offers different types of customers flexibility based on the facility (i.e. mobility car or bike sharing, workout pods in China): it doesn’t seem reasonable that a high usage club and a low usage hotel should pay the same price for equipment when the usage levels will be drastically different. This also applies to warranty and service contracts. The benefits to the customer are clear and the operator could pass a similar pay per use model to its users (we already see this in boutiques and alternative facilities). For a manufacturer to offer this type of business model would involve a deep understanding of repair rates and costs based on a wide variety of usage data (such as average weight of user, average speed, average use per day etc)
Strategy & Competitiveness 