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Low Cost Business ModelHow to create no-frills low cost business model and kill the competition
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Successful companies after achieving the product-market fit manage to start growing almost exponentially
Well executed business hacks, tricks and tactics
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One of such business hack was the low cost business model that required total change of approach to specific industry
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Low cost model has been quite successful in many industries
Airlines
Furniture
Buses
Retail
Hotels
Fitness Clubs
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In this presentation you will learn how low cost business model works and how to
apply it to your business
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Click to check my course
What I will show you in this presentation is a part of extensive on-line course where you can find also other useful business hacks
Business hacks, tactics and tricks -practical guide
$90$15
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Low Cost Model-introduction
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In low cost model you have important pillars that fuel the model
Simplified product and services
1 type of assets
Better asset utilization
Efficient process
You target only 80/20
Scale matters
Simplified operations
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Low Cost Business Model -examples
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IKEA
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IKEA has been very successful in implementing low cost model in furniture
Model „big box” built outside the city center
Design
Consistent message
Diversified revenue streams
Operational excellence
Business scale
Retail
Acquisition
Activation
Retention
Revenue
Referral
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Raynair
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Raynair is an example of a great execution of the low cost model in airlines
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
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They have used 1 type of aircrafts and increased their capacity
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
1 type of aircraft
No classes
No reserved places
More places in the plane
Better Loading factor
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They do only point-to-point and use cheap airports
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Point-to-point
Regional airports
No waiting for passenger
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Raynair is also master of operational excellence
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Shortest taxi time and turn around time
More courses per day
Shortest time of preparing
Better usage of people
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Raynair has been also very creative on the revenue side
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Dynamic pricing and not so low prices
Unbundling
Charge for everything
Alternative revenue stream
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Biedronka
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Biedronka keeps it simple on the operational side
Retail
Acquisition
Activation
Retention
Revenue
Referral
Narrow range – they used to have just 1000 SKUs
1 retail format
Optimize supply chain and in-store process
Scale
Expansion model similar to Walmart and Starbucks
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They went deep into product management
Retail
Acquisition
Activation
Retention
Revenue
Referral
Gradual move from discounter to supermarket
Quality and origin obsessed
Own brands & selected premium brands (often powered by)
No e-commerce
For long time excepting only cash
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Fitness clubs
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There are plenty of examples of successful low cost fitness clubs
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Get rid off things that do not generate sales: reception, sauna, solarium, café, relax room
Unbundling (shower, fitness classes require additional fee)
Low on staff; much more self service
Higher density of machines and usually bigger format
Usually more technologically advanced
Available 24 /7
UK Germany USA
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40
60
80
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Price Join Online OpeningHours
Club Design Technology Hospitality # of staff
Low cost gym Mid-market gym
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Hotels
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There are plenty of examples of successful low cost hotels
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Targeted at people who just want to sleep well (sales reps) – extremely comfortable beds
Limited non-core space: reception, kitchen
Very small, densely located rooms with big king-size beds.
Very limited breakfast; no proper restaurants; vending machines available
Very clean and with great smell
Unbundling of services
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Eating Design Room size 24-hourreception
Furniture Bedquality
Hygiene Silence Price
Ibis Budget 1-star 2-star
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Math behind the Low Cost Business Model
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What drives the profitability of low cost model?
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Just let’s have a quick look at the pillars of low cost model
Simplified product and services
1 type of assets
Better asset utilization
Efficient process
You target only 80/20
Scale matters
Simplified operations
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Low Cost Models are great at optimizing the Profit to Assets Ratio
Better and longer usage of assets
1 type of assets
Optimized processes
Quicker change of assets
Using purchasing power to get assets
Fewer processes
Reduce the complexity and limit the choice
Profit
Assets
Unbundling
Dynamic pricing
Creating big purchasing power
Innovative revenue streams
Reduce the dependence on people
Reducing non-core assets
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Compound effect
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There are 2 types of compounding effect. The first one is related to time
Time related
Even if the growth is small applied over long period of time gives big end-results
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Even if the start is modest with time you have the snowball effect. If you grow 10% every period after 10 periods you have 2.6x what you had in the beginning
Time related
Even if the growth is small applied over long period of time gives big end-results
= 2.6 x StartStart x (1+10%)^10
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Second type of compounding is related to operations. By having small improvements in many areas you are generating big difference
Time related Operations related
Even if the growth is small applied over long period of time gives big end-results
A lot of small changes in many areas may produce a big end-results
= 2,6 x StartStart x (1+10%)^10
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Have a look for example on the effect you would have in retail if you improved number of customers by 15% and the average revenue per customer by 20%
Time related Operations related
Even if the growth is small applied over long period of time gives big end-results
A lot of small changes in many areas may produce a big end-results
# of customers Average revenue per customer
Revenues
x
+15%+20%
+38%
= 2,6 x StartStart x (1+10%)^10
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In low cost model you use both effects extensively
Time related Operations related
Even if the growth is small applied over long period of time gives big end-results
A lot of small changes in many areas may produce a big end-results
# of customers Average revenue per customer
Revenues
x
+15%+20%
+38%
= 2,6 x StartStart x (1+10%)^10
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For more business hacks check my on-line course. Below specially for you a big discount. You will find there a lot of additional resources
Click to check my course
Business hacks, tactics and tricks -practical guide
$90$15
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