Business Models do fail 10 examples - 5 reasons

www.elton-pickford.com

Business Models Do Fail10 examples - 5 reasons

http://www.elton-pickford.com


10 Business Models that Failed

5 Reasons of Failure Why do Business Models Fail ?

Part 1

Part 2

Introduction

Elton-Pickford I Business Model Innovation & Strategy I Business Models Do Fail - 10 Examples - 5 Reasons I 2013



Business Models do Fail10 examples - 5 reasons

INTRODUCTION




Achievement: January 2013

Why this paper ?

This document aims at identifying the root causes of Business Model failures. This analysis is supported by several real cases and constitutes a practical ground to explore the utilization of the Business Canvas (Alexander Osterwalder) and the Effervescence Framework (Yannick Mériguet - Elton-Pickford).

Elton-Pickford is striving to provide organizations with efficient ways to explore new Business Models and publishes regularly case studies on Innovative Business Models. This document counter-balances the regular publications on successful Business Models by exposing failures as business reality too.

We are proud to offer you this study which we invite you to share and comment with passion.




Attribution - Licensees may copy, distribute, display and perform the work and make derivative works based on it only if they give the author (Antoine Dumont and Elton-Pickford) or licensor the credits in the manner specified by these .

PublicationThis document is provided under the terms of Creative Common License BY-NC-SA. The modification and the distribution of this copyrighted work for noncommercial use only are authorized under the reference: BUSINESS MODELS DO FAIL - 10 EXAMPLES - 5 REASONS.

Share Alike - Licensees may distribute derivative works only under a license identical to the license that governs the original work.

Noncommercial - Licensees may copy, distribute, display, and perform the work and make derivative works based on it only for noncommercial purposes.

Achievement: January 2013




Understand the Elton-Pickford Framework

SCENARIO

What are the specific organization objectives (Growth, Performance, Positioning, Differentiation, etc.). What is the internal context of the company (Specific competencies, Tension, M&A, Start Up)? These elements define the foundation of the targeted strategy.

BUSINESS MODEL

What are the fundamental characteristics of the targeted Business Model? How well do they fit the context and scenario specificity & uniqueness? How do they optimize the company strategy?

CONTEXT

The context highlights the critical elements to take into account in the external context of the company. What are the key market characteristics, socio-economic environment, consumer habits, etc. ? And how can it influence the Go To Market Strategy of the organization.

Copyright Elton-PickfordEffervescence FrameworkCreated by Yannick Meriguet, Associated at Elton-Pickford

SCENARIOOF THE ORGANIZATION

CONTEXT

BUSINESS MODEL




Customer Segments (CS)The Customer Segments building block defines the different groups of people or organization an enterprise aims to reach and serve. Different types of customer Segments exist: mass market, niche market, segmented, etc.

Understand the Business Model Canvas

Channels (CH)The Channels building block describes how a company reaches its Customer Segments to deliver a Value Proposition. Channels can be direct or indirect: internet platform, sales forces, store, retailers, etc.

Value Proposition (VP)The Value Proposition building block describes the bundle of products and services that create value for a specific Customer Segment. It solves a customer problem or satisfies a customer need. The Value Proposition can be characterized by its newness, performance, price, etc.

Customer Relationships (CR)The Customer Relationships building block describes the type of relationships a company establishes with specific customer segments. Customer Relationships may be driven by different motivations: customer acquisition, customer retention and boosting sales. We can distinguish between several categories of Customer Relationships: personnal assistance, self-service, co-creation, etc.

Revenue Streams (R€)The Revenue Streams building block represents the cash a company generates from each Customer Segment. There are several way to generate Revenue Streams: asset sale, subscription, usage fee, etc.

Created by Alexander Osterwalder, Business Model Generationwww.businessmodelgeneration.com

CSCRVPKAKP

C€ R€

KR CH


www.businessmodelgeneration.com



CSCRVPKAKP

C€ R€

KR CH

Key Ressources (KR)The Key Resources building block describes the most important assets required to make a business model work. Key Resources can be characterized as physical, intellectual, financial, human, etc.

Key Partners (KP)The Key Partners building block describes the network of suppliers and partners that make the business model work. Reasons behind partnering may be diverse: Optimization and economy of scale, acquisition of particular resources and activities, reduction of risk and uncertainty, etc.

Cost Structure (C€)The Cost Structure describes all costs incurred to operate a business model. They can be cost or value driven and be classified as fixed or variable costs.

Key Activities (KA)The Key Activities building block describes the most important things a company must do to make its business model work (development, maintenance, production, etc.)

Understand the Business Model Canvas


Created by Alexander Osterwalder, Business Model Generationwww.businessmodelgeneration.com




10 Business Models that Failed

Part 1




Copainsdavant.comInternet2009

2xmoinscher.comInternet2012 Encarta

Publishing2009

IridiumTelecom1998

SpanairAirlines2012

KodakChemistry, digital2012

Blockbuster VideoMovie rentals2010

MoulinexConsumer Electronics2009

BicPerfume1991

VogicaHousehold furnishing2010




1copainsdavant.com




Industry

Internet - Social web

Date of creation2001

CorporationBenchmark Group

Country of OriginFrance

Case’s period2001 - 2012

Market typeMass market

Revenues(2009) Group : 17 M€ / Website : 3,5 M€

Number of Employees(Group) 150

Scenario HighlightsFirst mover advantage

Search of profitability

Context HighlightsGrowing internet usage

Nationwide efficient broad band infrastructure

Social web growing interest

New competitors

Business Model HighlightsSocial network

Connect with past friends on internet

Freemium / premium

Reasons of FailureCustomer segment not buying a paid service

Likelihood of profitability

Emerging competition

copainsdavant.com




Initial value proposition

Created in 2001, "Copains d'avant" is the Facebook made in France, and enable to re-connect with past classmates, publish school promotion pictures and communicate via internal mailing system. The company is quickly becoming the social web leader in France.

Deployed strategy

After 3 years of existence, with a full free access, the company is searching a path to profitability. In 2004, the decision is made to monetize the site, and the internal mailing system along with additional functionalities are now provided as a paid service. Facing these new constraints, site frequentation is declining and the brand image of the company is hurt. If the value proposition is still attractive for users, they are not ready to pay for such services. The internal mailing system is the cornerstone of the interaction between schoolmates, and if too much constraints (price) exist, they stop to use it, loosing the benefits of the entire value proposition.

Things get worst : the growing Facebook platform is penetrating the European market with a modern design, increased functionalities and at no cost for the user.

New pivot

In 2007, the company acknowledges the failure of its business model, and re-open the full service for free. Revenues will be now generated by advertising. Additional services are created, and in 2010 the management of the company is changed and re-think its entire positioning and image.

copainsdavant.com




SCENARIO CONTEXT

BUSINESS MODEL

SOCIAL NETWORK

RE-CONNECT WITH PAST CLASSMATES ON INTERNET

FREEMIUM / PREMIUM

FIRST MOVER ADVANTAGE

SEARCH FOR PROFITBILITY

INTERNET USAGE PENETRATION

NATION WIDE EFFICIENT INTERNET INFRASTRUCTURE DEPLOYED

EMERGING SOCIAL WEB

NEW ENTRANTS

BROAD BAND CONNECTION

FACEBOOKSince 2004

copainsdavant.com





CSCRVPKAKP

C€ R€

KR CH

La Tribune, Le Français CDA résiste toujours, october 2010Capital, Petits meurtres entre amis chez CDA, june 2010

PAID SERVICE

MAINTENANCE

+

PLATFORM PROMOTION

EMAIL :

1 MILLION PER DAY

SOCIAL NETWORK

RE-CONNECT WITH

FORMER CLASSMATES

FREE SERVICE

ADVERTISING*

MASS PERSONALIZATION

COPAINSDAVANT.COM

SALES FORCES

ADVERTISING CAMPAIGN

MASS MARKET

OLD USERS

30 - 40 YEARS

13 MILLIONS OF UNIQUE

VISITORS / MONTH

ADVERTISINGEFFICIENT ADVERTISING

SPACE

copainsdavant.com

* Since 2007

PLATFORM

INFRASTRUCTURE

HUMAN RESOURCES

Studio Vitamine, CDA : Nouvelle version bêta, february 2012

Source :




22xmoinscher.com




Internet - Marketplace

2001

3 Suisses

France

2001 - 2012

Mass Market

(2007) 3,3 M€

(Website) 35

Numerous emergent competitors

Growing Internet Usage

Nationwide efficient broad band infrastructure

Cost reduction strategy for margin recovery

Market Place

Transaction Markup

Buy/sell - Business to Consumers

Secured Transactions

Cost reduction program targeting a core activity of the business (Management)

Decreasing traffic (Model viability)

Emerging competition (Environment)

2xmoinscher.com

Industry

Date of creation

Group

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights

Business Model Highlights

Reasons of Failure



Second chance

The customer acquisition cost was becoming superior to the customer Lifetime value, making the business unprofitable.

In march 2012, the company communicates is going bankrupt, few months later Uncle Henry buys it and plans to re-open the platform the 15th of October 2012. Stay Tune...


Created in 2001, 2Xmoinscher is an internet platform that connect consumers (Buy/sell) along with professional (Sell). Users can buy or sell brand new or second-hand products.

During the transaction, 2Xmoinscher is positioned as trusted partner by securing and holding the payment between parties. After the transaction is closed without litige the cash transfer is proceed.

The revenue model is based on a transaction fees after completion of the sales.

Competition & investments

While the company is communicated breaking event after 2 years, it’s facing important economic pressures between 2008 and 2012 generating eventually important financial losses.In addition, Ebay, PrimeMinister, Amazon, LeBonCoin create a highly competitive market which will knock about the sustainability of the business itself.

At the same time, the company has embarked in a cost reduction program and curbed their marketing investments. It will have a huge impact on the site attractiveness, decreasing significantly the incoming traffic, and the generated revenues. Presence of large fixed costs (platform) will lead to a rapid margin erosion and eventually financial loss. 2Xmoinscher learned the hard way the specificity of a volume business.

2xmoinscher.com




SCENARIO CONTEXT

BUSINESS MODEL

MARKET PLACE

BUY / SELL NEW AND SECOND END PRODUCTS

SECURED TRANSACTION

TRANSACTION FEES

EMERGENCE OF SIZABLE COMPETITION

GROWING INTERNET USAGE

NATIONWIDE EFFICIENT BROAD BAND

INFRASTRUCTURE

COST REDUCTION PROGRAM FOR MARGIN RECOVERY

POSITIONNING AS A TRUSTED PARTNER

DECREASE MARKETING BUDGET

Business Model Sustainability is based on sustaining traffic vouching generation of revenues.

REDUCED INCOMING SITE TRAFFIC

2xmoinscher.com




CSCRVPKAKP

C€ R€

KR CH

PLATFORM

MAINTENANCE &

DEVELOPMENT SELL / BUY & GENERATE

REVENUE MERCHANTS & CONSUMERS

BUYERS - MASS MARKET

BUY HALF THE PRICE (NEW

& SECOND HAND

PRODUCTS)

PLATFORM

MARKETING & PROMOTION

ADVERTISING

2xmoinscher.com

Journal du Net, Fermeture 2xmoischer, march 2012Tomsguide, 2xmoinscher, Actualité n°2888

Journal du Net, Une page se tourne, 2xmoinscher ferme ses portesPC Impact, 2xfoismoinscher fait ses adieux, News n°69448

PLATFORM 2XMOINSCHER

TRUST PARTNERS WITH

SECURED

TRANSACTIONS

HUMAN

RESOURCES

HUMAN RESOURCES

TRANSACTION FEES

ON COMPLETED SALES

Source :





3Encarta - Microsoft




Publishing / digital Encyclopedia

1993

Microsoft

USA

1993 - 2009

Mass Market

NC

NC

Model viability

Differentiation through content quality

Multi platform products (CD, DVD, online)

Improvement of web content in general (site, blog, media etc.)

New Competitor enters the market with free content and a collaborative

platform

Multimedia Encyclopaedia

Rich content of high quality

Sales of CDs, DVDs etc. and online access subscription

Profitability of products (Model viability)

Emerging competition (Environment)

Business Model not developed further (Company culture)

Encarta

Industry

Date of creation

Group

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



Fierce competition

These actions have no impact on the Customer’s behaviour. In 2009, Encarta has a low market share of 1.27%, against 97% for Wikipedia.

At this time, Wikipedia has more then three millions articles in English. As a consequence, Microsoft decides not to continue its business model and exits the Market end of 2009.


Started in 1993, Encarta proposed a digital Encyclopedia available on multiple technology carriers (CD, DVD, online) and in multiple languages. This product by Microsoft established itself very quickly as the Market leader, competing with its 36'500 articles (2007) against large multimedia corporations.

Change of habits

In 2001, Wikipedia enters the market. The content is created and maintained by the users themselves on a free basis, which continuously improves the quality of the platform. Two years later, this platform overtakes Encarta by the number of articles.

As a reaction, Encarta improves the content actuality and proposes a free light access to a limited amount of articles.

Encarta




SCENARIO CONTEXT

BUSINESS MODEL

UNIVERSAL MULTIMEDIA ENCYCLOPAEDIA

RICH AND HIGH QUALITY CONTENT

SALES OF DIGITAL PRODUCTS, SUBSCRIPTION FOR ONLINE ACCESS

IMPROVEMENT OF WEB CONTENT IN GENERAL (SITE, BLOG, MEDIA,

ETC.)

ENTRY OF A COMPETITOR WITH A FREE AND COLLABORATIVE

BUSINESS MODEL

MODEL VAIBILITYREVENUE STREAMS /

MANUFACTURING COSTS

DIFFERENTIATION THROUGH CONTENT QUALITY

MULTI-PLATFORM PRODUCTS (CD,DVD, Online)

35 000 ARTICLES26 000 MEDIAS

Encarta

HIGH CAPABILITY TO CREATE CONTENT VERY

RAPIDLY




CSCRVPKAKP

C€ R€

KR CH

MULTIMEDIA

ENCYCLOPEDIA MASS MARKET

Première, Encarta, coulé par Wikipédia, ferme définitivement ses pages, march 2009NouvelObs, L’encyclopédie en ligne Encarta va fermer, march 2009Clubic, Microsoft fermera Encarta cette année, march2009

WEB PLATFORMHUMAN RESOURCES

HUMAN RESOURCESSALES OF DIGITAL PRODUCTS

Encarta

RICH AND HIGH QUALITY

CONTENT

CD / DVD

SALES OF SUBSCRIPTION FOR ONLINE ACCESS

CONTENT PUBLISHING

PROMOTION OF THE

ENCYPLOPAEDIA

Source :





4Iridium - Motorola




Telecom Services

1991

Motorola

USA

1991 - 1998

Mass Market

NC

NC

Take over Market leadership

Deploy a large scale network

Manage the world wide phone network

Win a major technological challenge

Development of competition

Alternative emerging Technologies

Cost reduction of Telecom infrastructure

Rising customer demand

Call from anywhere in the world

Terminal sales

Subscription sales

Profitability of the value proposition (Model viability)Emerging competition (Environment)Technological development (Environment)Project management (Management)

Iridium

Industry

Date of creation

Group

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



Bankruptcy

In 1998, Iridium starts and 9 months later, the company goes into bankruptcy. Customers face technical failures, the product doesn’t work in cars or buildings, as the usage is only possible outside, requiring a open connection to the satellite array. Moreover, the value proposition is very costly: access costs 7 USD per minute against 50 cents for a traditional carrier. To this adds the acquisition of the phone for more than 3’000 $.


In 1991, Iridium starts building a mobile phone system which allows communication from anywhere. This system would cover any cities, any agglomerations and any square meter on earth, being at sea, in the jungle, in the mountains.The system, developed by Motorola, bases on an array of satellites displaced around the globe.

This phenomenal project costs app. 6bn USD, and includes the launch of 15 rockets and more than 75 satellites. It started its operation in 1998.

Evolution of the technological environnement

During the 8 years of project work, mobile communication developed quickly. Telco operators deployed terrestrial networks, thus covering the main access zones. In parallel, the costs of communication and of acquiring the cell phones have dropped considerably.

iridium

Iridium




SCENARIO CONTEXT

BUSINESS MODEL

CALL FROM ANYWHERE IN THE WORLD

SALES OF PHONES

SALES OF SUBSCRIPTIONS

RISE OF COMPETITION

NEW EMERGING TECHNOLOGIES

COSTS DECREASE OF THE TELECOM INFRASTRUCTURE

INCREASE IN CUSTOMER DEMAND

TO BECOME THE WORLD LEADER ON THE TELECOM MARKET

TO DEPLOY A LARGE SCALE NETWORK

TO MANAGE THE WORLD PHONE NETWORK

TO WIN A MAJOR TECHNOLOGICAL CHALLENGE

Development of terrestrial networks

The initial customer segment is quite

restricted. A mass Market is developing shortly after

the Launch

Iridium




CSCRVPKAKP

C€ R€

KR CH

MASS MARKET

TELECOM NETWORKS

75 SATELLITES

FINANCIAL

RESOURCES

6bn USD

NETWORKS &

INFRASTRUCTURE

15 ROCKETS75 SATELLITES

NETWORK

DEVELOPMENT AND

MAINTENANCE

Libération, Iridium menace de sonner dans le vide, March 2000Steve Blank, No Business Plan Survives First Contact With A Customer, November 2011Stéphanie Legrand, Mémoire de recherche IAE de Lille, 2000

Iridium

COMMUNICATION: 7$ USD p. min.

SALES OF PHONES: 3’000$ USD

PHONE FROM

ANYWHERE

Source :





5Spanair




Airline carrier – Transportation

1986

IEASA (80,1%) - SAS AB (19,9%)

Spain

1986 - 2012

Mass Market

(2009) 670 M€

(2008) 4 000

High variable costs

Financial tension (debts)

Cost reduction strategy based mainly on fixed costs

Airplane crash in 2008

High competitive Market

New entrants

Cost of fuel

Security norms & constraints

High Customer’s sensitivity on security policies

General airplane transportation

Main destinations: Spain, Europe, Latin America

Massive increase in fuel costs (Environment)

High competitive forces (Environment)

Costs reduction with major impact on the main value proposition

(Management)

Spanair

Industry

Date of creation

Group

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



A new company

Spanair starts in Spain in 1986. Its first flights are conducted in 1988. Quickly, Spanair develops to a major player in air transportation in Spain and soon gains a market share of 22%, directly behind the main player Iberia. Even though the main flights are domestical flights, the company proposes European flights with more than 100 destinations.

At the end, Spanair transported more than 11 mio. passengers yearly, with more than 200 daily flights. During its whole history, the carrier transported app. 104 mio. passengers.

The last flight

Meanwhile, new security rules have been introduced, requesting more stringent maintenance procedures and quicker renewal of airplanes. This impacts highly on the fix costs situation. On the other hand, consumers are getting more critical, after different air crashes that happened during this period. Many consumers start to look at security & maintenance ranking of the airlines.

On August, 20th 2008, flight nbr. 5022 misses the take-off and explodes on the ground. Most passengers die immediately. The following investigations reveal some neglected maintenance elements, showing weaknesses in the maintenance programs, as well as consequential impacts of over aging airplanes.

Following this, Spanair looses the main part of its Customer base. A destroyed image and growing debts end in the closure of all activities in Jan. 2012

A high tension Market

After 2000, the air transportation Market becomes more competitive. Notably, new entrants destabilize the market forces through new business models based on low price value propositions. First financial losses appear here and there. The following years are marked by an important rise of fuel cost, a sensitive key element of the business model, which impacts on the margin dramatically. This second element adds to the already very tense financial situation of most companies.

During Summer 2008, the management starts a cost reduction program aiming at reducing head count by 25%, stopping app. 10 destinations and grounding of 15 airplanes.

Spanair




SCENARIO CONTEXT

BUSINESS MODEL

MAJOR

DESTINATION : SPAIN, EUROPE, LATIN AMERICA

HIGHLY COMPETITIVE MARKET

NEW ENTRANTS

FUEL PRICE FLUCTUATION

CONSTRAINTS THROUGH NEW SECURITY NORMS

GROWING CUSTOMER AWARENESS OF SECURITY

RULES

MAJOR VARIABLE COSTS

FINANCIAL DIFFICULTIES, DEBTS

FIXES COSTS REDUCTION

AIRPLANE CRASH IN 2008

Many Spanish and Foreign companies

Major impact on margin

Spanair

Fuel

Loss of trust from many customers

LOW-COST




CSCRVPKAKP

C€ R€

KR CH

FLIGHT PROMOTION

SALES OF FLIGHT TICKETS

FUEL

AIRPLANES (75)

AIRPORTS TAXES

INDIVIDUALS

PROFESSIONALS

QUICK TRIPS TO SPAIN OR

ABROAD

TRAVEL AGENCY

INTERNET SITE OF SPANAIR

**

Source :Le Monde, La compagnie aérienne Spanair en faillite, tous ses vols annulés, January 2012,Air Journal, Spanair en faillite, January 2012,L’expansion, Spanair en faillite, January 2012.

Spanair

AIRPORTSREASSURE CUSTOMERS

ON FLIGHT SECURITY

AIRPLANE ACQUISITION

AIRPLANE

MAINTENANCE

HUMAN RESOURCES

PILOTS

AIRPLANE

MAINTENANCE

PASSENGER

TRANSPORTATION

TRAVEL AGENCIES

AIR ALLIANCE





6Eastman Kodak Company




Chemicals – Manufacturing of photographic films

1881

George Eastman

USA

1930 - 2012

Segmented Markets (Individuals + Professionals)

(1995) 15 Mds $ - (2011) 6 Mds $

(1954) 73 000 - (2011) 7 600

Work against Market evolution

Reinforce existing business model

Introduce as many patents as possible to block the emerging digital Market

Technology developments strongly enabling digital photography

Photography is getting a mass product for individuals

Rising customer demand

New competitors in phase with changing Customer requirements

Manufacturing of photographic films

High margins

Change in behaviour: Camera as a consumer good for mass markets

(Environment)

Technology development: digital revolution (Environment)

Strong focus on Margin protection (Company culture)

Eastman Kodak Company

Industry

Date of creation

Founder

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



Collapse

At the end of the 80’s, first competitors enter the market with digital cameras. Between 1990 and 1999, Kodak introduces about 1’000 patents in digital photography, but never achieves its final goals, as digital photography is closer to Electronics than traditional photography.

In less than 10 years, the company will reduce workforce by 63’000. Handicapped by its own past, Kodak is not able to change direction, and Sony, Canon or Fuji will cause the collapse of Kodak in 2012.

Technological Innovation

In 1880, Georges Eastman, founder of Kodak, invents a special coating machinery that enables the mass production of dry films for photography. For a hundred years, the company will dominate the world of cinema and photography.

Kodak bases the growth strategy on the film production and generates record sales growth and huge margins (app. 80%). In 1981, Turnover of Kodak achieves 10 bn USD.

Change in Customer requirements

In the early 80’s, Kodak invents digital photography. However, the company is not determined to develop further this technological innovation. Management estimates that the latter could be a major threat to the actual activity, the sale of argentic-based films.

The organization got used to very high margin, this for years and years. As a reaction, it tried to protect the existing business instead of satisfying the changing market requirements, thus shifting away from the real changing market.





SCENARIO CONTEXT

BUSINESS MODEL

MANUFACTURING OF PHOTOGRAPHIC FILMS

MANUFACTURING OF PHOTO CAMERA

VERY HIGH MARGINS

TECHNOLOGY DEVELOPMENT

PHOTO CAMERA AS CONSUMER GOODS IN A

MASS MARKET

CHANGE IN CUSTOMER REQUIREMENTS

NEW COMPETITORS IN PHASE WITH CUSTOMER EXPECTATIONS

COUNTERACT AGAINST MARKET EVOLUTION

REINFORCE THE EXISTING BUSINESS MODEL

PATENT AS MUCH POSSIBLE IN ORDER TO BLOCK THE DIGITAL MARKET

Rise and growth of digital photography


app. 80 %

CSCRVPKAKP

C€ R€

KR CH


MANUFACTURING OF

PHOTOGRAPHIC FILMS

HIGH

MARGINSHUMAN RESOURCES

R&D

RAW MATERIAL

INDIVIDUALS

PROFESSIONALS

RESELLER

NETWORKPATENTS

ROYALTIES75% of

GB in 2011

80 %

ADDITIONAL PRODUCTS

Printers

Ink cartridgesPhoto papers

One-time usage cameras

WWW.KODAKEXPRESS.COM

*

* From mid 90’s

*

**

**

** Commercialization in 2003

www.kodak.frLe Figaro, Kodak se déclare en faillite, January 2012Philippe Silberzahn, Fin de Kodak, victime dilemme de l’innovateur, January 2012 Knowledge@Wharton, «What’s Wrong with This Picture : Kodak’s 30-year Slide into Bankruptcy», february 2012

PHOTOGRAPHIC FILMS

PHOTO CAMERAS

Source :





7Blockbuster Video




Movies rentals

1985

Echostar

USA

1985 - 2010

Mass market - Individuals

(2002) 5,5 bn USD

48 000

Offer a wide selection of movies

Expansion of internet

New comers

Wide selection of movies for rent

Exclusive offer of new movies for rent

Develop stores in residential areas and malls

New usage (environment): illegal downloading, streaming

New comers (environment): emerging competitors

New technologies (environment): internet, downloading, VOD

Blockbuster Video

Industry

Date of creation

Group

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



An abrupt end

In 2009, Blockbuster creates an automated distribution network to rent movies. The goal of this mass deployment is to come back as a key player. For economic reasons, some shops will be replaced by machines.Despite this, the company filed for bankruptcy in 2010.The company left behind more than 6000 franchised and proprietary shops spread over 18 countries representing about 48000 employees.

Innovation in services

In 1985, Blockbuster opens its first movie rental store in Dallas. From VHS tape to DVD, the company will have an exponential growth. In early 90's, the demand is booming.

Movie rental allows to compensate the limited TV channels at that time and offers a wide and attracting catalog of movies. 9 years after its creation, Blockbuster will be valued at $ 7.6 billion.

A changing environnement

In mid 2000, new signs of change are emerging in the environment. Customers' expectations are changing and new comers are disturbing the existing market. Competitors appear and offer mail-delivered movie rental with a wider catalog. Technological improvements will also disturb Blockbuster business model. Concurrently to internet development, streaming websites will explode along with all illegal downloading possibilities.

In addition, more and more TV channels propose new offers such as video on demand.

Blockbuster Video




SCENARIO CONTEXT (between 2002 and 2010)

BUSINESS MODEL

WIDE OFFER OF MOVIES RENTALS

NEW MOVIES

PROXIMITY WITH RESIDENTIALS AREAS AND MALLS

INTERNET EXPANSION

NEW COMERS

OFFER A WIDE SELECTION OF MOVIES

New usages

Mail-delivvred rentalVideo On Demand

development

Blockbuster Video

87 million customers+ 6000 shops

Twenty countries

Illegal downloadingStreaming websites




CSCRVPKAKP

C€ R€

KR CH

DEVELOPMENT OF

NETWORK

40 % OF

TURNOVER

DISTRIBUTED TO STUDIOS

48 000 EMPLOYEES DEDICATED SHOP

+

FRANCHISES

WIDE MOVIES RENTAL

OFFER

EXCLUSIVITY ON MOVIES

* On a dedicated period

*

STUDIOS

INDIVIDUALS

87 MILLIONS OF

CUSTOMERS

INFORMATION ON USER

BEHAVIOUR

DEDICATED

DISTRIBUTION

NETWORK

DEVELOPMENT OF THE

CONTENT OF THE OFFER

MOVIES RENTALINFRASTUCTURE

EMPLOYEES

PRIORITY ON NEW MOVIES6 000 SHOPS

IN 18 COUNTRIES

Blockbuster Video

Le figaro, 24 september 2010 ;Financial Times, 24 february2010 ;Le Monde, 17 february 2010 ;

L’expansion, 11 may 2007 ;The Times, 28 february 2010.

Source :





8Moulinex




Moulinex

Manufacturer of small appliances

1937

Jean Mantelet

France

1937 - 2001

Mass Market

(1998) 1,21 Billion €

(1998) 11 000

Financials difficulties in 90's

Success story and recognizedd brand

Worldwide presence

Bursting of the family unit

Development of women's employment

Emergence of strong asian competitors

Small appliances associated with feeling of pleasure

Manufacturing of small appliance for women market

Mass production and low margin

Originally, strong innovation on product

Decrease of product sales with low margin (Business model viability)

Emerging competitors (Environment)

Financial management (Management)

Industry

Date of creation

Founder

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



Pricing policy

In 1950, Jean Mantelet developed a different pricing strategy from its competitors. Instead of establishing a selling price based on cost price including depreciation of production equipment, he focused on the consumer. His approach is based on the consumer's ability to buy the product by defining a "democratic" price.The entrepreneur looks for a mass production to ensure low costs and a minimum profitability.

Moulinex

Worlwide exposure

The exponential market growth allows Moulinex to be located in several countries. At the end 80's, Moulinex products are distributed in more than 135 countries. However, the company activity is largely based in France. Only 20% of the turnover is generated abroad against 40% for SEB, its main competitor.

History of the group

In 1932, Jean Mantelet invents the vegetable mill. Wishing to end by finding lumps in mash potatoes prepared by his wife, he decided to create the famous "Potato Masher" or "Presse-Purée". Manufacturing and distribution of these products are a great success.This new equipment allows solving a shared problem to all housewifes at that time. In 1957, it operates his business under the brand Moulinex. In 1962, appears a strong motto: "Moulinex free women"

a period of thirty and mores the beginning of the consumer society. It means liberation of household chores and automation of dedicated tasks. Moulinex will then have huge opportunities to address these new needs.

Within only few years, the brand will invent no less than 70 products among which we find the coffee grinder, the multi-function robot, the iron or the microwave.

End of the story

This booming market quickly attractes competitors, firstly european and then asian ones. The market was huge and attracting. The low complexity of products and the low level of maintenance for this type of goods reduced seriously entry barriers.

In the 90's starts the decline of the group. A slowdown in gross markets can be explained by the saturation of several customer segments. Sales suddenly collapsed. The emblematic founder died in 1991. It leaved room for internal dissension, mismanagement and a lack of innovation. In an effort of diversification of its products, he company made a major acquisition (Krups) which increased its debts and reduced its flexibility. Despite several massive restructuring and merger attempts or capital opening, the French jewel is closed in 2001, September 7th.

The brand still exists today. It has been acquired by SEB group together with some French production units.




Moulinex

SCENARIO CONTEXT

BUSINESS MODEL

SMALL APPLIANCES PRODUCTS MANUFACTURING

MASS PRODUCTION

LOW MARGIN

STRONG INITIAL VALUE PROPOSITION

INNOVATION IN PRODUCTS

MARKET GROWTH DEPENDS ON HOUSEHOLDS NUMBER

INCREASE OF WOMEN EMPLOYMENT

DECLINE OF AVERAGE HOUSING SIZE

EMERGENCE OF STRONG ASIAN COMPETITORS

FINANCIAL ISSUES IN THE 90’S

OLD SUCCESS STORY

STRONG BRAND

WORLWIDE PRESENCE

135 COUNTRIES

IN 1931 BY THE FOUNDER, THE

«POTATO MASHER»

The increase of single-parent families promote

the market growth

Looking for time savings in houshold

chores

Decline of storage areas: search for multi-

functions products

Represents only 20% of Moulinex

turnover




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Moulinex

SMALL APPLIANCES

EQUIPMENTS

RESELLERS NETWORK

WOMEN

SELL EQUIPMENTS WITH

REASONNABLE PRICE

20% OF TURNOVER

DONE ABROADLOW MARGIN

STRONG BRAND

PRESSURE ON PRICE

MASS PRODUCTION

180 000 UNIT / DAY*

LOGISTICS

DISTRIBUTION

ADVERTISING

SMALL APPLIANCES

STORES

Marketing Magazine N°144, Saga Française à succès, 2010 ;Ministère de l’industrie, Approche sectorielle - électroménager, 1999Mémoires d’entreprises, Moulinex,1993

OuestFrance, La bataille des millions, 2009Stratégies, Moulinex se robot que je ne saurais voir, 1998.

IMPORTANT REAL ESTATE

RESOURCES

HUMAN RESOURCES

Unskilled labor

Mainly women

IMPORTANT REAL ESTATE

RESOURCES

HUMANS RESOURCES

MASS-MARKET RETAILING

135 COUNTRIES

BRAND PROMOTION

ADVERTISING

BUDGET

ADVERTISING AGENCIES

* Production for 16 plants in 1980

Source :





9Cuisines Vogica




VGC Distribution

Furniture fabrication

1976

William Ego

France

2000 - 2010

Mass Market

(2008) 107 Million €

(Groupe) 1 000

Financial difficulties

Strong decline of customer satisfaction

Economic Crisis

Highly competitive environment

Activities unbundling

Failure of key partners

Customer segmentation (professional / individuals)

Important logistics activities

Financial Management (Management)

Failure of key partners (Business model execution)

Industry

Date of creation

Leadership

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



Value proposition

Located in "Les Vosges", VGC Distribution group combines manufacturing and distribution activities of kitchens and bathrooms. After various takeovers and restructuring, the group wants to be one of the key players in this business.

With 45 stores located in France, VGC Distribution addresses two different customer segments. On one hand, it offers individuals the construction and installation of custom kitchens. It can also include appliances. On the other hand, it addresses major retailers such as Castorama, But or Brico-Dépôt by providing kitchens in kits.

Business model execution

In the early 2000s, the company faced several financial difficulties mainly related to inadequate management choices.

The company is forced to leave construction activities. From then relying on Nevelt, a sub-contractor that will ensure the production. VGC Distribution will then focus on sales and distribution.

VGC sales exceeds forecasts. but having Nevelt not being able to honor all orders, increasing immediately delivery times for end customers. Delivery time initially negotiated to 8 weeks will become several months. In addition, some sets are coming with missing parts which forces VGC to perform installation in several steps.This will increase significantly logistic costs of the company.

Final closure

Delivery delays and lower product quality caused a growing customer frustration. In addition, VGC Distribution is facing chronic financial difficulties and a major economic crisis. As a result many orders will be canceled. Unable to pay Nevelt, its supplier, the group go into receivership for several months before its liquidation.

VGC Distribution




VGC Distribution

SCENARIO CONTEXT

BUSINESS MODEL

CONSTRUCTION & ASSEMBLY

KITCHEN AND BATHROOM FURNITURE

OWN DISTRIBUTION NETWORKS

DECLINE OF HOUSEHOLD CONSUMPTION

STRONGCOMPETITION

FINANCIAL DIFFICULTIES

FAILED PARTNER

NEGATIVE CUSTOMER REPUTATION

CUSTOMIZED RELATION




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Vogica - VGC Distribution

VOGICA

45 stores

SALES OF FURNITUREStrong margin

INDIVIDUALS

PROFESSIONALS

Castorama

Brico dépôtBut

KITCHEN & BATHROOM

FURNITURE KIT

LOGISTIC

Routing orders

SALES OF FURNITURES

Slow margin

NEVELT

Furniture production

MANUEST

NEVELT

Furniture production

PERSONNAL

Delivery within 8 weeks

APPLIANCES

under its brand 1982

AGRESSIVE BUSINESS

PRACTICES

Appliances Supplier

KITCHEN & BATHROOM

CUSTOM ASSEMBY

Source :Le figaro, 8 november 2010 ;Huffington Post, 27 september 2010 ;

Usine nouvelle, 28 september 2010 ;Le Point, 9 november 2010.





10Group BIC




BIC - Perfumes

Consumer products

1945

Bruno Bitch

France

1988 - 1991

Mass Market

(2010) 1.830 Billion€

(Group) 9 200

Several success stories in marketing of disposable products

Financial results of the group

Capitalization on distribution network

Product praised by the public

Increase of perfume price

Growing competitor products

Perfume manufacturing and sales

Low price

Distribution through tobacco shops and bars channel

Focus on simple and practical usage

Mistake in distribution channel selection

Inappropriate value proposition with customer expectations (VP/CS)

Industry

Date of creation

Leadership

Country of Origin

Case’s period

Market type

Revenues

Number of Employees


Scenario Highlights

Context Highlights


Reasons of Failure



Wrong distribution channel

Three years after the launch, sales didn't take off and BIC ceases its perfumer activity. It appears that the distribution channel was not the right one. Many tests have been carried out on the product and on customer ability to buy. But, conditions and retail environment were not considered.Flagrances are often associated to luxury, good time or even enjoyable olfactoric moments. Tobacconists do not match with this universe. Odors, atmosphere, as well as sellers competences are in total opposition with the selling experience expected by the customer. Actually this is not reflecting the real customer perception.

In view of the customer, a good fragrance is strongly paired with emotions, and disposable goods (as the other products from BIC are) do not match with this image.

Diversity of products

Founded in 1945 by Edouard Buffard and Marcel Bitch, Bic group launches in its first years the Bic Crysta ball-point pen. Today the group operates worldwide and in morethan 160 countries. For almost 60 years, BIC has shown a real ability to diversify its activities and products. To date, the French group produces lighters, razors, and various water sport articles (windsurfing, kayak...) in addition to pens.

Since 2008, BIC also sells a mobile phone manufactured and distributed in partnership with Alcatel and Orange.

Innovation in products

In 1988, BIC launched its own range of flagrances. This perfume is accessible for everyone, used by everyone at any time. Marketing teams rely on the practical side by offering small bottles shaped like lighters that are easily transportable. It also perfectly fits in a pocket or a handbag. Sold for 25 francs (3.5 €) for about 300 sprays, the product comes in 4 colors (red and blue for women, black and green for men).Each perfume targets a specific customer segment or a specific context depending of its flavoring composition.

After many marketing studies, it was decided to distribute the perfume on a large scale in Europe, USA and several countries in Africa.Leveraging on its large ligther distribution network, the bottles are proposed to the mass market through existing retail shops. In apparence, it seems convenient for the customer to combine the purchase of a lighter with a perfume.

BIC - Perfumes




SCENARIO CONTEXT

BUSINESS MODEL

FRAGRANCE

SMALL AND PRACTICAL FORMAT

EASY TO USE

LOW PRICE

DISTRIBUTION THROUGH TOBACCONISTS

CAPITALIZATION ON THE

DISTRIBUTION NETWORK

SUCCESS STORY ON LOW PRICE

AND PRACTICAL PRODUCTS

FINANCIAL RESULTS

OF THE GROUP

COMPETITIVE PRODUCTS

«EAU DE TOILETTE»

Perfume for20 Francs

STAGNANT TURNOVER2,2% DECREASE IN 1987

GROWING

INCREASE OF PERFUME

PRICE

PRICE INCREASED 66%

BETWEEN 1981 AND 1988

NEED TO RENEW

BIC - Perfumes




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DISTRIBUTORS

TOBACCO BARS

LOW PRICE

MASS MARKET

Male / FemaleWORLWIDE

MANUFACTURING

PARTNERS

DISTRIBUTORS

TOBACCONISTS

MANUFACTURING

STRONG BRAND

MANUFACTURING

ADVERTISING

PERFUME: HIGH END

PRODUCTADVERTISING

ASSISTANCE IN SALES IN

TOBACCO BARS AREAS

PROMOTION

DISTRIBUTION NETWORK

PRODUCT EXPERIENCE

«DREAMS»

SMALL AND PRACTICAL

FORMAT BASED ON ITS

FUNCTIONALITY

PERFUMER EXPERT

Source :Bicworld.com, 6 décembre 2012 ;L’Obs économie, Le bide de bic, 17 novembre 1988.

BIC - Perfumes





5 reasons of failureWhy do Business Models Fail ?

Part 2




Alignment between Value Proposition and Customer Segment1

Missmatch between the Value Proposition and the Customer Segments.

The value proposition doesn’t answer a real need or doesn’t address a real problem of the customer.




SCENARIO OF THE ORGANIZATION

CONTEXT

BUSINESS MODEL

1Conflict within the Business Model: Inadequate fit between Value Proposition and Customer Segment

The Business Model is disconnected from the Context

Value proposition

Alignment between Value Proposition and Customer Segment




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Value proposition Customer

segment

Fight !

Alignment between Value Proposition and Customer Segment





Business Model financial viability2

The costs exceed the revenues generated making the business non-profitable.

Don’t confuse «impossible profitability» with slow return.

Example : customer acquisition cost or production cost too high etc.





CONTEXT

BUSINESS MODEL

2Conflict within the Business Model : No profitability

Value proposition Costs > revenues

Business Model financial viability




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Costs Revenues

Costs

Revenues

Losses !!!!!

2 Business Model financial viability





Environmental constraints are not fully integrated with the design of the Business Model3

Poor analysis of the environment : competition, technological trends, regulation and economics forces are poorly evaluated.

Main environmental changes must be challenged prior to developping new business models.





CONTEXT

BUSINESS MODEL

3

Key elements

NOT integrated

Value proposition Costs > revenuesEnvironment

Environmental constraints are not fully integrated with the design of the Business Model





Technology trendsSCRCPVACPC

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Financial markets

Globalization

Regulation

Competition

New Entrants

New customer behaviors

...*

* Non exhaustive list

3Environmental constraints are not fully integrated with the design of the Business Model




Business Model Execution4

Management team did not focus enough on execution by lack of competencies, poor governance, or low transformation support.





CONTEXT

BUSINESS MODEL

4Value propositionCosts > revenuesEnvironmentManagement

Conflict & absence of key competencies within the management team

Business Model Execution




Analysis of the Environment

4ExecutionIdentification of

opportunities

ManagementFailure

Business Model Generation

Business Model Execution

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5 It is difficult for companies to break old patterns that made them successful in the past. And the temptation is strong to pursue what has worked before. The risk is to look at new opportunities thru the lens of current profits and performance yields.

The management does not take into account the necessity to adapt its business model. It stays unbalanced between a radical shift and incremental improvements.

The goose that lays the golden egg





CONTEXT

BUSINESS MODEL

5Organizational culture and past successes doesn’t encourage the management to question the real foundation of its current Business Model and new opprtunities for growth.


Value propositionCosts > revenuesEnvironmentManagementOrganizational culture




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5Actual profits Potential profits

Actual model Future model

Very profitable Less profitable



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About the author

Antoine Dumont is associate at Elton-Pickford. He actively participates in the elaboration of the global strategy and development of the business activities.

He is an expert in economic intelligence and conducts regulary missions on this subjects for french Ministries of the Interior and the Defense.

Antoine started his career as M&A consultant. He moved as Sales Director in the IT industry where he worked for large industrial and financial clients (BNP Paribas, Oseo, Saint Gobain, Rieter Automotive).

He conducts, on a regular basis, speaking engagements on Business Model Innovation. He contributed to the Blackbook - 10 Innovative Business Models, and wrote several case studies on disruptive Business Models.

He followed the Executive Program in Management and Strategy to the ESCP Europe.

Acknowledgements

Peter Keates, Yannick Meriguet, Olivier Gemoets, Franck Louesdon.

Contact :[email protected]+33 (0)6 25 55 09 88@AntoineDmt

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Business Models do fail 10 examples - 5 reasons

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Transcript of Business Models do fail 10 examples - 5 reasons