A five-step approach to activate new revenue models
These pioneers are showing the way forward. So how can other retailers follow suit – and activate new high-margin revenue streams for themselves? The answer: by creating and scaling up alternative business platforms that leverage their existing (or acquired) assets and capabilities to serve customers differently.
Through our work with retail clients across Europe, we’ve developed a five-step approach to help retailers identify, develop and activate new alternative business platforms. The five steps are:
1. Set the ambition
This stage involves defining the “where,” “why” and “how” of the alternative revenue model to drive strategic choices. Anchoring on the organization’s purpose — this means clarifying the organization’s long-term vision and objectives, and its degree of alignment with relevant stakeholders – employees, customers, shareholders, society and more. It also means asking whether the purpose builds resiliency into the existing business model and working out the means to make the corporate growth strategy sustainable for the long term.
2. Assess resources
The focus here is on gauging the fitness and suitability of the business’s resources – both tangible and intangible – to enable it to open up and grow alternative revenue streams, while addressing existing pain points. The key questions include how the resources differ from those of competitors, which ones are currently underutilized or can be repurposed, and what unique value they can provide to customers.
3. Customer-centered design
This phase involves navigating the journey from the identification of a market opportunity or customer need, via the development of a use case concept and solution to meet it, to the creation of a product- or service-based business model to monetize the solution. A key enabler for success is an agile testing process to ensure the solution meets the needs of customers and is suited to the current market dynamics. It’s also vital to map out how the solution will scale and its path to profitability.
4. Analyze capabilities
Depending on whether or not the organization already possesses the capabilities needed to operationalize the business model, it can make a strategic choice either to recombine existing capabilities to create something new, or to evaluate ways to acquire what it needs. Each of the various ways to fill capabilities gaps – via acquisition, strategic partnership or in-house development – brings its own implications in terms of capital.
5. Create new businesses
This is where the business model, leveraging the alterative revenue streams, is implemented and commences operations. Important success factors include having the right operating model, change management capabilities, integration strategy and incentives. Equally key is establishing how outcomes will be measured against plans.
Defining and activating alternative revenue streams is a bold move that – by definition – takes retailers outside their historical comfort zone. But it’s a challenge they must tackle if they’re to break out of the margin squeeze facing their traditional business. When would be the right time to start? We need to start today – before others move to seize the opportunities on offer.