Here's When It Pays to Shift Your Business Model
Sometimes, you need to be flexible with your business model if you want to get ahead. This isn't the sort of flexibility that comes with letting customers customize their orders. Instead, the idea is to modify how your business operates as conditions suggest.
Online media companies have experimented with many approaches to content: all free, all paid, or a mix of the two. However, they tend to use static business models. The company finds its mix and then sticks with it. But Kanishka Misra, a professor of marketing at the University of Michigan's Ross School of Business, and Anja Lambrecht of the London Business School suggest that more flexibility would be key to better performance.
"The industry norm is to follow a static rule regarding free content," Misra says. "But we find variation in demand. That suggests implementing a dynamic policy, where a provider adjusts the amount of paid content depending on circumstances. That way, media firms might be able to leverage digital to their advantage."
For example, ESPN.com could see more revenue by putting more of its articles about a particular sport on paid status during the off-season. According to the researchers, people reading about a sport during the off-season are more passionate and willing to pay for news. During the season for a given sport, however, more people are less willing to pay for content. By making more content freely available, the site can increase its advertising revenue.
Many entrepreneurs understand the need for variation, as stores tend to shift their mix of goods in order to match the season. Landscapers in the North, for example, often move from lawn care to snowplowing as the season shifts from spring to winter.
But such modifications are regular and, in their own way, static. If you think you already know when to shift operations and pricing, you could be missing important clues to other changes in the market and your customers. For example, there could be increased demand for a certain item because of coverage in the local press. A product popular with a small segment of consumers might go out of production, providing an opportunity to get extra stock and make it available at higher margins.
One of the biggest mistakes entrepreneurs can make is to assume the business plans they wrote early on should still be the controlling idea for their companies. Far better instead that you use a business planning process, updating assumptions, results, and opportunities as they develop.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.