You talked around this in a few ways, but one thing about Ikea’s build-it-yourself furniture that revolutionized the industry is the fact that it can be shipped long distances vastly cheaper than traditional furniture. Most Ikea furniture comes in boxes that have very little extra space inside. When you consider the alternative–shipping stacked, piled, etc night stands or some other bulky furniture–you can see how shipping utilization goes way down and the chance of damage becomes much higher. By creating easily shippable boxed furniture, Ikea was able to radically reduce shipping costs and expand farther from factories than most other chains.
Great article. Spirit has done a good job of taking a page out of Steve Jobs’ playbook and realizing that customers don’t know what they want. When you asked most airline passengers with surveys or various marketing tools, they would undoubtedly respond ‘I want better service, more features, bigger seats, free food, free booze, more legroom, etc’. But, when it comes down to it, we are cheap. Airline passengers are a particularly fickle bunch and speak with their wallets when choosing an airline–and they choose Spirit.
Once Spirit identified this key insight, they aligned their operational model around it quite effectively as you outlined above.
As with APSwiecicki, I think that the trade-in business of GameStop is extremely important. At any given moment, roughly 50% of a GameStop’s inventory is used products versus new products. For people that use consoles over a PC, many of these older games can be difficult or impossible to digitally download. Gamestop has become the only retail source for many older generation consoles and games. These older consoles cater to a very loyal fan base who love the products for their nostalgia–similar to an antiques business. When these customers come to a GameStop to browse old products, they often tend to buy newer releases also.
Lastly, the GameStop employees themselves are often very passionate about gaming. Because they have a personal passion, these employees are almost like experts in the gaming world. That means that they punch above their weight in terms of expertise and helpfulness to customers compared to most hourly employees.
Towards the end of your article, you describe Everlane’s product offering as luxury, however the business model and value proposition of Everlane seems to be more aligned with an Every Day Low Prices (EDLP) strategy. To me, the very notion of a ‘luxury’ product implies not only good quality but also an air of exclusivity–one usually propagated by extravagant designs and high prices. I worry that despite Everlane’s branding, other companies like Target already offer similar products–simple designs, pretty good quality, and an affordable price far from luxury products–and they may be able to effectively outcompete Everlane.
I do like your points about the relationship between the Op & Biz models and agree that the operational model favoring e-commerce over brick and mortar supports having fixed, affordable prices.