Monday Memo
A Byte of Knowledge
Most folks spend all their time and energy creating what they think is the perfect product...
But they don't spend nearly enough thinking about how they're actually gonna get that product into the hands of their ideal customers.
And that's a recipe for disaster.
Cause here's the thing...
You could have the most innovative, groundbreaking product in the world...
But if you don't have a solid plan for selling and distributing that product, you're dead in the water.
Your business is gonna be a dud. Plain and simple.
Think about it...
How many times have you seen a company with a killer product just completely fail?
It happens all the time.
And in most cases, it's not because the product was bad...
It's because they didn't have a good distribution strategy in place.
They didn't know how to get their product in front of the right people...
And they didn't know how to effectively sell it once they did.
On the other hand...
If you can master the art of sales and distribution, you can dominate your market...
Even if your product is nothing special.
In fact, superior sales and distribution alone can create a monopoly...
Even if your product is virtually identical to everything else out there.
A great example is Microsoft in the 90s...
Back then, Microsoft's products weren't necessarily the best on the market...
But they had an unbeatable distribution strategy.
They made deals with PC manufacturers to pre-install Microsoft software on every computer that went out the door...
Which meant that their products were in front of pretty much every computer user right from the start.
And that distribution advantage allowed Microsoft to dominate the personal computer market for years..
A great distribution strategy can make up for a lack of product differentiation...
But a great product can't make up for a lack of distribution.
So if you wanna succeed in business, you gotta make distribution a top priority.
You gotta bake it into your product from the very beginning...
And you gotta spend just as much time (if not more) figuring out your distribution strategy as you do developing your actual product.
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Something to Ponder
Let's talk about being "customer-centric" for a minute...
It's something that Jeff Bezos and Amazon are known for, but not many companies truly embrace.
He says, "We are genuinely customer-centric, we are genuinely long-term oriented, and we genuinely like to invent. Most companies are not those things. They are focused on the competitor, rather than the customer."
Amazon is obsessed with understanding every nuance of their customers' needs and desires.
They're constantly pushing the boundaries of what's possible...
Whether it's developing new products like Alexa or offering unheard-of conveniences like same-day delivery...
They're not just willing, but eager to take short-term hits to their bottom line if it means delivering a better experience to their customers...
Like offering free shipping or investing heavily in customer service...
So let us ask you this...
What are you doing to put your customers first?
Are you obsessing over their needs and desires, even if it means doing things differently than your competitors?
Are you constantly looking for ways to invent new solutions that make their lives easier and better?
We Asked – AI Answered
Our Question:
"You know how Planet Fitness' business model actually depends on people NOT using their gyms? Deep dive into other companies that use this kind of business model."
ChatGPT's Answer:
Certainly! Let's delve deeper into....
1) Subscription Services (e.g., Software, Streaming Platforms like Netflix)
Subscription models, especially in digital services like software and streaming media, have gained immense popularity due to their recurring revenue and scalability.
Cost Structure
- Low Variable Costs: Once the digital product or service is developed, the cost to serve additional customers is very low. For example, delivering a streaming movie to one more viewer has negligible cost compared to the fixed costs of content acquisition and platform maintenance.
- Scalability: Digital platforms can handle a large increase in users with minimal additional overhead, making the marginal cost of each additional subscriber very low.
Consumer Behavior
- Subscription Inertia: Many users continue paying for subscriptions out of convenience or forgetfulness, even if they do not use the service extensively. This inertia contributes directly to the profits of the company.
- Diverse Usage Levels: While some users may consume a high volume of content or use software extensively, a significant portion may underutilize the service, effectively subsidizing heavy users.
Revenue Optimization
- Tiered Pricing: Many services offer various pricing tiers, encouraging users to subscribe to higher tiers with more features, which they may not fully utilize.
- Freemium Models: Companies often offer basic services for free and charge for premium features. The vast majority of users remain on free plans, which are supported by a minority of premium users.
2) Prepaid Services (e.g., Gift Cards, Prepaid Cellphone Plans)
Prepaid services are another area where consumer underutilization leads to increased profitability for companies:
Gift Cards
- Breakage: This refers to the balance on gift cards that is never used by the cardholder. It is a significant source of revenue for businesses because this unspent money is pure profit after a certain point, depending on state laws regarding unclaimed property.
- Upfront Cash Flow: When a gift card is purchased, the company receives cash upfront, which can be used immediately for operations or investment, even though the actual goods or services may not be claimed for a long time, if ever.
Prepaid Cellphone Plans
- Unused Credits: Users often buy a certain amount of data or minutes that expire within a month. Any unused credits represent lost value for the consumer but pure profit for the provider, as these do not roll over in most basic plans.
- Overestimation of Needs: Consumers often purchase more data or minutes than needed to avoid overage charges, leading to consistent underutilization.
3) Airlines (Overbooking Strategy)
Airlines use an overbooking strategy to ensure that flights are full, maximizing revenue from each flight. This approach is based on statistical models predicting no-shows and cancellations.
Revenue Maximization
- Full Flights: By selling more tickets than there are seats, airlines can ensure that flights are full even if some passengers do not show up. This helps in maintaining high levels of operational efficiency and profitability.
- Handling Overbookings: When more passengers show up than expected, airlines may offer vouchers for future travel, upgrades, or cash incentives to volunteers willing to take later flights. These offers are usually worth less than the cost of the ticket sold, thus still profitable to the airline.
Customer Management
- Predictive Analytics: Airlines use sophisticated models to predict the likelihood of passengers not showing up. This allows them to overbook in a calculated manner, minimizing the risk of having to deny boarding involuntarily.
- Customer Loyalty Programs: These programs are used to manage customer satisfaction, offering rewards that may also go unused or underutilized, further contributing to the airline's profits.
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Thanks for reading the Monday Memo.
Until next time!
The AI Marketers
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