Business Models vs. Strategies

If you target customers who value cheap and good enough more than design and user experience, then it's really easy to end up competing on price and selling a commoditized product (think low end smartphones and tablets). This point is frequently ignored by new entrants trying to enter existing markets with a simple, low end product and a low cost business model (what Christensen calls low end disruption). See Concepts page and discussion of Clayton Christensen. To avoid commoditization, low end entrants must remember that a profitable low cost business model isn't the same as a unique strategy.

A business model focuses on the subject company's viability -- its revenues and costs and whether it can make money. An effective business strategy focuses on developing a unique set of activities that allows the subject company to stay viable and earn superior profits relative to competitors. See Concepts page and discussion of Michael Porter; Understanding Michael Porter, by Joan Magretta (Harvard Business Review Press, 2012).

Without an underlying business strategy, a low cost business model can be copied, leading to product commoditization. Per Michael Porter, an enduring business strategy is founded on a unique set of trade-off based activities that fit well together. New entrants following a low end disruptive approach should have a unique, trade-off based strategy that other competitors are unwilling or unable to match (a la Southwest or IKEA). See posts titled "Acquisitions, Rivalry, and Strategic Trade-Offs" and "Surviving Competitive Attrition."

Apple's Strategy

Apple uses an integrated approach to products and services to pursue the following strategy:

(1) Target customers who value good design and the best user experience (a subset of the consumer market) more than they value getting something cheap and good enough (the typical corporate customer). Develop a unique set of activities with great fit to deliver the best design and best user experience, and to generate the most customer loyalty. See post titled "Acquisitions, Rivalry, and Strategic Trade-Offs." Products should be designed around specific jobs-to-be-done.

(2) Follow good design principles to keep products simple, useful, and affordable. A well-designed product is valued because it's kept simple and useful, without  features that detract from usefulness, which also helps keep the product affordable. See posts titled "Showcasing Design and Improving Affordability Through Design" and "Apple's Design Strength Prevents Overserving."

(3) Don't target customers who value cheap and good enough more than they value good design and the best user experience. If these customers end up buying the product (often when it fully matures), then that's fine, but don't make product choices based on these customers.

This post is based in part on recent articles by Ben Thompson and John Kirk. See Ben Thompson's "How Apple Creates Leverage, and the Future of Apple Pay" and John Kirk's "Apple's Design: The Gift That Keeps Giving (1 of 2)."

The author owns stock shares of Apple.