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Business Model Inspiration #3:
The pros and cons of indirect vs. direct selling
When selling products directly, there is no need to go through intermediaries. Despite higher margins, an important benefit is the direct interaction with customers, which can improve the relationship as well as gaining a better insight into their needs.
We’ve got some examples for you:
“Tupperware parties” have become synonymous with a direct seller’s product demonstrations undertaken in the homes of private citizens. There are no Tupperware stores; instead, there are only sales force members who plan and arrange a party, invite their friends and contact people at the party as prospective customers.
To improve customer relationships, Nespresso has opened over 450 boutiques worldwide (compared with one boutique in 2000), in combination with more than 1,000 coffee specialists who maintain a regular dialogue with Nespresso Club members. Customers can benefit from coffee experts’ advice and in-shop experiences.
While traditional car manufacturers depend on their dealerships to stock inventory, provide after-sales service and promote their financing schemes, Tesla focuses on selling high-end electric vehicles via a direct sales model directly to consumers. Since electric vehicles do not need as much regular service and the company does not offer financing schemes, a dealership model would put pressure on its margins.
When products and services are not sold directly but distributed through intermediaries, we speak of indirect selling. This is particularly interesting for a firm wishing to enter complex or foreign markets.
PepsiCo and Unilever
Due to a partnership between the two, Lipton’s share of the iced tea market went from 18% to 40%. Combining the strength and global presence of both companies has enabled the business to flourish. At its inception, Unilever brought the marketing power of the Lipton brand and its deep-rooted tea expertise, while PepsiCo brought its bottling network expertise and field marketing capabilities.
General Mills partnered with Nestlé to form Central Partners Worldwide (CPW), which combines the expertise of General Mills, the second-largest cereal manufacturer in North America, and the worldwide presence of Nestlé, which also has local market knowledge and distribution strength. CPW operates in 75 markets and has captured 21% of the international cold cereal business. The company’s cereals are sold under the Nestlé brand, although many originated from General Mills, leveraging the strong brand identification of Nestlé to enter new markets.
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