Business Model Strategies – Top Down and Bottom Up

Top-Down Business Model Generation

The top-down strategy usually starts from a strategic analysis. This strategic analysis aims to recognize the target market and to develop value products/services for the target market.

1. It can start with consumer analysis that strives to recognize a need that is not fulfilled by the competition.

In such a scenario, the manager can begin by asking questions like:

  • What main difficulties are faced by customers?
  • The company can solve which of those problems better than the adversary companies?

2. It can analyze company resources that seek to detect the core competencies and strategic assets which could lead to excellent competitive benefit.

In these situations, the manager can begin with questions like

  • Which are our special resources, strategic assets, core competencies?
  • Which of those resources can develop exemplary customer value and market value?
  • Which needs of the customers can be addressed with these resources?
  • In both paths, the needs of the customer and resources of the company should be addressed so that the company can develop a suitable business model.
  • If unique resources are available, but there is no customer need, it will not create a viable business model.

Example: Apple

  • Apple’s approach to developing new offerings can be taken into consideration for a top-down business model.
  • There is a clear-cut identified need of the customer for which Apple designs its products.
  • For instance – Apple’s revolutionary Apple Watch Series 6 and AirPods

Example: Tesla – Battery

  • Tesla featured a new design called “tabless” in its new battery cell.
  • According to the company’s claim, the battery will deliver 16% more range compared to the old battery cell.
  • It will also generate six times the power and five times the energy.
  • Tesla signalled a huge shift which could potentially reduce a significant number in the price of the electric vehicle.
  • This huge benefit will be made possible because of the internally-produced batteries for the electric vehicles that Tesla has announced.

Example: Amazon – One-Click Patent, Amazon Prime Delivery Options

  • Billions of dollars were generated in revenue through the 1-Click patent for Amazon.com since 1999.
  • 1-Click shopping removed the biggest friction point in the process of completing an online purchase.
  • This major friction point was: the checkout process.
  • In 1997, the 1-Click patent was filed by Amazon.
  • USPTO granted this request in 1999.
  • Amazon was able to bag excessively high concessions from its existing customer because of this “innovation.”
  • A nearly frictionless check out process is created as the payment and shipping information of the customer is already stored on Amazon’s servers.
  • But on September 11, 2017, Amazon’s U.S. patent ended.

Example: Under Armour – Fabric

Under Armour – Fabric

  • Kevin Plank was a 24-year-old former special teams captain of the University of Maryland football team.
  • He founded Under Armour in 1996.
  • Planks T-shirts worn under his jersey always got sweat-soaked.
  • But he noticed that the compression shorts he wore during practice stayed dry.
  • This became his inspiration to create a T-shirt from moisture-wicking synthetic fabric.
  • After graduating, Plank developed his first prototype of the shirt.
  • He distributed it among his Maryland teammates and friends who went ahead to play in the NFL.
  • Very soon the design was perfected to create a new T-shirt which was built from microfibers.
  • It wicked moisture and kept athletes dry, cool, and light.

Bottom-Up Business Model Generation

The bottom-up strategy begins with designing a particular characteristic of a product or service. This is followed by recognizing the target customers whose unfulfilled needs can be met by the companies’ product or service.

The advancement of this model commonly starts with the research and development process. This leads to the improvement of a specific element of the product and/or the development of new ones.

In this model, the advancement begins with product development and not the intention to solve the need of the customer.

Here, the manager can begin by asking questions like:

  • What improvements can be made to the current offerings?
  • How can new advancements in technology benefit the existing product service?
  • How can new offerings be developed using new technology?

Example: Apple iPad

  • Apple, rather than making a completely new product to address the unsatisfied customer need, played it different.
  • It created the iPad, which was primarily driven by technology that already existed and was known.

Example: Automobile Companies

  • This trend is commonly followed by passenger vehicle companies.
  • For instance, hatchback models are introduced in sedan sections with subtle modifications.

Example: Food & Beverage Companies

  • Coca Cola
  • Cadbury