Auto Laundry News - September 2012

Tune-Up — Time for Business Model Innovation

By Robert Roman

Over the last several years, car wash operators have been looking for ways to expand their brand and increase revenues. The solution most offered to them is to grow the business.

However, owners may be without a defined business model to guide them in decision-making. Consider self-service where an exit strategy is no longer feasible in many markets. Pundits assert these owners are trapped, some want out and others want back in. Owners wanting back in need a business model that will generate sufficient sales to cover overhead and make a profit.

A business model has several elements. The first and most crucial is the value proposition, the primary reason why customers buy from you instead of the other guy.

A value proposition is considered flawed when products sold do not solve a big enough problem or have declining or little demand. Evidence of this is self-service where an express exterior has shoehorned into the market for a share of the profits.

Another element is market segment, the subsets of customers that have similar needs. For instance, self-service owners typically use population and an age-oriented strategy to determine market size and strength. However, experience shows this strategy has become less effective because buying habits, usage rates, attitudes, and lifestyle choices of consumers have changed dramatically.

The ability of a car wash to create value for customers is another important part of a business model. For example, self-service owners are paid to take ingredients and add value to them by turning them into something of worth to other people. However, if the value created is not sufficient, people will not pay a good price or won’t keep buying from you.

A business model must address revenues. For instance, benchmarks show self-service revenues and margins are declining. Given the maturity and commoditized nature of markets in which many self-service operators now compete, they are challenged to uncover real margin expansion opportunities. Without a well-thought-out pricing model, the ability of an owner to profit or scale the business may be severely impacted.

Determining how best to position a wash for success in a market is another part of a business model. Many self-service owners are facing competition that now offers improved products, better customer service, and faster delivery. Simply maintaining the status quo will not convince customers to prefer self-service nor stop them from using the competition.

The last element of a business model is competitive advantage. Without a sustainable advantage, self-service owners are susceptible to competitors who pursue cost, differentiation, or niche strategies.

Since the business model captures the logic of how a company does business, car wash operators need to understand what a business model is and how it can be redesigned to help them adapt and survive in a changing environment.

For example, in-bay conversion to mini-tunnel is being suggested to self-service operators facing pressure from express exterior.

However, most car wash owners have spent considerable years and dollars building brand and customer loyalty.
Although innovative technology can be used to ensure comparative advantage, it is also true that a car wash can be extremely successful simply because of a strong business model.

There are over a dozen techniques operators can use for business model innovation. One is leveraging — identify ways that make the delivery of the product more convenient, far-reaching, or affordable.

Another technique is low-touch — offer a standardized, lower-price version of a product or service that is traditionally customized and higher priced.

Ingredient co-branding is other technique. This involves creating brand equity for materials contained in your products to increase the premium customers are willing to pay, or to make the product or service more resistant to competition. An example of this is to use nationally branded chemicals and offer value-added products like total body protection.

Operators facing those attempting to own the primary customer relationship must acknowledge that delivering more value to customers may require owning the undesirable or pursuing segments of the market that may not appear to be immediately attractive.

Operators unwilling to consider business model innovation may find that wanting out may be the best strategy to pursue.

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.

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