Many businesses want to generate a steady return of profits and keep their costs down. So how can you become a cash cow while maintaining a lean startup business model?
A cash cow is a business venture that generates positive cash flow far above what is needed to run the business. Cash cows typically represent significant competition in its market. A cash cow typically produces innovative and interesting products that capture even-larger market shares. Cash cows also attract customers with an array of products and favorable pricing schemes. Although, some cash cows, like Apple, also sell more expensive products such as the iPod.
Here are a few key areas for cash cows.
Product variations:
To produce one product that sells well is important, but, for longevity of profitability, it is important to develop variations of that product. Variations of the iPod include the iPod scroll wheel, iPod touch wheel, iPod dock, iPod mini, iPod shuffle, iPod nano, iPod classic, and iPod touch.
Customer segmentation:
Dividing your customer base into groups allows your business to target specific revenue levels in order to provide value-based marketing. It is important to determine how much revenue each customer group generates and the cost associated with establishing and maintaining those relationships. Apple attracts customers who must have the latest technology, hold off for the revised 2nd version, wait for the deal, or are on the fence.
Pricing flexibility:
Attracting customers requires favorable pricing. You need to be aware of what the competition is offering and be flexible with your pricing options. Start with a pricing model and then, after a few months, determine if that pricing is generating the quantity of sales projected. If not, assess whether price needs to be adjusted to increase sales quantity and overall income. In addition, prices should adjust in response to overall market shortages or surpluses. Apple gives a price reduction to older versions of the iPods when a new version is about to come out.
Cost reduction:
Generating profitable returns is based on getting customers to pay for the product and on minimal company costs. This is where the lean startup methodology comes in. The lean startup approach refers to businesses and products relying on validated learning, scientific experimentation, and iterative product releases. This is done to shorten product development cycles, measure progress, and gain valuable customer feedback. In this way, companies, especially startups, can design their products or services to meet the demands of their customer base without requiring large amounts of initial funding or expensive product launches. Apple continues to release new generations of the iPod. Each launch generates new revenue with minimal additional costs to develop enhancements.
Target specific competitors:
To maintain consistent profitable return, you must be aware of what your competitors are doing and do it better. If you can’t do it better, do it different by addressing a different niche. Apple keeps its eye on Microsoft Zune, Sony Xperia, and Samsung Galaxy Player.