Business Model Innovation at Wild-fang Case Solution
The portfolio of fashion-engaged online shopper-sis based on 1500 simulations ran with the use of the RAND BETWEEN formula on excel, for the elements of the CLV formula. For each type of shoppers, the gross margin is assumed to be the minimum as well as the maximum value of gross margin i.e. 45% and 56.9%.Whereas, the minimum lifetime is assumed to be 0 and maximum lifetime is calculated through dividing 1 by churn rate of 70%. Additionally, the minimum value of average monthly expenditure of core loyalists is $200 and the maximum value is calculated by increasing $280 by 40% (the 40 percent is calculated based on information provided on Wild-fang's exclusive who spends $400 in single visit and more than $1000/ month, representing 40% spending on monthly basis). The average customer lifetime value of fashion-engaged online shopper-sis $119.548.
The portfolio of Wild-fang's exclusive sis based on 1500 simulations ran with the use of the RAND BETWEEN formula on excel, for the elements of the CLV formula. For each type of shoppers, the gross margin is assumed to be the minimum and maximum value of the gross margin, i.e. 45% and 56.9%.Whereas, the minimum lifetime is assumed to be 0 and maximum lifetime is calculated through dividing 1 by churn rate of 70%. Additionally, the minimum value of average monthly expenditure of core loyalists is $400 and maximum value is $1000. The average customer lifetime value of fashion-engaged online shoppers is $484563.
Combine the CLV analysis with the results of the previous business model canvas analysis
Under the multi sided growth model, out of 10000 shoppers; 2500 shoppers are core loyalists, representing 25 percent of the current portfolio, 500 shoppers are fashion-engaged walk-in traffic, representing 5 percent of the current portfolio, 5500 shoppers are fashion-engaged online shoppers, representing 55 percent of the current portfolio and 1500 shoppers are Wild-fang's exclusives, representing 15 percent of the current portfolio. By assuming the assumptions for the average lifetime; gross margin and average monthly expenditures remain similar, the average customer lifetime value of core loyalists is $417.37, fashion-engaged walk-in traffic is $60.506, fashion-engaged online shoppers is $123.58 and Wild-fang's exclusive is $357.09.
The comparison between the previous model and multiplicative form model, shows that the higher revenue generating customer segments of Wild-fang are core loyalists and Wild-fang's exclusive.Whereas,the fashion-engaged walk-ins are the lower revenue generating customers of the company. Thus, the acquisition of core loyalists and Wild-fang's exclusive would be profitable for the company as they tend to help the company in generating higher amount of revenue in the near future.
The riskiness of the assumption of the lifetime is directly related to the average CLV. Similarly, the slight reduction in the average monthly expenditure of the customer would reduce the customer lifetime value.Whereas, the change in margin does not last greater impact on the amount of customer lifetime value, thus the company should prioritize the risk of reduction in lifetime and average monthly expenditure of the customer and change in margin.
Final recommendation for Wild-fang's national expansion.
The decision to scale the company is based on benefits and drawbacks of the two models presented to the CEO,which are: Brick and Click model and multi-sided platform.
Private label Brick &Click Model
Advantages
- It would allow the company to serve a wider base of customers and satisfy them by offering the products online as well as offline.
- Due to the growing e-commerce market, the brick and click model would help Wildfang in beating the head-to-head competition in the market by gaining more sales through both the channels and expanding more easily as well as reducing its cost related to shipping.
- It would allow the company to expand the target market, drive higher sales and generate enormous amount of revenue.(Johnston, 2018).
Disadvantages
- There is a likelihood that Wild-fang could face roadblocks,because of the resources, cost and complexity involved with maintaining both physical and online business.
- The company would be required to make investment in designing in-house talents to produce the private line.
- Collaborating with the current clothing label would require the company to make an additional investment.
- The company would be required to chase and keep up with both offline as well as online trends to remain the market leader, which in turn would incur additional cost to Wild-fang.
Multi-sided platform
Advantages
- The multi-sided platform could leverage the value created by highly engaged and growing Wild-fang community, as the service providers, product marketers and affiliated designers would have an access to the community.
- The multi sided platform would most likely leverage the core competencies of Wild-fang in the community engagement, content creation and brand building.
- It would lead towards a significant increase in online customers as 55 percent of the customers are acquired through paid media.
Disadvantages
- Under the multi-sided platform, there would be 25 percent reduction from the 40%core loyalists.
- Fashion-engaged walk-ins would constitute only 5 percent of the total portfolio, which constitute30 percent in the current scenario.
- The company would be required to make investment of huge sum money in order to gain an affiliate management system and IT platform expertise.
- The cost of acquiring Wild-fang's exclusive is expensive.
Based on the analysis of both the options available to Wild-fang; the company is recommended to pursue the multi-sided platform due to an increased interaction between the partners and the value creation. Additionally, by using the key resources, such as: IT expertise and brand, and charging lower price to the customers; the decision of scaling the business would be feasible for the company.(Nizar Abdelkafi, 2019).
Assumptions in this case
In the case, the assumptions related to the percentage of shoppers are provided along with their retention rate, amount of monthly spending, average order value and the cost of acquisition. Due to the lack of information related to the gross margin; it is assumed that the minimum value of gross margin of core loyalists, fashion-engaged walk-ins and fashion-engaged online shoppers has increased by 40 percent,which is based on information provided on Wild-fang's exclusive who spends $400 in single visit and more than $1000/ month, representing 40% spending on monthly basis..................
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