The end of the Cash Cow?
Are we experiencing the end of our Cash Cow era?
The Cash cow is business jargon for a business venture that generates a steady return of profits that far exceed the outlay of cash required to acquire or start it. The idea is that such products produce profits long after the initial investment has been recouped.
Basically our cash cow principle is still valid today. We still see products and services that have achieved market leader status and generate handsome amounts of revenue. The average lifespan of the Cash Cow however is under pressure.
As our world is changing faster than ever, we experience a steep increase in new product launches and start-up activity. Innovation cycles have become shorter than ever.
As organizations, we basically have less and less milking time. How do we ensure future success and profitability of our innovation efforts?
Shorten development
We could increase milking time by decreasing development time. In other words; Faster development processes save valuable time, to market and sell our product before becoming redundant.
Decrease development costs
We could spend less to reach our break-even point faster. We should simply stop wasting money on long and expensive innovation strategies and instead, prototype our ideas as soon as possible to test feasibility and market demand. This however requires a culture of yes, and the acceptance of the inevitability of failures.
Increase product life span
Launch product upgrades through software and modular hardware to extend the product lifespan and milking time. By keeping our product up-to-date we basically ‘avoid’ early redundancy. Ideally we create a circular economy with modular products that hypothetically could have an infinite lifespan.
Servitization of your value proposition
Many companies change the focus of business models from selling products to providing services. Take car-sharing platforms for example; as a customer we occasionally rent a car using our app through their system. And as the cars get older, they are automatically replaced. Also our app will update itself. Continuous introductions of new value added services will drive a supreme customer experience and loyalty. No need to look around for better options.
That’s a big difference with buying and owning a product, like a car. Every few years there is the big event of getting a new one – including the chance of changing brands and losing the customer.
Introducing servitization traps: Rolls Royce
Servitization can be used to ‘trap’ customers by bundling products with specific complementary services. An example is Rolls Royce; creating huge switching costs in their ‘power by the hour’ offer. In essence, ‘power by the hour’ consists of leasing jet engines, maintenance and repair services for a flat fee. The real game-changer is that Rolls Royce only charges airlines for the time they use the engine. This proposition is outstanding for airlines because it relieves them from the huge pain of losing money when defective engines block planes from flying. By bundling it’s highly profitable services with its first-class engines into one integrated offer, Rolls Royce make it harder for airlines to switch to a competitor.
Morphing Cash Calves
The future of innovation is the combination of all above. Organizations need to start developing breeding grounds for self-evolving cash calves.
The success of these cash calves will depend on their ability to improve and maintain loyalty through the best product-service experience, powered by an agile and constant innovation culture. The holy grail; creating meaningful value for the customer.
