Business basics for UX and Design #1: The Business Model

In this series I'll look how business works. An important skills for UX and design.

A few months ago I wrote about personal principles for success, one of which was to understand how your or your client’s organisation measure it’s success and then actively contributing to that success.

Understanding how a business works will help you understand how the business will evaluate the design work you produce and ultimately how successful you and your design work will be.

There are two basic types of business model

  1. Cost driven businesses offer the cheapest prices and are run in a very lean way. Think RyanAir, JetBlue, Target and Tesco. The price is very important.
  2. Value driven businesses offer a more premium product. Think Ritz Carlton Hotels, Jaguar and Apple. The brand is extremely important.

Cost driven businesses price their product based on how much it costs to produce whereas value driven is much more what people are prepared to pay for. If we think of air travel, typically economy / coach tickets are generally chosen on price. First class travel is chosen based on the experience.

Most businesses are somewhere along the continuum from Cost Driven to Value Driven.

Cost and Value continium

Understanding where on the line your or your client’s business sits will help you decide on the most appropriate process and what aspects of the design to focus on.

How to design for a Value Driven business

The process

With value driven businesses the margins typically are high. The margin is the amount of money the business makes per customer. Apple makes a huge margin, up to 40% profit on each sale. These businesses have money to spend on getting the user experience right.

The brand is key. Brand values and feel are important to research and define. We can research how people feel about the design of a website or app. Understand the differentiating factors that the user feels are important and then focus the design on these areas.

The design needs to feel premium, high quality, finished, simple and easy to use. In many ways this kind of design is easier to execute on because the time and resources are available to get it right.

Spend time and effort looking at the brand, the emotional feel, the proposition and making the experience premium. Don’t rush this kind of work.

Design focus

When designing for value, focus on the overall experience, about how it feels, spend time on the detail, research the feel of the site. Engaging on an emotional level with users is the key to success for these businesses.

Use high quality, large photography, it matters when selling something premium because the quality of the final product will be in part judged by the experience online.

A client I have worked with over the years at cxpartners, Ritz Carlton do this well.

Ritz Carlton showing the view from the room

The brand is well crafted. Time is taken and money is spent getting the detail right.

Simplicity is important. The thinking is done for the user, that’s what they are getting. Rather than a huge number of choices. We have a few well thought out ideas. There is no need to personalise or adapt the product, it fits the user already.

Little emphasis should be placed on the price. Showing the price in large, bold text tells the user that price is important. Here the focus is on experience, brand and emotional engagement not the cost.

The danger of value driven products is that they can creep towards being cost driven. They struggle to differentiate, to articulate what it is that makes the product special, they are unable to justify the higher price and prices drop. Suddenly they are competing with hundreds of other similar products and being judged on price. Known as commoditisation this is a big fear for a value driven business.

How to design for Cost Driven

The process

Margins are low for cost driven businesses. The margin is the amount of money the business makes per transaction. Many low margin business are successful because they have a high volume (or number) of customers. This is where they find the budget to spend on design and UX. Success being measured through usability and getting as many users through the process as possible.

Cost driven businesses are about selling more and saving money so talking comfortably about money is important. How much will this design change effect the bottom line? How can this design change save us money? These businesses will measure performance carefully. Understand what metrics they measure and design to address these metrics. (I’ll talk more about metrics and measurement in a later article).

Design focus

A focus for designers and UXers in the cost driven world is usability. Getting users to where they want to be with minimal barriers. The user journey through the app or website needs to meet the mental model / expectations of the user. If it deviates users will drop out. Drop out means less customers; and remember success is often measured in volume.

Can’t see the shipping / postage costs? Drop out. Can’t immediately see the ‘Next’ button. Drop out.

Forms need to be easy to use. Navigation labels and calls to action need to be explicit and simple. The information the user needs has to at a point where they need it.

In much of the research I’ve done on cost driven business, in the travel, financial and e-commerce world there is one thing that undermines the feeling of getting a good deal.

When a user chooses to engage with a cost driven company they expect a more basic design.

In user research I’ve heard comments like:

“It looks too well done”

“Maybe they have spent their money on an expensive designer and not on saving money”

A premium design can undermine the user experience of a cost driven business. The UX needs to feel cheap. It needs to feel a little rough around the edges.

Lings Cars

Ling’s cars deliberately feels cheap, the site is about getting a cheap lease deal on a car. The design tells the user what to expect from the business.

The biggest challenge faced by cost driven businesses is that the cost of switching is easy. It’s an easy, tangible comparison to compare to a competitor. It’s done with often just one variable, price. There is very little emotional engagement to tie the user to the brand. Using some of the focus discussed for value driven businesses can encourage the user to judge the business more than just the price.

Getting the balance right.

It’s rare to find a business at the extreme ends of the continuum. The smart UX designer understands where a business sits on the continuum and what that means in terms of the user experience. What factors to play to, what feel to design towards.

Think about where you organisation or client’s business. Are they cost or value driven? How will this reflect in the UX process and the design itself? Answering those questions can be the reason a design succeeds or fails.

Next week I’ll look at different income streams and offering UX and design advice for each.


Also published on Medium.

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