Pattern description

The core offering is priced competitively, but there are numerous extras that drive the final price up. In the end, the costumer pays more than he or she initially assumed. Customers benefit from a variable offer, which they can adapt to their specific needs.

Inventive problems

Application examples

Ryanair, founded in 1985 as a regional Irish airline, is today one of the largest lowcost airlines in Europe. Ryanair follows a clear budget airline strategy. In 2011, the company had 76.4 million passengers, making it Europe’s largest airline, surpassing even Lufthansa, the next largest airline with 65.6 million passengers. An aggressive pricing strategy and a lean cost structure ensure the company’s profitability. These approaches are directly enabled by the Add-on business model that Ryanair pursues. Ryanair offers its basic fares at very cheap rates. Many complementary extras such as on-board service, meals and beverages, travel insurance, priority boarding, additional or excess baggage are then charged separately. Moreover, many other costs are passed on to customers, which are included as an add-on in customers’ invoices.

The German software company SAP provides enterprise and management software for businesses. The company offers its standard business suite at a moderate price, but in order to exploit the full potential of SAP software, clients are encouraged to purchase additional features such as Customer Relationship Management, Product Lifecycle Management and Supplier Relationship Management applications. SAP’s additional software packages greatly extend the scope of services offered to clients. Customers can purchase basic software, but are also able to specify a configuration precisely addressing their needs. In this way, SAP generates revenue from the basic product and from selling extras as required by the customer.

Sega is a global software and video game developer with headquarters in Japan and divisions around the world. The company was the first of its kind within this industry to utilise the Add-on business model. As a video game publisher, software and hardware developer, Sega originally manufactured game consoles. However, the company now concentrates on video game software development for third-party hardware and consoles. Sega was the first video game developer to employ additional features within its video games. Termed DLC (downloadable content), these add-on extras could be purchased and downloaded directly from Sega. In line with the Add-on concept, Sega benefited from sales of the game itself and additional revenue through the sale of downloadable extras, while the customers benefited from the individual choice of optional extras for their video games.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business