Competition and disruption are the shapers of the modern market. Many businesses are offering similar products and services. For this reason, any business seeking to survive must prioritize innovation and constant modification of their offers to match the market needs.
However, these aspects are not enough. Your business must craft a sustainable approach that will help it remain relevant and profitable. In particular, it must apply a customer-centered model that will help it stand out in the current competitive market. Fractionalization is one of these business models.
What is the Fractionalization Business Model?
Fractionalization is derivative from the word fraction. As the term suggests, it is a business model that focuses on selling a fraction of a product. It involves allowing customers to buy part of a product or service instead of taking the entire lot.
This model offers customers the freedom to purchase what is fit for their needs without paying for the full product. In other words, you eliminate the burden of customers paying for what they feel is unnecessary to them. This approach helps you avoid abandoned purchases and enables customers with shoestring budgets to afford certain services.
How Does the Fractionalization Business Model Work?
The design of the fractionalization model is to allow customers to buy products in fractions according to their needs. This model is customer-centric in that it focuses on allowing the buy what they need and can afford. The seller’s goal is to liberalize the product to fit within the customer’s reach.
For instance, instead of selling the entire pizza, customers can buy a piece of it. Also, they can purchase different pieces of pizzas with various tastes and ingredients. The concept capitalizes on the sharing aspect.
In other words, if a customer cannot afford the whole product, they can consider enjoying it through sharing with other customers. Each customer gets a fraction according to their budget. The idea is to help customers enjoy full services without having to pay for the entire package.
Sometimes, people confuse fractionalization with leasing. However, the two models differ. Fractionalization means that a customer owns a piece they pay for, while leasing means you will use the item but return it after a given time. So, it works well on subscriptions and when customers want to use a particular service on a partial basis.
Examples of Fractionalization Business Model
Fractionalization is a disruptive business model that allows modern businesses to thrive. Netflix is an example of a company using this model to enhance its business. The company combines fractionalization with a subscription-based model. But how?
Netflix allows people to pay for a subscription and watch it on different devices or multiple screens. This means that family or friends can watch videos and movies simultaneously using a single account. So, each member does not need to pay the entire subscription fee.
The pizza sellers also utilize this model in their business. When you visit a pizza house, you have the option of buying different pieces of pizza tastes. You do not need to pay the whole price to enjoy certain flavors and favorites.
Also, web hosting service providers offer packages where a customer can host multiple websites on a single package. With the package, you and your friends can have personalized websites and share the hosting costs. You do not need to cater for the full hosting package to have a website. All they need is to contribute a portion of the cost.
Pros and Cons of the Fractionalization Business Model
Fractionalization is a great model that can help you enhance your customer base. You can implement it to allow customers to buy quantities they need and can afford. But like other models, it is not perfect. It has a share of its benefits and shortfalls. Here are the pros and cons of the fractionalization business model:
Pros
Enhance product sales
With the current competitive business environment, making sales can be challenging. Businesses struggle to convince customers. For this reason, an entrepreneur must develop a strategy that will help them win customers and disrupt the market.
Fractionalization is a great strategy to help you boost your sales level. Allowing customers to buy a fraction of your products or services that align with their budget will drive more sales and eliminate the abandoned cart issue in your venture.
Enable your business to become competitive and sustainable
Every business is a going concern. No entrepreneur starts a business that will close down tomorrow. The goal is to establish an entity that will outlive them. However, this is not usually the case. Many businesses fail or leave the market due to harsh competition.
For your business to remain operational, you must come up with a sustainable strategy. Here is where fractionalization becomes important. Since it is customer-centered, it allows you to continue serving customers according to their needs. This makes them royal, which leads to consistent sales and sustainability of your business.
Boost business outreach and profits
As an entrepreneur, your dream is to serve a wide range of customers. You want to enhance your reach and become the dominant brand in your niche. But with competition becoming stiff every day, this goal remains a mirage.
By transforming your model and considering fractionalization as your new norm, you can enhance your brand awareness, reach, and profitability. The model enables you to adopt the sharing concept, which allows customers to enjoy the same services without paying for the whole package. Hence, it is a powerful approach to enhance your business reach.
Cons
It can lead to loss-making
While fractionalization is a good idea, entrepreneurs may not determine how much to charge for a certain fraction. This element can result in loss-making or overcharging your customers. Also, it can only work in various sectors as some products and services are hard to subdivide.
Conclusion
In a word, the fractionalization model is a disruptive strategy. It enables customers to access premium products and services without paying for the whole lot. Also, it has a customer-centric approach that allows consumers to choose and pay for what they need. However, it can only work on areas with partial usage designed products.
