Chapter 31

No Frills

The pattern

No Frills is as simple as this: the usual value propositions are trimmed down to their minimum (WHAT?), with the resulting savings in costs typically being passed on to customers in the form of significantly lower prices (WHAT?). The basic aim is to reach a much larger target audience and ideally even the masses (WHO?). Although such customers are generally more price-sensitive than those in the upper socio-economic strata, this business model can still be very profitable once it has taken off in the mass market (VALUE?). A prerogative for success, of course, is to consistently adjust all processes to minimise costs – the only sure way to keep prices so low that you can attract a truly wide audience (HOW?).

One effective method of keeping costs low is to standardise the offerings so as to take advantage of economies of scale and fully utilise production capacities (HOW?). Another is to optimise distribution by introducing Self-Service (#45), for instance (HOW?). If all goes well, the combination of a slimmer value proposition and cost savings will do the trick. This implies that the trimming down of the value proposition should be concentrated in areas where the greatest reduction in costs can be achieved.

The origins

Henry Ford became a famous No Frills pioneer when he introduced his Model T car in 1908. At launch, the car was available for the incredibly low price of US $850, about half the usual cost of a motor vehicle at the time. Ford was able to arrive at such a low price by introducing methods for large-scale manufacturing and, later on, assembly lines. Customers were no longer able to customise their cars according to their wishes, but the price spoke volumes. Henry Ford’s quip on the subject, ‘You can have any colour, as long as it’s black’, has now gone down in history. A major factor in keeping the price so low was the simple construction used for the Ford Model T. It was built with a modest 20 horsepower engine on a relatively uncomplicated steel chassis. Henry Ford’s success was so resounding that by 1918 every second car in the United States was a Model T, and over 15 million units had been sold when production ceased in 1927.

The innovators

Since Ford’s Model T, the No Frills pattern has served as an impetus for innovative business models in many other areas. A very familiar example today is the airline industry’s low-cost carrier model. US-based Southwest Airlines launched it in the early 1970s, offering its customers very cheap fares, bereft of comforts such as meal service, seat reservations or booking assistance through travel agencies. Unlike traditional carriers, airlines employing this model generally don’t use major airports, but choose instead to fly to smaller airports located at city peripheries that, while less conveniently located, charge lower airport taxes. The introduction of the low-cost carrier model has led to enormous changes in the airline industry, and it is estimated that every second flight in Europe is operated by a low-cost carrier.

Discount supermarkets selling groceries at low prices are another manifestation of the No Frills business model. Such price reduction is generally effected by avoiding branded products and drastically limiting the product selection on shelves. As a result, turnover is usually very high, which means that such supermarkets not only save on inventory costs, but also have an advantage when negotiating with suppliers. For good measure, discount supermarkets normally steer clear of unnecessary décor in their stores (remaining consistent with the No Frills principle) and limit the number of staff on hand to a minimum. Renowned and highly successful companies within this industry are the supermarket chains Aldi and Lidl.

Fast-food restaurant chain McDonald’s also banks on the No Frills business model. When the company’s drive-in restaurants were floundering during the 1940s, owners and brothers Richard and Maurice McDonald instituted a comprehensive restructuring of their business, reducing the service offering to fewer than ten menu items, replacing the dishes with paper plates and introducing a newer, cheaper method of preparing burgers. Two-thirds of the waiting staff were laid off and Self-Service (#45) was introduced. These changes made it possible to sell hamburgers at the drastically reduced price of 15 cents apiece. The No Frills concept helped the restaurant get back on the road to success and is still a part of McDonald’s philosophy today. Soon after re-opening, customers formed long lines at service counters – the rest is history.

No Frills: timeline

A very successful company from China currently applying the No Frills pattern is Xiaomi. With the strategy to sell phones and devices with good specifications but at very low prices, it succeeds in the highly competitive market of electronical devices with razor-thin margins. To reduce overhead costs, the company does not own any physical stores and sells exclusively through its online presence. The company has also created a marketplace for other connected products – digital services, entertainment and ‘lifestyle’ products and services. Taking a reverse approach to Apple, Xiaomi describes itself in its 2018 IPO filing as ‘an internet company with smartphones and smart hardware connected by an IoT platform at its core’.