One of the best ways to learn about different business models and pick up new ideas is to travel abroad. In the spring, I wrote about new product ideas I picked up when I was visiting Florence, Italy. This column is about some successful business models I have observed outside the U.S.
Many Americans think we invented business, or at least that we have the market cornered in successful models and ideas. If you travel outside the U.S., however, you will realize there are lots of business models that are successful, and some of them are more clever than what we find in the U.S.
A quiz: In what foreign country have
and other major household U.S. names failed -- and failed miserably? The answer is Chile. Chile has become the impregnable fortress that many U.S. retailers have laid siege to, only to find that regardless of their brand names or deep pockets, they just can't dethrone the kings.
There is a company that crushes all outside competitors as if they were gnats. This company isn't doing it with lower prices or hometown protectionism. Politicians aren't being bought off. The locals aren't picketing outsiders and yelling, "Yankee Go Home."
The name of this unstoppable force that is changing the way companies are doing business in Chile -- and which will be a model for the rest of the world -- is Falabella. It sounds like a sexy Italian model, but it is the Darth Vader of financing in Chile and is spreading out into other Latin American countries.
Falabella uses a variety of retail concepts to be the most prosperous financial institution in the country. You are probably confused by that statement, but that is exactly how one of the leading banking executives in Chile described this company. In fact, I had meetings with major banks in Chile, and they were in awe of what Falabella has accomplished. Here is Falabella's process for owning the hearts and pocketbooks of its countrymen.
Phase 1 -- Credit Cards Are on the House
Falabella started with a retail business, selling the same products as Kmart and
to the masses, then it moved on to providing credit cards to any customer who wanted one. In a country of 15 million people, almost half have a Falabella credit card. Falabella has more credit card customers than all of the banks combined because it doesn't worry about customers' credit.
Phase 2 -- Camouflage High Fees With Low Payments
The credit card charges are 30% annually. You would think people would scream at the high rate of interest, but Falabella does something very clever: It hides the interest rate in ads that promote low payments for extended periods of time. It offers customers something they want and gives it to them at a price they can afford over a long period of time.
Phase 3 -- Do We Have a Mortgage Deal for You!
Over time, Falabella moved from credit cards to mortgages. Can you imagine Wal-Mart supplying your mortgage? Wal-Mart could do it with its enormous cash flow.
In the U.S. and even in Chile, which has a very strong banking system, there is no mortgage company that will supply 100% of the purchase amount. Falabella's mortgage group will, if you promise to buy all of your home furnishings and insurance through its furniture and insurance subsidiaries. Chileans take a lot of pride in their ability to honor agreements and pay their debts, so very few borrowers default.
Phase 4 -- Tired of Being Home? Let's Go on Vacation!
Everyone gets tired of being at home, so Falabella offers a variety of family vacation packages. It has locations throughout the country, and it allows you to put that vacation on its credit card and pay it off over time.
Phase 5 -- Everybody Eats
Now Falabella is merging with the largest supermarket chain, so it will dominate another crucial segment of the market. Shoppers can put their bills on the credit card. One banker said there will shortly be proprietary ATMs in Falabella grocery stories so it can pick up user fees.
What's a Bank to Do?
During my lunch with the bankers, they reminded me that their product was selling cash. In Chile, it is becoming harder for banks to sell their cash because of the great success of Falabella. The bankers are wondering why a consumer even needs them.
Falabella's success has been so great that foreign banks are considering copying its model and using various types of retail initiatives to sell money. A major bank is buying one of the country's largest pharmacy chains so it can compete with Falabella's distribution network.
There are a lot of interesting business models out there, such as the microloan program started in India. Take the time to travel and speak and listen to what foreign businesspeople are doing. While I was in Central America last year, I learned about a unique way of financing small companies, so I developed a business plan and raised a significant amount of capital to start my new venture. Ideas abound -- you just have to open your eyes and ears to them.
Marc Kramer, a serial entrepreneur, is the author of five books and is an instructor at the University of Pennsylvania's Wharton's Global Consulting Practicum, where he serves as Country Manager for Chile.