During the holiday break I was convinced by my daughter to head off to Melbourne’s only Cat Cafe. Now I’m not much of a cat fan but I am a fan of my daughter. So reluctantly I decided to take a day off and attempt the feline caffeine experience.
I have recently been working with a gaming insights and analytics provider. Helping them identify and create new and innovative business models for their launch and growth phases. Along with gaming, business model innovation is one of my passions, so my mind has been mellowing in this soil for the past week and was clearly looking for some form of outlet.
Part of what I talk about at conferences and teach in our courses is for each of us to become supermixers. Individuals that can mix multiple insights from different knowledge areas and ideate around new products, services and business models. With this in mind I found myself doing a bit of business model analysis on the Cat Cafe as I sat there and watched the engine of this little business operate. I always find it fascinating how some of these ideas get off the ground and generate a viable model that is desirable to customers as well.
From what I could see the primary model was pay-per-use, where you buy time slots with the cats at $12 a head per hour. Every slot for the day was full. Roughly 12 people allowed in to see the cats in their trendy loft apartment per time slot. A little bit of math’s gets us to roughly $280,000 a year in revenue potential if all business day slots are fully booked for the whole week. Not bad. But we all know that type of utilisation is impossible, especially since their service is perishable, in other words a time slot with a cat.
Perishability is a bit of a science but the basics of it are that once the timeslot has passed, there is no way to recover that revenue. It’s not like a product where you can just sell it again tomorrow. Perishability is particularly relevant to service organisations since a service is time bound.
Because of perishability this particular business would need to create additional revenue streams. There are a few strategies to deal with perishability. One of them is yield management, the process of managing short-term demand and capacity through tactical pricing and service capacity allocation. Since the Cat Cafe sells time slots that are perishable, each slot loses value over time. If I arrive half way though the hour the value is diminished and there is no way to recover the lost 30 minutes. The challenge that our feline cafe also has is that once they have sold all their slots, they have reached the revenue ceiling for that day and there is no other way to sell more slots as they are a finite resource. Then there is the challenge of having a flat rate of $12 an hour with no flexibility for other models or different uses of the time, for example what if I book in advance, can I get a discount?
So the goal for this business, and any service business for that matter, is to maximise the average revenue per available time slot per day. There are a number of forces impacting demand for these slots at any given time. The strategy that the Cat Cafe needs to pursue is to find a balance between hourly rate, costs, and occupancy of the time slot in order to maximise revenue.