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Business Models.pdf

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University of Waterloo
COMM 101
Laura Allan

Business Models Tuesday, January 15, 2013 10:14 AM Business Models - How you intend to make money with your Business Model idea...Turning your idea into a profitable business or - "a business model describes the rationale of how an organization sustainable not-for-profit creates, delivers, and captures value" - Alexander Osterwalder ○ How company intends to make money ○ How your idea actually becomes a business that makes money Business Models Made Easy (Dan Debelak) - Different companies can have similar offerings but different GEL Factor Analysis business models ○ Choose one that makes most sense (affect how you operate) - G = Great Customers - E = Easy Sales - Models affect strategy/ways of operating - L = Long Life - Examples Objective: ○ Consumer Reports (Subscription Based) VS TIME (Advertising Based) Fine tune idea, so it delivers all GEL factors and you'll be able to develop better business model and write great business plan.  Consumer Reports - focus on selecting content readers willing to pay for Factors Sub-Factors Criteria AWAKE  TIME - selecting content to attract readers advertisers Characteristics Number Yes want to sell to G Ease of Finding Yes ○ Movie Theatre Spending Pattern Yes  Make money on refreshments instead of tickets  Refreshment stand staffing critical Great Value to You $ Value of Sale □ Long lines dissuade people from buying --> Customers Repeat Sales Yes Ongoing Sales Support Yes efficient staff □ Up-selling makes more money --> E Value to Customer How important Yes persuasive/good sales staff Competitive Advantage Yes ○ Manual Razor VS Electric Razor Price/Value Relationship Yes  Manual Easy Sales Customer Entry Points Yes □ Cheaper - recurring profit with blades Acquisition Cost Sales Support Required Yes □ Virtually gives away handle and makes profit Promotional Activities Yes selling steady supply of razor blades Profit per Sale Margins Yes □ Compensated by special Gillette blade that are L easy to replace Up-Selling and Cross-Selling  Electronic Promotional Activities Yes □ Make money up-front Long Life Investment To Enter Business Yes Required To Keep Market Share To stay on the Cutting Edge Yes Desired Great Customers Customer Characteristics Number High - Importance -Tightly define customer group -Target same group ○Need enough customer base to cover running cost, business, meet income expectations, enough -Salespeople sell product, while funds to keep sales momentum, business expansions customers worry ab how - When It's Key Concern product solves problem/meet ○Product/service is inexpensive desire ○Opportunities for repeat/add-on sales are limited (up-selling/cross-selling) -Find characteristics of ○Customers can't find your business easily (not easily accessible) ○People don't know about your type of product, business, or service customers that make them strong candidate to buy - Compensation/Solution product ○Present compelling reason to buy ○Devoted distribution channel ○In places where customers go ○Part of network organization serving same customer group Ease of Finding Easy - Importance ○Either easily locate customers/be easy for them to locate you ○May need to spend and spend to find them--> cost prohibit success ○Who are they and how to find them - When It's Key Concern (can't depend on finding customers easily) ○Customers belong to clubs or associations related to your product Trade or consumer magazines targeted at your customer group Week 2.1 Page 1 ○Trade or consumer magazines targeted at your customer group ○Customers can be identified through purchased lists ○Big events or trade show target your customer group ○Distribution market serves your market ○Customers know where to look for you -Compensation/Solution ○Consolidate several products or services into high-dollar purchase (spend lots to locate few customers) ○Find potential customers through current customers (dominal effect- one leads to another) ○Create joint marketing campaign with other companies serving same group who need to find customers ○Offer classes/seminars/attend trade shows to attract Spending Patterns Prolific -Importance ○Customers who spend freely typically require less sales effort and customer service than customers who watch their money closely ○Those who spend freely make bigger purchases--> more sale with less effort -When It's Key ○Sale is based on practical considerations rather than emotional response ○Product is not priority purchase for customer ○Don't have resources to provide intensive sales effort ○Product needs to be purchased only once -Compensation/Solution ○Find way to translate sale into emotional purchase ○Sell complete solution ○Set sales policies to make buying decision easy ○Concentrate your efforts on big potential accounts ○Add product/service that potential customer look for High Customer Value to $ Value of Sale -Importance Company ○High dollar sale automatically creates high-value customer -Closing rate - state percentage of prospects who give you ○Company can afford to devote resources to customer, knowing sale result profit -When It's Key order ○Sales support required ○Products are customized for each customer ○Sales cycle is long ○Many competitors ○Few opportunities for follow-up sales -Compensation/Solution ○Sell turnkey solution- product integrated into system requires great sales effort, b/c customer has lot to worry about: he/she is responsible for making sure system works--> worry free customers ○Get customers to come to you (demonstrations, training, events, tours, etc) ○Create independent sales network ○Add product lines Repeat Sales Many -Importance ○Where companies find really big profits ○Sales costs low, product support costs low, standard product which manufacturing costs are low -When It's Key ○Dollar value of each sale is small ○Customer services high ○Purchase is low priority decision for customers ○Small sales staff -Compensation/Solution ○Create more important purchase decision ○Find complementary ways to add value ○Create low cost sales plan ○Expand target market to larger area ○Focus on big buyers Ongoing Sales Support Low -Importance ○Don't need to offer much ongoing product support = keep most/all profit from each sale ○Customers represent high value to company when they require little/no support, even if profit margin per sale is low ○Profitable customer can be profit drain if support costs are high -When It's a Key Week 2.1 Page 2 -When It's a Key ○Customers are buying expected result instead of defined product or service ○Customer satisfaction depends on application ○Product is new and users aren't familiar with its operation ○Products are customized to customer's application ○Products interface with number of other products -Compensation/Solution ○Design products so that use is intuitive and idiot proof ○Mange customers' expectations ○Choose customers carefully ○Offer training programs at your location ○Sell through network that can provide service Desired Easy Sale Value to Customer How Important Importan -Importance t ○Customers determine value by their standards -When It's a Key Concern ○When product is sold through distribution network ○Practicality is more influential on customer's buying decision than fun or emotion ○Customers aren't confident of purchasing process ○Purchases can easily be delayed or postponed ○Limited number of contacts with any one customer -Compensation/Solution ○Add emotional context to purchase decision ○Create strong promotional programs to encourage immediate buying ○Use testimonials from industry experts or affiliations with other people ○Trusted by customers ○Target segment of your customer group where your product or service is most important Competitive Advantage High -Importance (competitive advantage in) ○Better support of customers' self image ○Best performance ○More complete solution ○Top perceived value ○First with newest tech ○Most visual appeal ○Highest quality product
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