BU121 Study Guide - Midterm Guide: Value Proposition, Yield Management, Subscription Box

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8 Dec 2016
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BU121 Midterm Review
SWOT- strengths and weaknesses in the internal environment relate to the opportunities and
threats in the external environment.
Business Models
How do we make money from our idea?
A business model is how an organization creates, delivers, and captures value.
All have different value propositions
How you intend to make money, the logic by it which it sustains itself financially.
For example, if we look at mens razors, electric shavers are one time sales where
gillette razors sell the razor and make the money off the blades. Essentially both
of these businesses provide the same thing, electric makes their money upfront.
Another example is water filtration system (monthly fee, one time fee, event fees).
They sell to either restaurants, event holders, or individual.
Another example is subscription based magazines vs. advertising based magazines
(vogue). Focus on selecting content readers willing to pay vs. selling the magazine
with ads that cater to the buyers.
At a movie theatre, two obvious revenue models are concession and tickets.
Movie theatres make a lot of money through concession, because movie prices
JUST cover their costs, they drive profit from the snacks and combos etc. Thus,
the staffing is critical because they must up sell (combos), and banker style selling
(dont wait in individual lines go to whoever is open)
What is the Business Model?
Product or service model
Merchant (sell your own) or agency model (sell someone else's) (consumer direct, retail,
pop up, party plan)
Producer/ subcontract (produce your own product) or licensor model (sells rights to
production) (Rubiks cube licensed with game company)
Independent owner or franchising/licensing model
Franchiser buys the right to sell a companys product and the independent owner
sells themselves
eg. Ford franchised and set up dealerships to sell the cars for the one person
Dealerships are often independently owned
Traditional (mainstream) or game-changer model (something revolutionary and new)
Piggly Wiggly allowed people to take products off the shelves at grocery stores.
Revenue model
how the business is making money
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how is it sustainable
eg. Apple selling iPhones in stores, subscriptions vs. one time purchase
Business Model Patterns
Multisided platform: Value is created by facilitating interactions between two or more
distinct but interdependent group of customers
Value is created by one group only if the other group of customers are also present
Common pattern of businesses
How you handle more than one group of customers but they are all linked somehow
eg. Ebay - people are buying, people are selling
Newspaper brings advertiser together with reader.
network affect- more people, more appealing it is
eg. Game consoles, Facebook, Google
Often solved by one segment subsidizing another (make it cheaper for them;
PlayStation was hugely subsidized, should've cost a lot more.)
eg. Google (multi-sided)
targeted ad
web surfers (will there be enough surfers that people will see the ads and they
can make money)
The long tail: Selling less of more (large number of products to relatively small groups
or less frequently purchased items)- focusing on offering a large number of niche
products, each of which sells relatively infrequently vs. focusing on selling a small
number of products, each selling in high volume
Eg. netflix; a lot of movies to people that may not enjoy them vs. box office hits.
Penguin Random House Canada is a publishing company, and so is lulu.com but on
lulu.com publishers can publish their own books.
Traditional book companies have to acquire content that will be a hit. Thus, key to
their success is sales on large quantities.
lulu.com flipped this, and went after authors that do not sell to a broad audience,
offering alternative books to alternative people. The niche author and niche
audiences are the customer segments, although they do not make a lot from each,
there are a lot of authors and each gets a bit.
The platform is a the most important; development of their business through the
website (therefore main focus of cost structure)
Long tale model is usually digital; print on demand so they are not losing money
hoping they sell books (traditional model)
In this concept, the author is the one that provides the niche content is the tool to
success.
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Free model: At least one customer segment continuously benefit from a free-of-charge
offer, financed by another part of the business model or by another customer segment
Different patterns make the free offer possible
Advertising
Eg. google (multisided and free, but subsidizing is through advertising
Freemium
Get free for a little bit with free offer and then they will pay after (trial). Offer
them basic for free but then offer an elevated offer.
Conscious choice
eg. Flickr and Skype (Skype offers free internet and video calling, but offer
a paying upgrade (elevated level of service))
Bait and Hook
Get the free phone, and keep a continuous revenue stream. Have to buy in
order to use the phone (monthly plans).
Gillette (razor and blades model) - Offer a razor handle to a mass market
(those who shave). Handle is the bait (very inexpensive).Then you buy the
blades, that have a very high margin.
Customer relationships depend on a built in lock in (phone contracts, custom
blades)
o eg. Gillette used patent blocking that allows customers to only use their
blades.
There are many business models that are game-changers as well:
Freemium
Membership models- subscription box, member community, flash sales.
Crowd sourcing models- crowdfunding (kickstarter), peer-to-peer sharing
(homework sites), airbnb (need housing and people post their houses for
people to stay in)
Building the Business Model
1. Understand the context: the environment is the place in which the idea resides. We must
look at design space
2. Build on customer insights: Ask them because this should drive your building blocks;
how do the customers prefer to be reached, what do they want to pay, etc. You should
not assume anything!
3. Brainstorm: Ask what if questions. Eg. Mercedes/Car2Go. Ikea, thus, stretch your
mind, other angles can work; defer judgement.
4. Think and Create visually; words/ post its: use thick pends, write one element in each
bullet, write only a few sentences to capture the point, drawings.
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Document Summary

Swot- strengths and weaknesses in the internal environment relate to the opportunities and threats in the external environment. For example, if we look at men"s razors, electric shavers are one time sales where gillette razors sell the razor and make the money off the blades. Essentially both of these businesses provide the same thing, electric makes their money upfront. Another example is water filtration system (monthly fee, one time fee, event fees). Another example is subscription based magazines vs. advertising based magazines. They sell to either restaurants, event holders, or individual. (vogue). Focus on selecting content readers willing to pay vs. selling the magazine with ads that cater to the buyers. At a movie theatre, two obvious revenue models are concession and tickets. Movie theatres make a lot of money through concession, because movie prices. Just cover their costs, they drive profit from the snacks and combos etc.

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