FEASIBILITY ANALYSIS Business Models & Valueproposition ? by Bruno M. WATTENBERGH 1 Bruno M. WATTENBERGH
Value Proposition ? How to position our offer in a more an more complex market, where TOO MUCH and ME TOO are the basic rules ? Market Clutter … too many products, too many services … Functionalities clutter : too many functionalities … too many possibilities … (Swiss knife syndrom) Marketing and advertisement clutter : too many medias, too many vectors, too many messages, … Message clutter : too many messages, too many concepts, too many elements in the messages … Media clutter : too many medias in competition Thinking to avoid to contribute to the clutter … if possible … ! 2
Value Proposition ? It is crucial to determine with high precision : The value proposition you consider to offer The advantages / benefit you consider to offer … You have to quantify this benefit … Software example … 3
4 Building the competitive advantage ? VISION Declaration of intent on the long term destiny of the firm MISSION STATEMENT Description of the strategic actions to realize the vision VALUE PROPOSAL ? Value proposition
Value Proposition 5 USP Facing fragmented and cluttered market … Facing clients well informed, less loyal, willing to buy not a product, but a “thing” with an “experience” enabling them to feel belonging to communities they identify themselves …
Value Proposition The value proposition : One of the most abstracted concept in marketing & strategy It is the value, the importance, the utility for the client. In commercial words : it is the financial valorization of the social or economical benefit for which a consumer will pay for a product or a service. It can be or should be or must be quantifiable !!!!!!!!! Is the value in your project really different than the one from competitors ? + dynamic analysis : where will be the value tomorrow ? 6
Value Proposition A value proposition is generally a clear and succinct statement (e.g., 2-4 sentences) that outlines to potential clients and stakeholders a company's (or individual's or group's) unique value-creating features. A value proposition is a clear statement of the tangible results a customer gets from using your products or services. A value proposition is an offer to some entity or target in which they (the possessor) get more than they give up (merit or utility), as perceived by them. A value proposition is the basic reasoning for why people should consider your product or service. Describes what you do in terms of tangible business results. It draws interest and shares a success story within a few words. John CUSIMANO - Siemens 7
Value Proposition A value proposition is generally a clear and succinct statement (e.g., 2-4 sentences) that outlines to potential clients and stakeholders a company's (or individual's or group's) unique value-creating features. A value proposition is a clear statement of the tangible results a customer gets from using your products or services. A value proposition is an offer to some entity or target in which they (the possessor) get more than they give up (merit or utility), as perceived by them. A value proposition is the basic reasoning for why people should consider your product or service. Describes what you do in terms of tangible business results. It draws interest and shares a success story within a few words. John CUSIMANO - Siemens 8
Value Proposition The challenge … “differentiation” … Each enterprise … own DNA, identity … bases to build value proposition for their existing or new clients. Difficult challenge for starting businesses ! Value proposition must be C4 : Consistent (in the time) Concise (granny testable) Clear (granny testable) Credible (for the client / for the company) 9
Value Proposition 10 Examples of value proposals : FedEx: When it absolutely, positively has to get there overnight IBM: Global solutions for a small planet Intel: Intel inside Lexus:Passionate pursuit of perfection Motorola University: Right knowledge, right now Visa: It is everywhere you want to be
Value Proposition Porter generic strategies and value proposition ? Companies excel by practicing 1 of 3 strategies: Product leadership - innovation and the best quality goods and services are offered by J & J, Nike and Nokia Operational excellence – low cost and process efficiency are delivered by Dell, Southwest Airlines and Target Stores Customer intimacy - The best total solution (service/relationship building) is provided by Airborne Express, Frito-Lay and Nordstrom SBPA 2009 - Bruno Wattenbergh - www.bwatt.be
Value Proposition ? Test your value proposition : Does it take the customer’s perspective? Is it easy to understand? Does it encapsulate the value you offer to: your people, the sales channel, the press, and your customers? Is it strategically compatible with your business? Is it acceptable given your organizational culture? Is it honest? Is it promotable? 13
14 Value Proposition 5 key values to play with : PRODUCT … PRICE … ACCESS … SERVICE … EXPERIENCE …
15 Value Proposition DOMINANT – DIFFERENTIATION – NORM A first value is usually used to dominate the value proposal offered to the client. A second value should be used to differentiate the the value proposal. The other values must at least match the standards of the industry. Ultimate goal ? To be able to draft a … « unique selling proposal »
Value Proposition 16 High Best value Expensive value Benefits ? Fair value Poor value Discount value Low Low High Cost
17 Building the competitive advantage VISION The Intention of the company (mid/long term) MISSION STATEMENT The paths to achieve the vision VALUE PROPOSITION The social and/or economic benefit offered to the clients BUSINESS MODEL ?
Business models ? One of the most interesting and difficult part of the course … A second very abstracted and difficult to understand concept … An interesting path to be differentiated … A path to generate alternatives … Attitudes, patterns, … to copy or to avoid … 18
Business models Business = notions of : Competences, technology, global activity, industry, value chain, value proposition, clients, distribution, … (NOT ONLY COMMERCIALIZATION) Model ? = notion of modelization A business model is a framework for creating economic, social, and/or other forms of value. The term business model is thus used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. 19
Business models Infrastructure Core capabilities : The capabilities and competencies to execute a company's business model. Partner network : The business alliances which complement other aspects of the business model. Value configuration : value composition for mutual benefit to clients and company Offering The Value proposition : The products and services a business offers. A value proposition "is an overall view of .. products and services that together represent value for a specific customer segment. It describes the way a firm differentiates itself from its competitors and is the reason why customers buy from a certain firm and not from another." Customers Target customer: The target audience for a business' products and services. Distribution channel: The means by which a company delivers products and services to customers. Customer relationship: The links a company establishes between itself and its different customer segments. Finances Cost structure: The monetary consequences of the means employed in the business model. Revenue: The way a company makes money through a variety of revenue flows. A company's income. Bruno M. WATTENBERGH
Business Models 21 Has always been existing … Concepts has appeared in the ’50 … Booming concept in the ‘90 – Web … Web businesses have used first existing business models … Before only a few business models … Times have changed … Not a necessity … a constraint … !
Business models ? 22 Complex situation today Amount of actors (internal / external)
Business model The central element of the BM is the generation of revenues or more simply the creation of value. It is so interesting to use the concepts of the value proposition and the value chain. If the notion of value creation is simple and if it is easy to understand its evolution through the ages (among other due to the technology and innovation) the manners enterprises are able to deliver the value to the clients have also considerably increased. This among other through the Internet and the partnership with other entreprises. 23 Finally, the capture of the value, or the way the enterprise will pull out some profit ou of the business. Examples : Google, Ebay, Skype, Facebook In most of the industry, there are tenths of existing manners to build up business models.
Implicit or explicit Business models ? All the business creations have followed implicit business models … Some of them have developed explicit business models leading to successful industries … the others have been facing problems … Ever since the world has changed dramatically … relations between producers, transformers, resellers are not linear anymore … Product and services are not unique anymore …sectors are not closed anymore … clients are less loyal … … The amount of parameters to handle has became so high that it is not possible anymore to count on a implicit business model ! 24
Business model Panorama of some business models : BM of public tender BM of distribution or non-direct sales (gross sales, resellers, franchise, …) BM final resellers (concentration of products of several manufacturers or gross resellers) BM of direct sales : Reselling to anonymous private people Reselling to identified private people (mail-order e.a) BM of taylored made products or services following the specific demands of clients 25
Business models 26 Panorama of business models : BM of outsourcing / Off-shorisation BM of externalization (hosting, outsourcing) BM of exploitation of IPR BM of mandates(real estate, invoice, IP, …) BM de self-service, vending machines BM of attraction by the prices and discounts : Business model by teasers Business model of fidelization – loyalty model (Frequent flyer) Business model of co-branding – points on credit card Business model low cost / hard discount
Business models 27 Panorama of business model : BM of home resellers Door to door Pyramid resellers BM of renting BM pay … to the demand ? Pay as you consume ? Pay as you need ? Pay as you request ? Pay as you drive … enabling clients not having a permanent need to access to a product or service with a price under the standard level.
Votre Business model ? You have to know / understand your business model : To understand its dynamics To understand and know its needs -> allocating resources To be able to adapt it to the evolution of economic cycles To analyse and understand the business models of the competitors 28
Business model WEB 1.0 ? 29 1997 2009 : 4 great steps / business models Free time : free information tool attempt to monetize of financial disasters Discount time : Evangelization of the E-Commerce by the discount E-Commerce time : conquest of market shares anywhere, everywhere … all segments … 2.0 : attracting a maximum of traffic to valorize the space (advertisement) or the strategic information collected
Business model of Meetic … 2.0 ou 1.0 ? 30 The 6 key-factors of the positionning of Meetic : L’UGC (User Generated Content) Le Pay per use The self-control Easy local adaptation To let grow the audience. A unique umbrella brand all over Web 2.0 ou 1.0 ?????
Business modèle 2.0 ? 2.0 web sites always offer free access to their services. Their economy lies on their capacity to valorize activities and exchanges on their website to generate income around a free service. Several monetization possible … 31
Business models 2.0 32 Mainly two Web 2.0 business models today : BM based on technology : Base = innovation. Unique VP, very useful services, directly usable, upgrades to be paid : premium or pro upgrades. E.a : Flickr’s. BM based on network effect Primarily based on user base and user interaction. Technology is key for this model but it is not the focus. Technology is important as an infrastructure tool, facilitating the business models of these companies. Metcalfe's law comes into play - the total value of the service is roughly proportional to the square of the number of customers' utilizing the service.
Business model 2.0 ? 4 distinct modalities of monetization of the amount of users and their activities. Largest is the advertisement … but with some specificities depending on the BM. 33
Business model 2.0 The 4 types of monetization of the web 2.0 : Advertisement // to classic medias Le Freemium (contraction of free & premium) Linkedine.a. Marketplace like Ebaye.a Free participation of donation like Wikipédia or Worldpress Less financial pressure to monetize if integration in larger groups : YouTube with Google, Delicious with Yahoo, LastFm with CBS 34
Business models 2.0 4 models of intermediation for the advertisement in the Web 2.0 : The M1 “Classical model “M1 of bannering & profiling by user (special pages) : MySpace e.a. The M2 “Matching model” or automated intermediation with pay per click : e.a Google The M3 warm intermediation, quality self produced content valorized by specific media regie like W2Media, Adrider Social Media marketing (second life), insertion of brands in natural ecosystems (Facebook, Myspace) 35
BM of Microsoft vs BM of Apple ? 36 Microsoft is designing software compatibles on most of the machines sold today. When talking about Windows, Office or even Windows Mobile, all this applications have on thing in common : they are conceived to work on as many platform as possible. Microsoft is making a large part of its turnover in a B2B BM; It is a key market for Microsoft to cover its developing (R&D) costs : several billions for Windows Vista.
BM de Microsoft vs BM Apple ? “An important element of our business model has been to create plateform-based ecosystems on which many participants can build diverse solutions. A competing vertically-integrated model, in which a single firm controls both the software and the hardware elements of a product, has been successful with certain consumer products, mobile phones and digital music players. We also offer vertically-integrated hardware and software products ; however, efforts to compete with the vertically integrated model may increase our cost of sales and reduce operating margins.” 37
BM de Microsoft vs BM Apple ? 38 The market has evolved in a different direction than the one followed by Microsoft (based on the splitting of software and hardware). Several companies have a different vision than Microsoft : vertical integration : software + hardware : Apple is designing the Mac, the operating system (Léopard) but also several applications software (office, music, video, mails, etc.). Let’s don’t talk about Google offering free software which contribute to its value proposal and boost their audience … sticky strategy … enabling Google to offer a free kind of iPhone. Steve Ballmer has announce that Microsoft was planning to reconsider its way to design its products and that it wish to propose like Apple products without concession.