Chapter 4 Business Models McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc.  All rights reserved.
Components  of a Business Model Value Cluster Online Offering Resource System Financial/Revenue Model
In Your Project Value Propositions and Value Clusters Should Include: <ul><li>Value Proposition- requires management to sp...
Value Propositions and Value Clusters <ul><li>Choice of Segments </li></ul><ul><ul><li>Market size and growth rates </li><...
<ul><li>Value Cluster </li></ul><ul><ul><li>Target segments (savvy investors, “seekers”, “dabblers”) </li></ul></ul><ul><u...
The Online Offering <ul><li>Scope of the Offering  (number of categories of products and services that a firm offers.) </l...
Customer Decision  Process — Flower Example Disposal Loyalty Satisfaction Purchase Decision Evaluation of Alternatives Inf...
Egg Diagram for 1-800-Flowers.com Flower / Gift Decision Process <ul><li>Need Recognition </li></ul><ul><li>Search for Ide...
MarketWatch.com Egg Diagram <ul><li>Learn </li></ul><ul><li>Getting Started </li></ul><ul><li>Investor’s Primer </li></ul>...
<ul><li>Modifications to the activity system logic for the online marketplace </li></ul><ul><ul><li>Shift from physical wo...
<ul><li>Step 1: Identify core benefits in the value cluster </li></ul><ul><li>Step 2: Identify resources that relate to ea...
1-800-Flowers.com Resource System Online Gift Center Integrated Partner Offers Broad Assortment of Gifts Customer Service ...
<ul><li>Resource System </li></ul><ul><ul><li>CBS News </li></ul></ul><ul><ul><li>Financial Times </li></ul></ul><ul><ul><...
MarketWatch.com Resource System =Core Benefits =Resources Credible Analysis and Personal Finance Tools Up-to-the-Minute In...
Revenue Models <ul><li>Advertising -   Earning revenue through the selling of ads (banner or interstitial), site sponsorsh...
Online Business Models <ul><li>Metamarket Switchboard Model </li></ul><ul><li>Traditional and Reverse Auction Models </li>...
Online Business Models
<ul><li>Revenue model </li></ul><ul><ul><li>Advertising revenue (37% in 2001) </li></ul></ul><ul><ul><li>Licensing revenue...
Discussion & Application
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Business Model

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Business Model

  1. 1. Chapter 4 Business Models McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Components of a Business Model Value Cluster Online Offering Resource System Financial/Revenue Model
  3. 3. In Your Project Value Propositions and Value Clusters Should Include: <ul><li>Value Proposition- requires management to specify three things: </li></ul><ul><ul><li>Target segment </li></ul></ul><ul><ul><li>Focal customer benefits </li></ul></ul><ul><ul><li>Key resource that give market advantage over competitors </li></ul></ul><ul><li>Value Cluster- value proposition consisting of a cluster of composed of three parts: </li></ul><ul><ul><li>Choice of target customer segments </li></ul></ul><ul><ul><li>Particular focal combination of customer-driven benefits </li></ul></ul><ul><ul><li>Rationale for why this firm and its partners can deliver the value cluster in a significantly better way than competitors </li></ul></ul><ul><li>This means the firm can serve multiple groups of customers with different value propositions. </li></ul>
  4. 4. Value Propositions and Value Clusters <ul><li>Choice of Segments </li></ul><ul><ul><li>Market size and growth rates </li></ul></ul><ul><ul><li>Unmet or insufficiently met customer needs </li></ul></ul><ul><ul><li>Weak or nonexistent competitors </li></ul></ul><ul><ul><li>It is critical to select a segmentation approach that maximizes both actionability and meaningfulness. </li></ul></ul><ul><li>Choice of Focal Customer Benefits </li></ul><ul><ul><li>Single-benefit approach </li></ul></ul><ul><ul><li>Multiple-benefit approach </li></ul></ul><ul><ul><li>What is important is not how many core customer benefits a company offers to its target segment, but whether the benefits work together to fill a customer need. </li></ul></ul><ul><li>Choice of Unique and Differentiating Capabilities </li></ul><ul><ul><li>Tangible assets </li></ul></ul><ul><ul><li>Intangible assets </li></ul></ul><ul><ul><li>Capabilities of the organization </li></ul></ul><ul><ul><li>Firms can have superior resources, but if these resources are unrelated to the delivery of the critical benefit, they are useless. </li></ul></ul>
  5. 5. <ul><li>Value Cluster </li></ul><ul><ul><li>Target segments (savvy investors, “seekers”, “dabblers”) </li></ul></ul><ul><ul><li>Key benefits (up-to-the-minute information; original, in-depth analysis; personal-finance tools; multiple points of access) </li></ul></ul><ul><ul><li>Supportive rationale (experienced editorial staff with financial expertise, infrastructure allowing access from multiple forms of media, credibility through its association with CBS News and Financial Times brand names) </li></ul></ul>Marketwatch.com Business Model
  6. 6. The Online Offering <ul><li>Scope of the Offering (number of categories of products and services that a firm offers.) </li></ul><ul><ul><li>Category-Specific Dominance: Companies that focus exclusively on one product category (termed “category killer”), such as SecondSpin.com. </li></ul></ul><ul><ul><li>Cross-Category Dominance: The extension of product offerings from a single category to additional product categories (termed “metamarket”), such as Amazon.com & BabyCenter.com. </li></ul></ul><ul><ul><li>Their boundaries are derived from activities that are closely related in the minds of consumers, and not from the fact that they are created or marketed by related firms in related industries. </li></ul></ul>
  7. 7. Customer Decision Process — Flower Example Disposal Loyalty Satisfaction Purchase Decision Evaluation of Alternatives Information Search Problem Recognition PREPURCHASE PURCHASE POSTPURCHASE
  8. 8. Egg Diagram for 1-800-Flowers.com Flower / Gift Decision Process <ul><li>Need Recognition </li></ul><ul><li>Search for Ideas and Offerings </li></ul><ul><li>Purchase Decision </li></ul><ul><li>Message Selection </li></ul><ul><li>Post-Sales Support and Perks </li></ul><ul><li>Education on Flowers and Decoration </li></ul><ul><li>Gift reminder service </li></ul><ul><li>Holiday specials </li></ul><ul><li>Everyday celebration suggestions </li></ul><ul><li>Special occasion suggestions </li></ul><ul><li>Birthday Gift Central </li></ul><ul><li>Gift by occasion </li></ul><ul><li>Gift by price </li></ul><ul><li>Monthly gift clubs </li></ul><ul><li>Corporate gift services </li></ul>Ideas and Information Post-Sales Support <ul><li>Product price </li></ul><ul><li>Product picture </li></ul><ul><li>Product description </li></ul><ul><li>Delivery information </li></ul><ul><li>Delivery availability </li></ul><ul><li>Physical cards in gifts </li></ul><ul><li>E-mail a bouquet </li></ul><ul><li>Order receipt e-mail </li></ul><ul><li>Q&A chat </li></ul><ul><li>FAQ </li></ul><ul><li>Customer service inquiry form </li></ul>Perks <ul><li>Miles earned with flower purchases </li></ul><ul><li>Free gifts </li></ul><ul><li>Discounts at AOL & BN.com with flower purchases </li></ul><ul><li>Member specials </li></ul><ul><li>“ Care and handling” </li></ul><ul><li>“ Do it yourself” </li></ul><ul><li>Special events and educational workshops held at stores </li></ul><ul><li>Floral ideas </li></ul><ul><li>Garden ideas </li></ul><ul><li>Home ideas </li></ul><ul><li>Gift ideas </li></ul><ul><li>Gourmet ideas </li></ul><ul><li>Store locator </li></ul><ul><li>Recommendations by budget </li></ul><ul><li>Bestsellers </li></ul><ul><li>Evaluation of Alternatives </li></ul>Gift Recommendations <ul><li>Shopping basket </li></ul><ul><li>E-commerce transaction </li></ul><ul><li>Special shopping features </li></ul><ul><ul><li>Delivery outside U.S. </li></ul></ul><ul><ul><li>1-800-lasfloras.com </li></ul></ul>Product Offering Source: Adapted from Mohanbir Sawhney, “Making New Markets,” Business 2.0 (May 1999): 116–21.
  9. 9. MarketWatch.com Egg Diagram <ul><li>Learn </li></ul><ul><li>Getting Started </li></ul><ul><li>Investor’s Primer </li></ul><ul><li>IPO Basics </li></ul><ul><li>Financial Term Glossary </li></ul><ul><li>Invest </li></ul><ul><li>Sponsorships by Online Brokerages </li></ul><ul><li>Datek Online </li></ul><ul><li>Fidelity Investments </li></ul><ul><li>National Discount Brokers </li></ul><ul><li>Ameritrade </li></ul><ul><li>Cybertrader </li></ul><ul><li>Scottrade </li></ul><ul><li>Broker Decision Center </li></ul><ul><li>Planning Tools </li></ul><ul><li>Sharebuilder </li></ul><ul><li>Payment Calculator </li></ul><ul><li>Home Price Check </li></ul><ul><li>Best Credit Card Rates </li></ul><ul><li>Insurance QuickQuote </li></ul><ul><li>Third-Party Sources </li></ul><ul><li>Market Guide </li></ul><ul><li>Hoover’s Online </li></ul><ul><li>Multex </li></ul><ul><li>Annual Reports Club </li></ul><ul><li>INVESTools </li></ul><ul><li>Over 250,000 Investment Research Reports </li></ul><ul><li>Community </li></ul><ul><li>Private e-mail </li></ul><ul><li>People Watch </li></ul><ul><li>Hot Discussions </li></ul><ul><li>Occasional Polls </li></ul><ul><li>US Markets </li></ul><ul><li>Market Monitor </li></ul><ul><li>Major Indexes </li></ul><ul><li>Dollar Volume Leaders </li></ul><ul><li>Commentary </li></ul><ul><li>Thom Calandra’s Stockwatch </li></ul><ul><li>Bambi Francisco’s Net Sense </li></ul><ul><li>Bezderick on Bonds </li></ul><ul><li>(Many other commentary columns) </li></ul><ul><li>eNewsletters </li></ul><ul><li>Online </li></ul><ul><li>News Watch </li></ul><ul><li>E-mail Alerts </li></ul><ul><li>Real-time Headlines </li></ul><ul><li>Hotstock Tracker </li></ul><ul><li>Marketwatch Live </li></ul><ul><li>eSignal </li></ul><ul><li>Radio </li></ul><ul><li>Contribution to Westwood One </li></ul><ul><li>Global Markets </li></ul><ul><li>Key Rate Snapshot </li></ul><ul><li>International Indexes </li></ul><ul><li>Non-Us Stocks </li></ul><ul><li>Track Investments </li></ul><ul><li>Portfolio View </li></ul><ul><li>Portfolio Analyzer </li></ul><ul><li>Portfolio Allocation </li></ul><ul><li>Portfolio Tracker </li></ul>Breaking News Market Figures <ul><li>Television </li></ul><ul><li>CBS MarketWatch Weekend </li></ul><ul><li>Contributions To: </li></ul><ul><ul><li>CBS Early Show </li></ul></ul><ul><ul><li>CBS Evening News </li></ul></ul><ul><ul><li>CBS NewsPath </li></ul></ul>Develop Insight <ul><li>Futures and Options </li></ul><ul><li>Futures Contracts </li></ul><ul><li>After-Hours Futures </li></ul><ul><li>Bonds </li></ul><ul><li>Bellwether Bonds Report </li></ul><ul><li>Funds </li></ul><ul><li>Fund Profile </li></ul><ul><li>Fund Charts </li></ul><ul><li>Stocks </li></ul><ul><li>Interactive Charting </li></ul><ul><li>Historical Charts </li></ul>Personal Finance Process Learn About Personal Finance Plan Investment Strategy Stay Updated on the Latest News and Figures Develop Insight Invest Track Investments
  10. 10. <ul><li>Modifications to the activity system logic for the online marketplace </li></ul><ul><ul><li>Shift from physical world to virtual and back to physical world </li></ul></ul><ul><ul><li>Shift from a supply-side focus to a demand-side focus, it is more appropriate to initially focus on the benefits desired by target customers. </li></ul></ul><ul><ul><li>Shift from resources to benefits </li></ul></ul><ul><ul><li>Shift from single to multifirm systems, resources might be acquired in the open market (outsourcing). </li></ul></ul>What Is a Successful Resource System?
  11. 11. <ul><li>Step 1: Identify core benefits in the value cluster </li></ul><ul><li>Step 2: Identify resources that relate to each benefit </li></ul><ul><li>Step 3: Identify to what degree the firm can deliver each benefit </li></ul><ul><li>Step 4: Identify partners who can complete resources </li></ul>Specifying a Resource System
  12. 12. 1-800-Flowers.com Resource System Online Gift Center Integrated Partner Offers Broad Assortment of Gifts Customer Service Wide Reach to Customers Widespread Easy Access Multiple Contact Points Popular Website High Quality of Flowers Technology Strong Brand Name Strong Distribution Network =Resources = Core Benefits Core Benefits
  13. 13. <ul><li>Resource System </li></ul><ul><ul><li>CBS News </li></ul></ul><ul><ul><li>Financial Times </li></ul></ul><ul><ul><li>Marketwatch.com </li></ul></ul><ul><ul><li>BigCharts.com </li></ul></ul><ul><ul><li>Content partners (Hoovers, Zacks, INVESTools, etc.) </li></ul></ul><ul><ul><li>Distribution partners (Yahoo, AOL, Quicken, etc.) </li></ul></ul>Marketwatch.com Business Model
  14. 14. MarketWatch.com Resource System =Core Benefits =Resources Credible Analysis and Personal Finance Tools Up-to-the-Minute Information Multiple Points of Access Distribution Partnerships Association with CBS Experienced Editorial Staff Partnerships with Content Providers Available Infrastructure International Presence CORE BENEFITS
  15. 15. Revenue Models <ul><li>Advertising - Earning revenue through the selling of ads (banner or interstitial), site sponsorships, event underwriting, or other forms of communication </li></ul><ul><li>Product, Service, or Information Sales- Income generated from the sale of goods on the site </li></ul><ul><li>Transaction- Revenue accrued from charging a fee or taking a portion of the transaction sum </li></ul><ul><li>Subscription- Revenue generated through subscriber fees for magazines, newspapers, or other information/service businesses </li></ul><ul><li>License Fees- Revenue generated from licensing of content </li></ul>
  16. 16. Online Business Models <ul><li>Metamarket Switchboard Model </li></ul><ul><li>Traditional and Reverse Auction Models </li></ul><ul><li>Freshest-Information Model </li></ul><ul><li>Highest-Quality Model </li></ul><ul><li>Widest-Assortment Model </li></ul><ul><li>Lowest-Price Model </li></ul><ul><li>Most-Personalized Model </li></ul>
  17. 17. Online Business Models
  18. 18. <ul><li>Revenue model </li></ul><ul><ul><li>Advertising revenue (37% in 2001) </li></ul></ul><ul><ul><li>Licensing revenue (52% in 2001) </li></ul></ul><ul><ul><li>Other revenue, subscription, etc. (6% in 2001) </li></ul></ul><ul><li>Value model (best information) </li></ul><ul><li>Growth model </li></ul><ul><ul><li>Advanced portfolio-tracking tools </li></ul></ul><ul><ul><li>International markets </li></ul></ul><ul><ul><li>Services to address expanded trading hours </li></ul></ul><ul><ul><li>Expand reach to wireless devices </li></ul></ul><ul><ul><li>Expand TV and radio shows to more stations </li></ul></ul>Marketwatch.com Business Model
  19. 19. Discussion & Application

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