HOW DO BUSINESSES                            MAKE MONEY?                            24 types of business models and 7 ways...
PART 1: BUSINESS                    PART 2: BUSINESS MODELSDIFFERENTIATIONBusinesses need to differentiate    Businesses m...
-----------------------------------------                                       ----------------------------------        ...
HOW THE WORLD LEADERS WORK7 Ways to Differentiate from your Competitors   4
DIFFRENTIATION 1: QUALITYCompanies like Apple, Tiffany, Prada, and Steinway Pianosdifferentiate themselves in producing th...
DIFFRENTIATION 2: DELIVERYIn many industries, timely delivery of products and services isthe key differentiator. Fedex and...
DIFFERENTIATION 3: SERVICEHow often have you felt angry by the service delivered by acompany? Many companies treat their c...
DIFFERENTIATION 4: FLEXIBILITYFlexibility here refers to the product offerings and choices.Two of the best examples for th...
DIFFERENTIATION 5: SUSTAINABILITYThis is currently a new trend. Companies such as Whole Foodsand Tesla Motors are trying t...
DIFFERENTIATION 6: QUICKREACTION TO MARKETIn some industries, such as technology and fashion, companiescan differentiate b...
DIFFERENTIATION 7: COSTCost here doesn’t mean price. Thus, someone selling at thelowest price need not be the best example...
7 Ways to Differentiate                            Flexibility                                           Quality          ...
-----------------------------------------                                      ----------------------------------         ...
One of the oldest and direct business models.Here a business creates a plain-vanilla productor service of value and gets i...
Sell a wide range of goods                 targeted at the mass market.                 Pricing is one of the key issues i...
Gillette sells its sticks cheap, but chargesheavy on the blades. Printer companies sellthe printers at low-profits and sel...
Companies such as Forrester,Nielsen, Reuters, Bloomberg,financial research firms, and searchengines belong to the model.Th...
Think Ferrari, Gucci, Armani, and Rolex.To make a mark, the company has to beextremely careful about the brand and avoidth...
-------------------------------------------------------------------- Essential ingredients are trust and quality control.M...
In this model, the business connects buyers                  and sellers in usually an auction-like model                 ...
---------------------------------------------------- Companies such as Kickstarter, 99 designs, Yelp, Get Satisfaction, Qu...
Google Apps, Dropbox, Salesforce.com, and37 Signals are revolutionizing how productsare delivered to the customer.In the C...
Rent or lease your physical or virtual space.This includes real estate companies, hotels,and online directories/classified...
This is the most dominant model on theInternet and a variant of the Listing model.Most newspapers and Internet companiesma...
In a Franchise model, a company                   tries to replicate its business model                   by bringing in e...
------              Every business should identify how it differentiates from others              in the competition. With...
THANK YOU !FOR YOUR ATTENTIONFeel free to share the presentation with your friends.        ------                 www.zing...
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How businesses make money: Business Models and the Art of Differentiation

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How businesses make money: Business Models and the Art of Differentiation

  1. 1. HOW DO BUSINESSES MAKE MONEY? 24 types of business models and 7 ways in which businesses differentiate themselves Business Models Differentation ------------- STRATEGYA short course on Business Strategyand Business Models Balaji Viswanathan 1Brought to you by : www.zingfin.com
  2. 2. PART 1: BUSINESS PART 2: BUSINESS MODELSDIFFERENTIATIONBusinesses need to differentiate Businesses models describe howfrom their competitors to sustain an organization creates value,in their industry. how it is delivered, and how that value is captured.There are 7 different ways todifferentiate from your There are 24 main types ofcompetitors. business models that the majority of organizations in the world use.Course Organization 22
  3. 3. ----------------------------------------- ---------------------------------- --------------------------- SECTION I: HOW DO BUSINESSES DIFFERENTIATE ------------------------------------------------ 3 Unless you differentiate, you become a commodity. Once you become a commodity, your profits fall through the floor. Every business tries to avoid this condition. -------------------------------------------------
  4. 4. HOW THE WORLD LEADERS WORK7 Ways to Differentiate from your Competitors 4
  5. 5. DIFFRENTIATION 1: QUALITYCompanies like Apple, Tiffany, Prada, and Steinway Pianosdifferentiate themselves in producing the best quality productyou could buy. There is a segment of customers that arewilling to pay a premium for quality.To build a company on this differentiation, you shouldstructure your company processes around product innovationand testing. Quality control is paramount for those who wantto be differentiating based on this. 5
  6. 6. DIFFRENTIATION 2: DELIVERYIn many industries, timely delivery of products and services isthe key differentiator. Fedex and UPS (the world leaders inlogistics) are the obvious examples. Here you build yourstrengths on extreme engineering the whole chain.There is a lot of Operations Research involved in getting theservice delivered in the shortest time possible.Fast food chains such as McDonalds & Subway also belong tothis category of differentiation. 6
  7. 7. DIFFERENTIATION 3: SERVICEHow often have you felt angry by the service delivered by acompany? Many companies treat their customers poorly, andthis leaves the door open for new companies to enter.Zappos and Rackspace are great examples of companies thatbuild their offering around stellar customer service.To excel in this, you must develop a natural affection for yourcustomers and encourage your employees to go the extra mile. 7
  8. 8. DIFFERENTIATION 4: FLEXIBILITYFlexibility here refers to the product offerings and choices.Two of the best examples for this are: IKEA and Macy’s. Theidea is that they never turn away any customer and havesomething for everyone. They have 1000s of product types(called SKUs). This is also how many restaurants and fullservice airlines operate.Two of the disadvantages are that customers can get confusedby your offerings and your operations can get really complex.You need very good inventory management to use thisdifferentiation. 8
  9. 9. DIFFERENTIATION 5: SUSTAINABILITYThis is currently a new trend. Companies such as Whole Foodsand Tesla Motors are trying to differentiate based on thesustainable practices they use.You could highlight your energy generation practices, wasteprocessing, or other efficient usages that lead to a better world. 9
  10. 10. DIFFERENTIATION 6: QUICKREACTION TO MARKETIn some industries, such as technology and fashion, companiescan differentiate based on how quickly they react to recenttrends. One of the best examples of this is Zara. Zara is afashion seller who is extremely good at adapting the designs ofpopular fashion designers and quickly bringing them to themarket.To succeed using this differentiation, you need to keep aconstant ear on the market and build a very good productionpipeline to build new things quickly. 10
  11. 11. DIFFERENTIATION 7: COSTCost here doesn’t mean price. Thus, someone selling at thelowest price need not be the best example for this. To qualifyfor this, a company has to reduce its production costs to thelowest in their industry.The best examples for this category are Wal-Mart, SouthwestAirlines, and Amazon.com. They have worked on optimizingthe whole supply chain to reduce every penny of wastage.Succeeding in this differentiation requires the hardest skills inoperations. 11
  12. 12. 7 Ways to Differentiate Flexibility Quality TimeCustomer DeliveryService Cost SustainabilitySummary: How businesses 12differentiate
  13. 13. ----------------------------------------- ---------------------------------- --------------------------- SECTION II: TYPES OF MODERN BUSINESS MODELS ------------------------------------------------ 13 How do businesses create, deliver, and capture the value they provides to their customers. -------------------------------------------------
  14. 14. One of the oldest and direct business models.Here a business creates a plain-vanilla productor service of value and gets it to thecustomers through a distributor or throughdirect means (in the case of services). ---------------------------------------------------- Among the oldest models that is used by most businesses in the world. ---------------------------------------------------- Manufacturer Model 14
  15. 15. Sell a wide range of goods targeted at the mass market. Pricing is one of the key issues in this model. Whether online or brick & Amazon mortar, the key is to manage a very efficient supply chain, and have real estate (real or virtual) with a very high foot traffic.Merchant Model 15
  16. 16. Gillette sells its sticks cheap, but chargesheavy on the blades. Printer companies sellthe printers at low-profits and sell inkcartridges at a high premium.To pull this off, you must tie the value-addservices tightly with your core product. Ifcompetitors can produce blades for yourrazors, your model will fail. ---------------------------------------------------- Sell the core product cheap, but charge premium on supplies ---------------------------------------------------- Razor Blades/Cartridge Model 16
  17. 17. Companies such as Forrester,Nielsen, Reuters, Bloomberg,financial research firms, and searchengines belong to the model.Their strength lies in accumulatingvast amounts of data, presented inan easily accessible form. ---------------------------------------------------- Selling Market Research, Data and Analysis ---------------------------------------------------- Data & Analysis Model 17
  18. 18. Think Ferrari, Gucci, Armani, and Rolex.To make a mark, the company has to beextremely careful about the brand and avoidthe temptation to go to mass market.Some, like Apple, can attempt to be bothmass and premium, although pulling this offover the long term is difficult. ---------------------------------------------------- Selling Premium Goods to a Niche Audience Exclusion is the key, along with high product quality. ---------------------------------------------------- Premium business model 18
  19. 19. -------------------------------------------------------------------- Essential ingredients are trust and quality control.Market requires more tools to certify and verify an entity. VeriSign, ETS(makers of GRE), and hundreds more new companies are getting into it.Certification and Verification 19
  20. 20. In this model, the business connects buyers and sellers in usually an auction-like model and takes a commission on the sales. Stock The key is to have sizable scale of both suppliers and customers. Exchanges This is one of the hottest business models now, although it is also hard to survive due to winner-take-all dynamics.Broker & Marketplace Model 20
  21. 21. ---------------------------------------------------- Companies such as Kickstarter, 99 designs, Yelp, Get Satisfaction, Quora, and Wikipedia rely on the wisdom of the crowds to provide a service.----------------------------------------------------Crowd Sourcing Model 21
  22. 22. Google Apps, Dropbox, Salesforce.com, and37 Signals are revolutionizing how productsare delivered to the customer.In the Cloud Services model, the customersrequire very little capital expenditures &upfront costs, but rather engage in a pay-as-you-go option.The key is to manage customer churn.---------------------------------------------------- Provide instant delivery of software services over the cloud---------------------------------------------------- Cloud Services Model 22
  23. 23. Rent or lease your physical or virtual space.This includes real estate companies, hotels,and online directories/classified companiessuch as Craigslist & Monster.com.The Lessor builds valuable real estate andguarantees a certain level of traffic that can beused by the lessee.---------------------------------------------------- Rent a high value property---------------------------------------------------- Renting/Leasing Model 23
  24. 24. This is the most dominant model on theInternet and a variant of the Listing model.Most newspapers and Internet companiesmake money through selling a space in their“real estate”.One difference from the listing model is thatthe consumers for these companies come fora different purpose (social networking,reading news, etc…) and are often made toview advertisement from sponsors.---------------------------------------------------- Rent a high traffic place for advertising---------------------------------------------------- Advertising Model 24
  25. 25. In a Franchise model, a company tries to replicate its business model by bringing in external entities. The Franchisor manages the brand, advertising, and technology, while the franchisee manages the operations, labor, and the real estate. Both the entities share revenue from the operation. Some of the biggest fast food chains in the world use this model. It is hot trend in India right now.Franchisee Model 25
  26. 26. ------ Every business should identify how it differentiates from others in the competition. Without differentiation, there is no way to ------ survive. There are 7 primary ways to differentiate from your competitors. ------ Business Models help understand how a business delivers value to its customers. ------ There are dozens of business models, and it is important to focus on your core strengths.Summary and Key Takeaways 26
  27. 27. THANK YOU !FOR YOUR ATTENTIONFeel free to share the presentation with your friends. ------ www.zingfin.com 27

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