Value analysis and business model (vers. 2014)

Value analysis and

business modelIED

Lesson 5/2014

Frieda Brioschi / Emma Tracanella [email protected] / [email protected]

mailto:[email protected]

mailto:[email protected]

5. Value Analysis and Business Model

Course program

1. Italian Startups

2. Set up a startup in Italy

3. I've got an idea. And now?

4. Market and costs

5. Value analysis and business model2


Today's table of content

1. Perceived Value

2. Business Model

3


Market & costs: quick recap

Past slides available on Slideshare @ubifrieda:

https://www.slideshare.net/ubifrieda/

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Market & costs: quick recapDuring last lesson we discussed:

• Who are your customers and who will buy your product

• Who are your competitors

• Which is the specific demographics to target

• Which is the psychographics of your target

• Evaluate your decision (target market to big?,…) !

5


Market & costs: quick recapB2C

Make a product or service and charge consumers for using it. This model is being used by Starbucks, McDonald’s, Amazon and others.

!

B2B

Make a product or service and charge other companies for using it. Google, Cisco, MySQL and others are using this model.

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During last lesson you learnt about direct and indirect costs:

• the former are costs that can be identified specifically with a particular project or activity labour agreements

• the latters include all the other costs

7



You went through the definitions of cash and accrual basis accounting:

• difference between them has to do with the time frame in which revenues and expenses are recorded and reported

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5. Value Analysis and Business Model5. Value Analysis and Business Model

Value

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Value

• The extent to which a good or service is perceived by its customer to meet his or her needs or wants, measured by the customer’s willingness to pay for it

• It depends more on the customer’s perception of the worth of the product than on its intrinsict value.

• How do we create the perception of value when we talk to our customers?

10


Gillette Fusion

!

• Amazon’s price: 19.25$

• 8 cartridges

• Cost/cartridge: 2.41$

• You need the razor (11.49$)

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5. Business Model5. Value Analysis and Business Model

Gillette Custum Plus Disposable

!

• Amazon’s price: 20.97$

• 30 razors

• Cost/razor: 0.70$

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Gillette Fusion vs. Custom Plus

• Prices

• 19.25$ vs. 20.97$

• 8 cartridge vs. 30 razors

• Cost in use

• 2.41$ vs. 0.70$

• Additional perceived values justify the additional cost in use

• Durability of blade

• Comfort

• Less irritation

13


Gillette Idea

By providing something at below the market price (the razor), you can create a market for a secondary product (the blade) upon which you make ongoing profits.

The mark-up on the secondary products is disproportionate relative to their cost so were highly profitable for the manufacturer.

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3M Scotch® Tape

!

• Amazon’s price: $1.70

• Lenght 650 inches

• Cost/inch: $0.003

• Cost to hang a poster: $0.01

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3M Scotch® Command Strips

!

• Amazon’s price: $2.70

• 12 strips

• Cost/strip: $0.08$

• Cost to hang a poster: $0.32

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3M Scotch® Tape vs. Strips• Prices

• $1.70 vs. $2.70

• Using Scotch Tape, the user can hang 75 posters vs. 3 for the command strips

• Cost in use

• $0.01 vs. $0.32 to hang 1 poster

• Additional perceived values justify the additional cost in use

• Less damage to wall

• Simplicity to remove

• Durability

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A-Style• Logo

• 1989 stikers on the walls of Milano and Roma

• Patented by Italian designer Marco Bruns

!

• Clothing Brand

• Italian brand founded in 1999

!

• A-style has used street-level buzz marketing to grow to international prominence

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Lacoste!

• Founded in 1933 by the tennis man Rene Lacoste

• At the end of 1990 the company change its strategy: marketing, retails outlets, product range, …

• Sale of t-shirts in limited series

• Re-establishing Lacoste as “a distinctive premium brand”

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Models

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FreemiumGiving away a product that people want for free and selling premium products.

Skype:

• A free quality product

• Selling cheap calls to ordinary phones

!

Only 8% buy something

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https://www.freemium.org


4 Freemium Models

• Time-limited

• Feature-limited (Dropbox – Flickr)

• Seat-limited

• Customer-type limited

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Advertising Model

• Became popular with the growth of radio and TV.

• Indirect revenue from people looking to promote services

• Increasingly difficult

• Youtube, Facebook

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Low-Cost Model

• Significant volumes of customers (at a low customer acquisition cost) and by charging a very low price

• Revenue from a whole host of ancillary sources

• Ryanair

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Business model

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Business model /1

• A business model describes the rationale of how an organization creates, delivers, and captures value (economic, social, cultural, or other forms of value). The process of business model construction is part of business strategy.

• It's a way to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.

26http://en.wikipedia.org/wiki/Business_model


Business model /2

The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit.

27http://en.wikipedia.org/wiki/Business_model


The business model canvas

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The business model canvas

http://www.youtube.com/watch?v=QoAOzMTLP5s

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http://www.youtube.com/watch?v=QoAOzMTLP5s


1 – Value propositionThe collection of products and services a business offers to meet the needs of its customers. It's what distinguishes itself from its competitors.

It provides value through various elements:

• newness,

• performance,

• customization,

• "getting the job done",

• design,

• brand/status,

• price,

• cost /risk reduction, ecc.

30http://en.wikipedia.org/wiki/Business_Model_Canvas


Value Proposition Builder• Market: for which market is the value proposition being created?

• Value/customer experience: what does the market value most? The effectiveness of the value proposition depends on gathering real customer, prospect or employee feedback.

• Offering: which products or services are being offered?

• Benefits: what are the benefits the market will derive from the product or service?

• Alternatives and differentiation: what alternative options does the market have to the product or service?

• Proof: what evidence is there to substantiate your value proposition?

31http://en.wikipedia.org/wiki/Value_proposition


2 – Customer segmentsA company must identify which customers it tries to serve. Various set of customers can be segmented based on the different needs and attributes to ensure appropriate implementation of corporate strategy meets the characteristics of selected group of clients. The different types of customer segments include:

• Mass Market

• Niche Market

• Segmented

• Diversify (multiple customer segments with different needs and characteristics)



Do you know who your customers are?

33http://www.designvision.com/strategy/


Really?

34http://www.designvision.com/strategy/


3 - Channels

A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost effective.



4 – Customer relationshipTo ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments.

• Personal Assistance

• Dedicated Personal Assistance

• Self Service

• Automated Services

• Communities

• Co-creation



Why does it matter?

37http://soffrontblog.com/2011/02/07/benefits-of-an-on-demand-crm-application/


5 – Revenue streamsThe way a company makes income from each customer segment.

• Asset Sale

• Usage Fee

• Subscription Fees

• Lending/Leasing/Renting

• Licensing

• Advertising


5. Value Analysis and Business Model39http://www.flickr.com/photos/silkcharm/2893602428/


6 – Key resources

Are the assets required to offer and deliver value proposition to the customer.

• Physical

• Intellectual

• Human

• Financial

40http://en.wikipedia.org/wiki/Key_resources_(business_model)


7 – Key partner

• In order to optimize operations and reduce risks of a business model, organization usually cultivate buyer-supplier relationships so they can focus on their core activity.

• Complementary business alliances also can be considered through joint ventures, strategic alliances between competitors or non-competitors.



8 – Key activities

The most important activities in executing a company's value proposition.



9 – Cost structure

This describes the most important monetary consequences while operating under different business models.

• Fixed Costs

• Variable Costs

• Economies of Scale

• Economies of Scope



Next week

Business model examples and pitch.

44

Education

Value analysis and business model (vers. 2014)