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1. SHARIFAH AKMAM SYED ZAKARIA SCHOOL OF CIVIL ENGINEERING, ENGINEERING CAMPUS, UNIVERSITI SAINS MALAYSIA, 14300 NIBONG TEBAL, PENANG, MALAYSIA. TEL: 04-5996253 FAX: 04-5941009 EMAIL: AKMAM@ENG.USM.MY BUSINESS MODEL
2. 8/8/2012 Free template from www.brainybetty.com 2
3. What is a business model? A business model is the mechanisms that are used by companies to represent various aspects of its business, including its purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.
This is the most important strategy to generate profit (make money)
Over the years, business models have become much more sophisticated.
4. Evolution of business model In the 1950s, new business models came from McDonald's Restaurants and Toyota.
In the 1960s, the innovators were Wal-Mart and Hypermarkets.
The 1970s saw new business models from FedEx and Toys R Us;
the 1980s from Blockbuster, Home Depot, Intel, and Dell Computer;
the 1990s from Southwest Airlines, Netflix, eBay, Amazon.com, and Starbucks.
5. 14 - 5 Huge product assortment
Prices are 20% – 30% below hardware stores
Obsessed with offering high quality customer service
Lifetime value of customers: $25,000 Well-trained, highly motivated salespeople earn above average salaries
Customer problem solving is encouraged
Internet site offers many home improvement tips
One of today’s most successful retailers Case Study
6. Best Brands 2008 6
Toyota
Japan
Quality concerns have increased overall, but Toyota’s reliability and its hybrid strategy are leaving auto rivals trailing.
8. 1 - 8 Strong sales, no profits
Customer-driven to its core
Each customer’s experience is unique
Provides great selection, good value, discovery and convenience
A true online community Case Study
9. Poorly thought out business models were a problem with many dot-coms.
Today, the type of business models might depend on how technology is used.
For example, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology.
Using technology, businesses can reach a large number of customers with minimal costs.
10. The importance of business model In developing a business model especially for a new product/service/business, the most important element is the dimension of time, more specifically the timing of investments/expenses or cash flow out versus the receipt of revenues/accounts receivables or cash flow in.
The principle issues are:
Essentially how much of the product or service has to be built before customers can make some level of either actual purchase decision and/or purchase commitment?
How much investment/expense is required to secure these revenues/commitments from customers? and
How much risk is there in achieving net positive cash flow, given the required upfront investment and the future time to capture revenues/receivables cash inflow, within an acceptable timeframe, if ever?
11. These business model issues often make or break new ventures.
Business models that are optimized to reduce the upfront investment, that accelerate the revenue/receivables cash inflow, that obtain cogent and reliable customer feedback often and earlier, and that take other measures to reduce the investment risk all have a higher probability of business success.
12. The process of business model design is part of business strategy.
The implementation of a company's business model into organizational structures (e.g. workflows, human resources) and systems (e.g. information technology architecture, production lines) is part of a company's business operations.
It is important to understand that business modeling commonly refers to business process design at the operational level,
whereas business models and business model design refer to defining the business logic of a company at the strategic level.
13. For example, in the entertainment industry, does one have to produce a movie for RM 1 million plus before any box office revenues can be derived, or can the business model be evolved by licensing certain established characters/signing leading movie stars for secondary licensing rights for fast-food chain promotional-tie-ins, movie merchandise licenses, etc. can generate pre-release cash inflow through licensing fees.
14. Hot Laptop
With partners such as Acer, Ferrari develops products that represent performance, strength, and credibility.
This Ferrari notebook PC from Acer was the first carbon-fiber laptop on the market.
Some 40% of Ferrari's merchandise is developed and produced directly, while the other 60% is licensed.
Other partners include Puma, Mattel, and Lego. Ferrari is working on an innovative mobile phone for its next license.
15. Or a different entertainment business model might be to create and promote a “Funniest Video" website platform for users to contribute the content and then based on site traffic, sell advertising for revenues.
Here, the upfront investment for creating and promoting the site could be a fraction of the investment to produce a movie and the chances that it would be more popular than a movie may be much higher, as it can be tweaked as it is developed while a movie is an all or nothing production.
16. 1. The subscription business model This is a business model where a customer must pay a subscription price to have access to the product/service.
The model was pioneered by magazines and newspapers, but is now used by many businesses and websites.
Rather than selling products individually, a subscription sells periodic (monthly or yearly or seasonal) use or access to a product or service.
Thus, a one-time sale of a product can become a recurring sale and can build brand loyalty.
It is used for anything where a user is tracked in both a subscribed, and an unsubscribed status.
17. Industries which use this model include book clubs, record clubs, telephone companies, cable television providers, cell phone companies, internet providers, pay-TV channels, software providers, business solutions providers, financial services firms, fitness clubs, and pharmaceuticals, as well as the traditional newspapers and magazines.
Renewal of a subscription may be periodic and activated automatically, so that the cost of a new period is automatically paid for by a pre-authorized charge to a credit card or a checking account.
A common model on web sites is to provide content for free, but restrict access to premium features (for example, archives) to paying subscribers.
18. 2. The razor and blades business model Freebie marketing, also known as the razor and blades business model is the concept of either giving away a sellable item for nothing or charging an extremely low price in order to generate a continual market for another, generally disposable, item.
The concept was pioneered by King C. Gillette, inventor of the disposable safety razor and founder of Gillette Safety Razor Company (today known as Global Gillette, a division of Procter and Gamble).
20. 3. Network model In economics and business, a network effect (also called network externality) is the effect that one user of a good or service has on the value of that product to other users.
The classic example is the telephone.
The more people own telephones, the more valuable the telephone is to each owner.
This creates a positive externality because a user may purchase their phone without intending to create value for other users, but does so in any case.
The expression "network effect" is applied most commonly to positive network externalities as in the case of the telephone.
Negative network externalities can also occur, where more users make a product less valuable, but are more commonly referred to as "congestion" (as in traffic congestion or network congestion).
21. Software
There are very strong network effects operating in the market for widely used computer software.
Take for example Microsoft Office.
For many people choosing an office suite, prime considerations include how valuable having learned that office suite will prove to potential employers, and how well the software interoperates with other users.
22. Best Brands 2008 2
Microsoft
U.S.
The launch of its Windows Vista operating system, coupled with its Xbox game console, keeps the software giant’s latest technology in front of consumers.
23. Microsoft Windows is a further example of network effect.
The most-vaunted advantage of Windows, and that most publicized by Microsoft, is that Windows is compatible with the widest range of hardware and software.
Although this claim was justified at some point of time, it was in reality the result of network effect: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to the large market of Windows users.
Thus, Windows is popular because it is well supported, but is well supported because it is popular.
24. 2007 2
Microsoft
$56,926 million
2005 Rank/Value 2 / $59,941 million
-5% change from 2006
Based in U.S.
Threats from Google and Apple haven't yet offset the power of its Windows and Office monopolies
25. Web sites
Many web sites also feature a network effect.
One example is web marketplaces and exchanges, in that the value of the marketplace to a new user is proportional to the number of other users in the market.
For example, eBay would not be a particularly useful site if auctions were not competitive.
However, as the number of users grows on eBay, auctions grow more competitive, pushing up the prices of bids on items.
This makes it more worthwhile to sell on eBay and brings more sellers onto eBay, which drives prices down again as this increases supply, while bringing more people onto eBay because there are more things being sold that people want.
26. 13 - 26 Dominates world’s markets for heavy construction and mining equipment.
Independent dealers are key to success
Dealer network is linked via computers Caterpillar stresses dealer profitability, extraordinary dealer support, personal relationships, dealer performance and full, honest, and frequent communications Case Study
27. 4. Disintermediation model In economics, disintermediation is the removal of intermediaries in a supply chain: "cutting out the middleman".
Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet.
One important factor is a drop in the cost of servicing customers directly.
28. Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer.
Buyers bypass the middlemen (wholesalers and retailers) in order to buy directly from the manufacturer and thereby pay less.
Buyers can alternatively elect to purchase from wholesalers.
Often, a B2C company functions as the bridge between buyer and manufacturer.
Computer hardware and software
Travel agencies
Bookstores and music stores
Stock Purchasing see E-trade
Prime example of disintermediation is Dell, Inc., which sells many of its systems direct to the consumer — thus bypassing traditional retail chains.
29. Best Brands 2008 12
Hewlett-Packard
U.S.
HP last fall edged out Dell as the world’s largest PC maker by market share. Sleek new laptops are helping boost its consumer business.
30. 5. Bricks-and-clicks model Bricks-and-clicks is a business model by which a company integrates both offline (bricks) and online (clicks) presences.
It is also known as click-and-mortar or clicks-and-bricks, as well as bricks, clicks and flips, flips referring to catalogs.
For example, an electronics store may allow the user to order online, but pick up their order immediately at a local store, which the user finds using locator software.
Conversely, a furniture store may have displays at a local store from which a customer can order an item electronically for delivery.
31. The bricks and clicks model has typically been used by traditional retailers who have extensive logistics and supply chains.
Part of the reason for its success is that it is far easier for a traditional retailer to establish an online presence than it is for a start-up company to employ a successful pure "dot com" strategy, or for an online retailer to establish a traditional presence (including a strong brand).
32. 6. loyalty business model The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed.
A typical example of this type of model is: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.
33. 18 - 33 Has dominated the chip industry
Success is directly related to Intel’s competitive strategy
Strategy focuses on superior value and product leadership
Heavy focus on product and advertising innovation and R&D investments
Changing market needs have challenged Intel to adapt
Intel is now capitalizing on the Internet
Case Study
34. Best Brands 2008 5
Nokia
Finland
Nokia built its brand at both ends of the market, with high-end multimedia handsets for upscale buyers and low-priced phones for emerging countries.
35. 7. Service model Service economy can refer to one or both of two recent economic developments.
One is the increased importance of the service sector in industrialized economies.
The term is also used to refer to the relative importance of service in a product offering.
That is, products today have a higher service component than in previous decades.
In the management literature this is referred to as the servitization of products.
Virtually every product today has a service component to it.
The old dichotomy between product and service has been replaced by a service-product continuum.
Many products are being transformed into services.
36. For example, IBM treats its business as a service business.
Although it still manufactures computers, it sees the physical goods as a small part of the "business solutions" industry.
They have found that the price elasticity of demand for "business solutions" is much less elastic than for hardware.
There has been a corresponding shift to a subscription pricing model.
Rather than receiving a single payment for a piece of manufactured equipment, many manufacturers are now receiving a steady stream of revenue for ongoing contracts.
37. Best Brands 2008 3
IBM
U.S.
Big Blue’s ads promise to make customers feel “special.” With powerful software, servers, and sophisticated services it’s delivering.
38. 15 - 38 UPS is a $31 billion corporate giant
UPS wanted to reposition itself as a supply chain solutions provider
Developed new theme based on customer input
Implemented, “What Can Brown Do for You?” campaign
Realigned its sales and marketing organization
Ads, web sites, and salespeople deliver message daily
Case Study
39. 8. low-cost carrier model A low-cost carrier or low-cost airline (also known as a no-frills or discount carrier or airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services.
The concept originated in the United States before spreading to Europe in the early 1990s and subsequently to much of the rest of the world.
The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors.
While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares.
40. 6-40
41. Malaysia AirAsia Berhad is a low-cost airline based in Kuala Lumpur, Malaysia.
It operates scheduled domestic and international flights and is Asia's largest low fare, no frills airline. AirAsia pioneered low cost travelling in Asia.
It is also the first airline in the region to implement fully ticketless travel and unassigned seats.
Its main base is the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA).
Its affliate airlines Thai AirAsia and Indonesia AirAsia fly from Suvarnabhumi Airport, Thailand and Soekarno-Hatta International Airport, Indonesia, respectively.
The airline was established in 1993 and started operations on 18 November 1996.
It was originally founded by a government-owned conglomerate DRB-Hicom.
On December 2, 2001, the heavily-indebted airline was purchased by former Time Warner executive Tony Fernandes's company Tune Air Sdn Bhd for the token sum of one ringgit.
Fernandes proceeded to engineer a remarkable turnaround, turning a profit in 2002 and launching new routes from its hub in Kuala Lumpur International Airport at breakneck speed, undercutting former monopoly operator Malaysia Airlines with promotional fares as low as RM1 (US $0.27).
42. On 27 March 2006, the Government of Malaysia announced that AirAsia will take over 96 non-trunk routes, in addition to 19 domestic trunk routes.
This was part of Malaysia Airlines route rationalization programme which saw a large number of its domestic sectors being transferred to AirAsia from 1 August 2006.
On September 2007, AirAsia's Kuala Lumpur hub is fully operated with A320s while Thai AirAsia received its first Airbus A320 in October 2007.
Indonesia AirAsia will receive its first Airbus by January 2008.
On April 5, 2007, AirAsia announced a three-year partnership with the British Formula One team AT&T Williams.
The airline brand is displayed on the helmets of Nico Rosberg and Alexander Wurz, and on the bargeboards and nose of the cars.
43. 9. online and offline model The terms online and offline (also on-line and off-line) have specific meanings with respect to computer technology and telecommunication.
The concepts have however been extended from their computing and telecommunication meanings into the area of human interaction and conversation, such that even offline can be used in contrast to the common usage of online (e.g., "I bought that shirt offline").
44. One example of a common use of these concepts is a Mail User Agent that can be instructed to be in either online or offline states.
One such MUA is Microsoft Outlook. When online it will attempt to connect to mail servers (to check for new mail at regular intervals, for example), and when off-line it will not attempt to make any such connection.
The online or offline state of the MUA does not necessarily reflect the connection status between the computer on which it is running and Internet.
That is, the computer itself may be online—connected to Internet via a cable modem or other means—while Outlook is kept offline by the user, so that it makes no attempt to send or to receive messages.
45. Another example of the use of these concepts is in the world of digital audio technology.
A tape recorder, digital editor, or other device that is online is one whose clock is under the control of the clock of a synchronization master device.
When the sync master commences playback, the online device automatically synchronizes itself to the master and commences playing from the same point in the recording.
A device that is offline uses no external clock reference and relies upon its own internal clock.
When a large number of devices are connected to a sync master it is often convenient, if one wants to hear just the output of one single device, to take it offline because, if the device is played back online, all synchronized devices have to locate the playback point and wait for each other device to be in synchronization
46. A third example of a common use of these concepts is a web browser that can be instructed to be in either online or offline states.
The browser only attempts to fetch pages from servers whilst in the online state.
In the off-line state, users can perform offline browsing, where pages can be browsed using local copies of those pages that have previously been downloaded whilst in the on-line state.
This can be useful when the computer is offline and connection to the Internet is impossible or undesirable.
The pages are either downloaded implicitly into the web browser's own cache as a result of prior online browsing by the user, or explicitly by a browser configured to keep local, up-to-date copies of certain web pages, which are updated when the browser is in the online state.
One such web browser capable of being explicitly configured to download pages for offline browsing is Internet Explorer.
When pages are added to the Favourites list, they can be marked to be "available for offline browsing."
47. 10. Professional open-source model Professional open-source is a business model that many open-source software vendors are attempting to follow. The model partners what is perceived as "free" open-source software with paid professional services.
As open-source software began to become popular in the 1990s with the introduction of Linux, there was a growing stigma that such a package could not be trusted as stable or supported.
As a consequence, larger businesses would often choose commercially distributed software over a product that was released under an open-source license.
However, there has been the growth in the number of professional open-source companies - made popular by companies like Liferay, Inc., Red Hat, MySQL AB, and JBoss.
The business model of these companies tries "to offer open-source software with a free license, while using professional services, maintenance and support for these products to derive revenue."
48. Top 10 e-Commerce Mistakes
49. 1. Weak Website Design
Have several people look at your website and give you honest feedback.
2. Unclear Purpose
Make sure your websites purpose is clear and easy to see.
You should make it obvious why your website exists right on the homepage.
Help customers—don’t make them guess.
If you sell, make your product obvious.
50. 3. Shopping Obstacles
Customers leave websites within seconds if they meet with any obstacle blocking their purpose.
If you confuse or frighten customers with an awkward checkout procedure, ask too many questions, don’t let them know what’s coming next, or they don’t feel safe buying from you, they will leave.
Make your shopping experience friendly—again ask for input from a few friends willing to look at your website.
Once you’ve got your shopping system set up just right, check the links once a week to be certain it stays that way.
51. 4. Poor Marketing
There are over four billion webpages on the Internet.
How will people find yours?
You must develop a plan to drive people to your website.
You need to have a good marketing strategy.
You can learn about marking tools and strategies from most ecommerce web host providers.
Use the resources of your host, learn the ways of web marketing and you will keep your website in the public eye.
52. 5. Weak Customer Service
If you sell a product, you need a customer service plan.
The best way to develop one is to put yourself in your customer’s shoes.
How would you want a problem resolved?
Do your best to serve customers well and they will reward you by sending their friends to your website.
53. 6. Poor Product Choice
Not everything should be sold on the Internet.
Shipping costs, for example, are a big obstacle for heavy products that your customer can get locally—you can’t compete.
(But if your large product is unique, you may succeed in spite of shipping costs.)
Clothing and shoes are difficult for some people to purchase online as they prefer to try on before buying.
Food products may spoil, candy may melt, glass may break.
Evaluate your potential products with a “worst-case-scenario” mentality.
Pick products that will give you the best chance to succeed first, then expand and take more chances after your business develops roots.
54. 7. Fail to Prepare for Success
You’ve heard of online businesses succeeding “overnight.”
If you are so lucky, do you have a plan to deal with a sudden onslaught of orders?
Even if your growth is gradual (as most growth is) do you have a plan for the time you outgrow your shopping cart your bandwidth allowance?
Plan ahead; plan for growth.
What seems like a great five-year shopping cart deal may not work for you in three.
55. 8. Slow Shipping
If your website promises two day shipping but your customer doesn’t get the product until day four, guess who the customer will blame?
Use reputable shippers that offer guarantees.
56. 8. Slow Shipping
If your website promises two day shipping but your customer doesn’t get the product until day four, guess who the customer will blame?
Use reputable shippers that offer guarantees.
57. 9. Lack of Specialization
Instead of trying to serve a huge market, pick a niche and work to be the best in that niche.
You’ll need to specialize in a small area to build up a good reputation.
Reputation is key to have clout in the online world.
58. 10. Missing Security
Making your website secure is vital; customers will leave before buying if they don’t feel your system is safe.
Visitors won’t be anxious to divulge even their email address if they feel your website is untrustworthy.
Electronic theft and website sabotage happens.
Often overlooked when it comes to security is protecting your client's information: e-mail address, billing address, phone numbers.
Pick reputable services to process your customer’s credit cards.
And write a privacy policy or Intellectual Property policy for your website.
Reassure your customers, then honor your promises to protect their privacy.
59. From Business Idea to Business model Bear in mind that, to develop a successful business, you must:
Define precisely the nature of the business
Offer clearly identifiable products or services
Tap a real need or generate a demand for your product/service
Operate within your expertise and resources
Have realistic targets and have reasonable expectations
Keep everything as simple and straightforward as possible.
60. Thank you
