BUSINESS MODELS AND PLANNING

OBJECTIVE:
Defined and illustrated key components of a business model,
including customer segments, value proposition, channels,
customer relationships, revenue streams, key resources, key
activities, key partnerships, and cost structure.
 WHAT IS BUSINESS MODEL?
A business model is a company’s core framework for
operating profitably and providing value to customers.

It identifies the products or services the business plans to sell,

its identified target market, and any anticipated expenses.
 PRIMARY COMPONENT OF BUSINESS MODEL

VALUE PREPOSITION
- simply states why a customer should buy a certain product or service.
-a description of the goods or services that a company offers and why
they are desirable to customers or clients, ideally stated in a way that
differentiates the product or service from its competitors.
TIPS ON HOW TO CREATE AN EFFECTIVE VALUE PROPOSITION TO
THE TARGET CUSTOMERS:

1. Prepare a situation analysis that details the problems of the

customers.

2. Make value proposition straight to the point ,simple and

specific: in short, should be no complications. Your value
proposition has to target your major objective.
3. Highlight the value of your product or services so that customers will easily
get what benefits you can provide.

4. Adapt to the language of you market. Ensure that your target market
understand clearly what you are trying to say and avoid putting unnecessary
and inexplicable phrases.
5. Add credibility –enhancing elements such as actual testimonials from customers, partners
and other stakeholders, putting specific assurance elements and social acceptability metrics
found in social media or press materials. Several quality management, certification, such as
the ISO seal, add more credibility to the product or service that you’re trying to sell.

6. Differentiate your value proposition with your competitors. Example of value proposition
differentiators are the originality of the products or services, its functionalities or if the
products or service can be tailor-fitted to the customers preference, among others.
 UNIQUE SELLING PROPOSITION

Refers to how you will sell the product or service to your

customers.

It addresses the customers wants and desires.

Advertise or promote a certain unique features of the product or

services that you’re trying to sell.
 PRICING STRATEGY

- How the company sets prices

for its products or services.
CHOOSING THE RIGHT PRICING STRATEGY
Cost-plus pricing

Many business people and consumers think that cost-plus pricing,

or mark-up pricing, is the only way to price. This strategy brings together all
the contributing costs for the unit to be sold, with a fixed percentage added
onto the subtotal.

- “You make one decision: How big do I want this margin to be?”
Example :The mark up is based on a certain percentage
of cost.

The entrepreneur wants to set a 50% mark on the

coconut cost which is 14. Then, what is the new price?
1. Total Cost Calculation:
Total Cost = 14

2. Determine the markup based on the cost of sales.

Markup = Total cost x mark up
= 14x 50%
=7
3. Setting the Selling Price (Total cost + mark up)
= 14+7
=21
4. Verification: Selling Price – Markup Percentage = (Selling Price - Total Cost) / Total Cost * 100%
=(21-14)/(14x100%)
= 7/1.4%
=50%
Therefore, the entrepreneur should set the selling price each coconut juice at 14 to ensure a markup of 50% on the total cost
 COST- BASED PRICING
The basis of markup is the cost of
sales.
Example:

The entrepreneur will compute the cost of coconut juice by adding the cost of coconut juice (10)
and the plastic container (4). He can set the price at P20 to earn P6 per coconut juice.
1. Total Cost Calculation:
Total Cost = Coconut Juice+ plastic container
= 10+4=14

2. Determine the markup based on the cost of sales.

Markup = Desired profit margin + Total cost
= 6+14
=20
3. Setting the Selling Price
=20
4. Verification: Selling Price - Total Cost = Desired profit margin $3.80 - $2.60 = $1.20
=20-14=6
Thus, the desired profit margin of 6 per coconut juice is achieved.
 2. COMPETITIVE PRICING
• “If I’m selling a product that’s similar to others, like peanut butter or
shampoo,” says Dolansky, “part of my job is making sure I know what the
competitors are doing, price-wise, and making any necessary adjustments.”

• That’s competitive pricing strategy in a nutshell.

• You can take one of three approaches with competitive pricing strategy:
 CO-OPERATIVE PRICING

In co-operative pricing, you match what your competitor is doing. A competitor’s one-
dollar increase leads you to hike your price by a dollar. Their two-dollar price cut leads to the
same on your part. By doing this, you’re maintaining the status quo.

• Co-operative pricing is similar to the way gas stations price their products for example.

• The weakness with this approach, Dolansky says, “is that it leaves you vulnerable to not
making optimal decisions for yourself because you’re too focused on what others are doing.”
 AGGRESSIVE PRICING

“In an aggressive stance, you’re saying ‘If you raise your price, I’ll keep mine the same,’” says Dolansky. “And if
you lower your price, I’m going to lower mine by more. You’re trying to increase the distance between you and
your competitor. You’re saying that whatever the other one does, they better not mess with your prices or it will
get a whole lot worse for them.”

• Clearly, this approach is not for everybody. A business that’s pricing aggressively needs to be flying above the
competition, with healthy margins it can cut into.

• The most likely trend for this strategy is a progressive lowering of prices. But if sales volume dips, the
company risks running into financial trouble.
 DISMISSIVE PRICING

If you lead your market and are selling a premium product or service, a dismissive pricing approach may be an option.

• In such an approach, you price as you wish and do not react to what your competitors are doing. In fact, ignoring

them can increase the size of the protective moat around your market leadership.

• Is this approach sustainable? It is, if you’re confident that you understand your customer well, that your pricing

reflects the value and that the information on which you base these beliefs is sound.

• On the flip side, this confidence may be misplaced, which is dismissive pricing’s Achilles’ heel. By ignoring

competitors, you may be vulnerable to surprises in the market.

 3. PRICE SKIMMING
Companies use price skimming when they are introducing innovative new products that have no competition.
They charge a high price at first, then lower it over time.
• Think of televisions. A manufacturer that launches a new type of television can set a high price to tap into a
market of tech enthusiasts (early adopters). The high price helps the business recoup some of its
development costs.
• Then, as the early-adopter market becomes saturated and sales dip, the manufacturer lowers the price to
reach a more price-sensitive segment of the market.
• Dolansky says the manufacturer is “betting that the product will be desired in the marketplace long enough
for the business to execute its skimming strategy.” This bet may or may not pay off.
 RISKS OF PRICE SKIMMING

• Over time, the manufacturer risks the entry of copycat products introduced at a lower price. These
competitors can rob all sales potential of the tail-end of the skimming strategy.

• There is another earlier risk, at the product launch. It’s there that the manufacturer needs to demonstrate
the value of the high-priced “hot new thing” to early adopters. That kind of success is not a given.

• If your business markets a follow-up product to the television, you may not be able to capitalize on a
skimming strategy. That’s because the innovative manufacturer has already tapped the sales potential of
the early adopters.
PSYCHOLOGICAL PRICING
This considers the psychology and positioning of price in the market.

Example: Price of haircut service is at 199 because consumers tend to

think that odd prices are considerably lower than what they are; in

this example, they tend to round the price to 100 or 200.

 PREMIUM PRICING

This refers to setting a very high price to reflect

elitism and superiority .

EXAMPLE: Prices of signature clothes, bags and

perfume.
Successful businesses have business models that allow them
to fulfill client needs at a competitive price and a sustainable
cost. Over time, many businesses revise their business
models from time to time to reflect changing business
environments and market demands.
 TARGET COSTUMER

refers to the audience you want to engage with

the help of your marketing efforts. These people are
most likely to buy your goods or services if they find out
about them through one of your marketing efforts.
HOW TO IDENTIFY THE
TARGET COSTUMER?
 DIFFERENT TYPES OF DATA MAY BE USED TO
DETERMINE A TARGET AUDIENCE, INCLUDE:

• Demographic data (such as age and gender identification)

• Psychographic data (such as ambitions, worries, and values)

• Behavioral data (likely to buy online)

 DISTRIBUTION CHANNELS

Distribution channels refer to the various routes or paths

through which products move from the manufacturer to the
end consumer. These channels are crucial for getting
products into the hands of consumers efficiently and
effectively.
 DISTRIBUTION CHANNELS

Manufacturer:
This is where the product is initially produced or
manufactured. The manufacturer is responsible for creating
the product, ensuring its quality, and packaging it
appropriately for distribution.
 DISTRIBUTOR:
After the product is manufactured, it is typically sold to a distributor.
Distributors act as intermediaries between the manufacturer and the
retailer. They purchase large quantities of products from manufacturers
and then sell smaller quantities to retailers. Distributors often have
extensive networks and logistical capabilities to efficiently move
products to retailers.
 RETAILER
The retailer is where consumers directly purchase the product.
This could be a physical store, an online marketplace, or any
other platform where consumers can access and buy the
product. Retailers are responsible for displaying the product,
marketing it to consumers, and facilitating the sales transaction.
 CUSTOMER RELATIONSHIP

refers to the interactions, connections, and experiences that a

business or organization has with its customers over time. It encompasses
all aspects of how a company interacts with its customers, including
communication, support, service, and transactions. Building and
maintaining positive customer relationships is essential for businesses to
foster loyalty, trust, and satisfaction among their customer base.
 CORE CAPABILITIES
refer to the essential skills, competencies, and resources that
enable an organization to achieve its strategic objectives and maintain a
competitive advantage in the market. These capabilities typically
represent the unique strengths and assets that differentiate an
organization from its competitors and allow it to deliver value to
customers.
 CORE CAPABILITIES CAN INCLUDE A
VARIETY OF ELEMENTS, SUCH AS:

Technological Expertise:

The organization's proficiency in leveraging technology to

enhance its products, services, or operations. This may include
expertise in software development, data analytics, or
innovative engineering solutions.
 OPERATIONAL EXCELLENCE

The organization's ability to efficiently manage its resources,

optimize processes, and deliver high-quality products or
services to customers. This includes factors such as supply
chain management, production efficiency, and quality
control.
 CUSTOMER RELATIONSHIPS

The organization's capacity to understand customer needs,

build strong relationships, and deliver exceptional customer
experiences. This may involve effective communication,
responsive customer support, and personalized services.
 BRAND REPUTATION:
The perception of the organization and its products or services in the marketplace.
Building a strong brand reputation involves consistent messaging, delivering on
promises, and cultivating trust and credibility among customers and stakeholders.
The perception of the organization and its products or services in the marketplace.
Building a strong brand reputation involves consistent messaging, delivering on
promises, and cultivating trust and credibility among customers and stakeholders.
 STRATEGIC PARTNERSHIPS:

The organization's ability to collaborate with external

partners, suppliers, or stakeholders to enhance its capabilities
and create value. Strategic partnerships can provide access to
new markets, technologies, or resources that complement the
organization's strength
 PARTNER NETWORK
refers to the ecosystem of strategic relationships
and collaborations that an organization forms with
external parties, such as suppliers, vendors, distributors,
resellers, technology providers, and other stakeholders.
 COST STRUCTURE
refers to the composition of its expenses and how they
are allocated across various components of the business
operations. Understanding and managing the cost structure
is essential for ensuring profitability and sustainability.
 HERE ARE SOME KEY ELEMENTS OF A TYPICAL
COST STRUCTURE:

Fixed Costs:
These are expenses that remain relatively constant regardless of
the level of production or sales. Examples include rent or lease
payments, salaries of permanent staff, insurance premiums, and
certain utilities.
 VARIABLE COSTS:

These costs fluctuate in direct proportion to

changes in production or sales volume. Examples
include raw materials, direct labor costs, packaging
materials, and sales commissions.
 OVERHEAD COSTS:
These are indirect costs necessary to operate the
business but not directly tied to production. They
include expenses such as administrative salaries, office
supplies, marketing expenses, and depreciation of assets.
 INTEREST AND FINANCING COSTS:

These are expenses related to borrowing money or

obtaining financing for the business. They include
interest payments on loans, bank charges, and fees
associated with raising capital.
 REVENUE MODEL
Refers outlines the strategy a business uses to generate income
from its products or services. It defines how the company will
earn revenue and the sources from which it will come. Revenue
models can vary significantly depending on the nature of the
business, its industry, and its target market.
 HERE ARE SOME COMMON REVENUE
MODELS:
Sales Revenue Model:
This model involves generating revenue by selling products or
services directly to customers. Revenue is generated through one-
time sales transactions, subscriptions, or ongoing service
contracts.
 SUBSCRIPTION MODEL:

Under this model, customers pay a recurring fee at regular

intervals (e.g., monthly or annually) to access a product or
service. Examples include subscription-based software,
streaming services, and membership-based platforms.
 ADVERTISING MODEL:

This model involves generating revenue by displaying

advertisements to users. Businesses may charge advertisers
based on various metrics such as impressions, clicks, or
conversions. Examples include social media platforms,
search engines, and online publishers.
 FREEMIUM MODEL:
In this model, businesses offer basic features or services for free to
attract users, with the option to upgrade to a premium or paid version
for additional features or functionalities. The revenue is generated
from a portion of users who opt for the premium version. Examples
include software applications, online games, and productivity tools.
 TRANSACTION FEE MODEL:

This model involves charging a fee for facilitating transactions

between buyers and sellers. It is commonly used in online
marketplaces, payment processing platforms, and
crowdfunding sites. The fee may be based on a percentage of
the transaction value or a flat fee per transaction.
 LICENSING MODEL
Under this model, businesses generate revenue by licensing
their intellectual property (e.g., patents, trademarks,
copyrights) to other companies in exchange for royalties or
licensing fees. This model is prevalent in industries such as
software, entertainment, and technology.
 AFFILIATE MODEL:
In this model, businesses earn revenue by promoting or
recommending products or services from third-party vendors and
earning a commission for each sale or referral generated through
their affiliate links or partnerships. Examples include affiliate
marketing programs, referral programs, and influencer marketing.
 ASSET SALES MODEL:

This model involves generating revenue by selling

physical or digital assets owned by the business, such as
real estate, equipment, inventory, or intellectual property.
Revenue is generated through one-time sales transactions.
 USAGE-BASED MODEL:

In this model, customers pay for the amount or level of usage

of a product or service. Pricing is based on factors such as
usage volume, time spent, or resources consumed. Examples
include pay-as-you-go services, utility billing, and metered
usage plans.
THANK YOU!