Basic Elements of a Business Model

Select features embedded in product or service

Determine benefit to the customer from using the

product or service

Identify market segments to be targeted

Confirm available revenue streams

Design mechanisms to capture value

In the simplest terms, a Business Model is how a business makes money. It explains the sources of the organization’s revenues, how these sources pay and how often. It outlines the business logic required to earn a profit (if one is available to be earned) and once adopted, defines the way the enterprise “goes to market.”This introductory presentation is intended to introduce a framework for further thought and discussion through which AIRN will define its Business Model.

EMBEDDED SERVICES -- MEMBER BENEFITS

The distinction between the terms benefits and features is an important concept in developing and marketing a service. Features are characteristics that the service provides. Benefits are the reasons members pay for the service. AIRN services must have features which its members perceive as valuable (i.e., as beneficial to them). It is important to remember that members pay dues or fees because they want to solve a problem or meet a need. Members, whether openly or not, will always be asking the question, “What’s in it for me?”

The six steps in identifying the benefit of a service are:1. Evaluate the potential of a member seeing the

value (benefit) of each service without it being pointed out. List the obvious benefits and then start looking for others.

2. Investigate. Ask members about the service. How would they use it? How would they change it? Would they add anything to it?

3. Value. Does the service deliver value to the member? The more benefits the service has the less important the cost becomes.

4. Test. If a new service, test it on some of your members. Ask them to evaluate and suggest improvements.

5. Examine the cost of the service to determine whether it can be provided for less cost.

6. Adjust membership development to reflect any new benefits (which may include adjusting to delete or modify negatives) you have discovered. It is always better to be the organization that is introducing the benefits than being the copycat. (BSA, BFA, BCPA – threats, competitors?)

Identify Member Benefits

Segmentation Marketing

Geographic

Size

Industry

Business

Need

4 Key Market SegmentsMarket segmentation is the act of subdividing the market (AIRN membership) into a group or groups of people who have similar needs, but with differing needs between the groups. In order to clearly define market segments for AIRN services, it is important to divide prospective and/or current members into groups and then decide which services best fit each group. AIRN also may determine after defining the member segments that the ideal member is one who can belong to two or more of the of the groups shown in the chart and discussed in the next slides.

Key Market Segmentation

Geographic Segmentation – Geographic segmentation is used to identify business target markets based on where the businesses are located. Segmentation by Size – Size might be measured in terms of number of employees or in terms of annual sales. Segmentation by Industry - Industry segmentation (e.g., seeds, fertilizer, crop protection products, wholesale, retail, etc.) may be used when providing services with specific appeal in certain industry segments. Business Need – Segmentation based on business need allows AIRN to identify and connect with members that span geographies, size and industry (e.g. gender), but share a common need addressed by its services.

Segmentation Criteria

As noted in the previous slides, segmentation is simply the process of dividing a particular market (AIRN members) into sections which display similar characteristics or behavior. After selecting a segment (of the market), an organization (such as AIRN) should evaluate its choice carefully and ensure it has made the correct decision. A successful market segment usually meets the criteria in the pie chart and will be explained more fully in the following slides.

SEGMENTATION REQUIREMENTS

DEFINEDMEASUREABLEACTIONABLESUITABLEACCESSIBLE

Segmentation: Defined & MeasureableDefined: The chosen segments should be clearly defined to avoid doubt about which part of membership AIRN’s marketing activities are aimed. Otherwise, there is a risk that market activities will “spill over” into different segments. As AIRN will have more than one segment, each should be made up of markets (members and/or clients) which require specific services due to differences in behavior. Measurable: As AIRN embarks on its marketing strategy, it is important for it to know the demand for services in that segment. Over a period of time it will be important to be able to measure the income derived from services to that segment relative to the cost of providing those services and whether the demand for a service, and its related expense and income, is growing or decreasing.

SEGMENTATION

Defined

Measureable

Actionable

Suitable

Accessible

Segmentation: Accessible, Suitable & Actionable

DEFINED MEASUREABLE ACTIONABLE SUITABLEACCESSIBLE

Accessibility is about communicating with members and being able to actually get services to them. The other aspect of accessibility is being able to deliver AIRN services to its chosen segments. Suitability means that the characteristics of the members making up a segment, indicate they are likely to use/pay for the service and have the spending power to do so. It also includes the size of the segment, e.g., if the number of members in the segment are too few, the cost of services will be high and the income derived too little to support them. If the segment is too large, it will be difficult to create services to suit all the member subgroups included in the segment.Actionable: Even if all of the criteria above are satisfied, a segment is unsuitable unless AIRN has the resources to satisfy the need of the segment.

Revenue StreamsHow, and from where, will AIRN get its income?

The “Golden Egg”

The 80/20 rule: It is possible that some of your services that require the most amount of time and energy are your least “profitable”—generate the least amount of income. Analysis may not be your favorite thing to do but it can help you see where you can stop wasting time and money. 1. For every service you offer calculate the “profit” (net income) each generates (total revenue minus total costs = profit).2. In addition to the actual costs, add in the average amount of time you spend to market and deliver each service because time is another form of money.3. Combine the information from steps one and two and identify which services have the highest “profitability.”

Creating Value -- Capturing Value

CREATING VALUE: Value is created anytime an action is taken for which the benefits exceed the costs, or anytime an action is “prevented” for which the costs exceed the benefits.CAPTURING VALUE: The concept of value creation says nothing about profit. The benefits are measured to the consumer; the costs to the firm—you can’t determine profit just from that.The membership dues (or fee for a particular service) determines the amount of value that is “captured” —that which contributes to AIRN’s income and sustainability. The other value isn’t lost. It is retained by the consumer. It is the difference between what the consumer would have been willing to pay and the price.

POLITICAL, ECONOMIC, SOCIAL & TECHNOLOGICAL (PEST) ANALYSIS Measurement of the Business Market according to External Factors

There are four factors in analyzing outside issues that play a role in a business’s success, in this instance how each affects AIRN members and thereby impacts AIRN.Political: This factor looks at how political and legal issues affect a business’s chance to be profitable and successful. Such issues include political stability, tax guidelines, constraints on the structure and activities of an organization, etc. Economic: This factor examines the outside economic issues that can play a role in an organization's success. Such items include the effects on members of economic growth, inflation and interest rates, the country’s current business policies, etc.Social: This issue analyzes the demographic and cultural aspects that can help determine whether a business can compete in the current market. Among the examined are country demographics, population growth rates, age distribution, education, and environmental and health consciousness.Technological: This factor takes into consideration the technology issues that impact how an organization brings its service to the marketplace. Among the items to be considered are technology advancements, the role of the Internet and the impact of potential information technology changes, and so forth.

POLITICAL, ECONOMIC, SOCIAL & TECHNOLOGICAL (PEST) ANALYSIS (Example of factors influencing businesses)

SWOT ANALYSIS

SWOT measures a business unit, a proposition or an idea. Strengths, Weaknesses, Opportunities, and Threats SWOT analysis is an excellent tool to use if the organization wants to take a step back and assess the situation they are in.It is a subjective assessment of data which is organized by the SWOT format into a logical order that helps understanding, presentation, discussion and decision-making. A SWOT analysis is part of any prudent marketing strategy.

Basic Elements of a Business Model

Select features embedded in

product or service

Determine benefit to the customer from using

the product or service

Identify market segments to be

targeted

Confirm available revenue streams

Design mechanisms to capture value