-------------

24 types of business models and 7 ways in which businesses differentiate themselves

Balaji Viswanathan 1

HOW DO BUSINESSES MAKE MONEY?

A short course on Business Strategy and Business Models

Brought to you by :

Business Models

Differentation

STRATEGY

www.zingfin.com

Course Organization 22

Businesses need to differentiate from their competitors to sustain in their industry.

There are 7 different ways to differentiate from your competitors.

PART 2: BUSINESS MODELS

Businesses models describe how an organization creates value, how it is delivered, and how that value is captured.

There are 24 main types of business models that the majority of organizations in the world use.

PART 1: BUSINESS DIFFERENTIATION

------------------------------------------------3

-----------------------------------------

-------------------------------------------------

----------------------------------

---------------------------

SECTION I: HOW DO BUSINESSES DIFFERENTIATE

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

HOW THE WORLD LEADERS WORK

7 Ways to Differentiate from your Competitors

5

DIFFRENTIATION 1: QUALITY

Companies like Apple, Tiffany, Prada, and Steinway Pianos differentiate themselves in producing the best quality product you could buy. There is a segment of customers that are willing to pay a premium for quality.

To build a company on this differentiation, you should structure your company processes around product innovation and testing. Quality control is paramount for those who want to be differentiating based on this.

6

DIFFRENTIATION 2: DELIVERY

In many industries, timely delivery of products and services is the key differentiator. Fedex and UPS (the world leaders in logistics) are the obvious examples. Here you build your strengths on extreme engineering the whole chain.

There is a lot of Operations Research involved in getting the service delivered in the shortest time possible.

Fast food chains such as McDonalds & Subway also belong to this category of differentiation.

7

DIFFERENTIATION 3: SERVICE

How often have you felt angry by the service delivered by a company? Many companies treat their customers poorly, and this leaves the door open for new companies to enter.

Zappos and Rackspace are great examples of companies that build their offering around stellar customer service.

To excel in this, you must develop a natural affection for your customers and encourage your employees to go the extra mile.

8

DIFFERENTIATION 4: FLEXIBILITYFlexibility here refers to the product offerings and choices. Two of the best examples for this are: IKEA and Macy’s. The idea is that they never turn away any customer and have something for everyone. They have 1000s of product types (called SKUs). This is also how many restaurants and full service airlines operate.

Two of the disadvantages are that customers can get confused by your offerings and your operations can get really complex. You need very good inventory management to use this differentiation.

9

DIFFERENTIATION 5: SUSTAINABILITY

This is currently a new trend. Companies such as Whole Foods and Tesla Motors are trying to differentiate based on the sustainable practices they use.

You could highlight your energy generation practices, waste processing, or other efficient usages that lead to a better world.

10

DIFFERENTIATION 6: QUICK REACTION TO MARKET

In some industries, such as technology and fashion, companies can differentiate based on how quickly they react to recent trends. One of the best examples of this is Zara. Zara is a fashion seller who is extremely good at adapting the designs of popular fashion designers and quickly bringing them to the market.

To succeed using this differentiation, you need to keep a constant ear on the market and build a very good production pipeline to build new things quickly.

11

DIFFERENTIATION 7: COST

Cost here doesn’t mean price. Thus, someone selling at the lowest price need not be the best example for this. To qualify for this, a company has to reduce its production costs to the lowest in their industry.

The best examples for this category are Wal-Mart, Southwest Airlines, and Amazon.com. They have worked on optimizing the whole supply chain to reduce every penny of wastage. Succeeding in this differentiation requires the hardest skills in operations.

Summary: How businesses differentiate

12

7 Ways to Differentiate

TimeCustomer Service

Delivery

Sustainability

QualityFlexibility

Cost

------------------------------------------------13

-----------------------------------------

-------------------------------------------------

----------------------------------

---------------------------

SECTION II: TYPES OF MODERN BUSINESS MODELS

How do businesses create, deliver, and capture the value they provides to their customers.

----------------------------------------------------

One of the oldest and direct business models. Here a business creates a plain-vanilla product or service of value and gets it to the customers through a distributor or through direct means (in the case of services).

Manufacturer Model 14

----------------------------------------------------Among the oldest models that is used by most businesses in the world.

15Merchant Model

Amazon

Walmart Metro

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 & mortar, the key is to manage a very efficient supply chain, and have real estate (real or virtual) with a very high foot traffic.

----------------------------------------------------

Gillette sells its sticks cheap, but charges heavy on the blades. Printer companies sell the printers at low-profits and sell ink cartridges at a high premium.

To pull this off, you must tie the value-add services tightly with your core product. If competitors can produce blades for your razors, your model will fail.

Razor Blades/Cartridge Model 16

----------------------------------------------------Sell the core product cheap, but charge premium on supplies

----------------------------------------------------

Companies such as Forrester, Nielsen, Reuters, Bloomberg, financial research firms, and search engines belong to the model.

Their strength lies in accumulating vast amounts of data, presented in an easily accessible form.

Data & Analysis Model 17

----------------------------------------------------Selling Market Research, Data and Analysis

----------------------------------------------------

Think Ferrari, Gucci, Armani, and Rolex.

To make a mark, the company has to be extremely careful about the brand and avoid the temptation to go to mass market.

Some, like Apple, can attempt to be both mass and premium, although pulling this off over the long term is difficult.

Premium business model 18

----------------------------------------------------

Exclusion is the key, along with high product quality.Selling Premium Goods to a Niche Audience

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

----------------------------------------------------

----------------

20Broker & Marketplace Model

Stock Exchanges

eBay AirBnbIn this model, the business connects buyers and sellers in usually an auction-like model and takes a commission on the sales.

The key is to have sizable scale of both suppliers and customers.

This is one of the hottest business models now, although it is also hard to survive due to winner-take-all dynamics.

----------------------------------------------------

Crowd Sourcing Model 21

----------------------------------------------------Companies such as Kickstarter, 99 designs, Yelp, Get Satisfaction, Quora, and Wikipedia rely on the wisdom of the crowds to provide a service.

----------------------------------------------------

Google Apps, Dropbox, Salesforce.com, and 37 Signals are revolutionizing how products are delivered to the customer.

In the Cloud Services model, the customers require very little capital expenditures & upfront costs, but rather engage in a pay-as-you-go option.

The key is to manage customer churn.

Cloud Services Model 22

----------------------------------------------------Provide instant delivery of software services over the cloud

----------------------------------------------------

Rent or lease your physical or virtual space. This includes real estate companies, hotels, and online directories/classified companies such as Craigslist & Monster.com.

The Lessor builds valuable real estate and guarantees a certain level of traffic that can be used by the lessee.

Renting/Leasing Model 23

----------------------------------------------------Rent a high value property

----------------------------------------------------

This is the most dominant model on the Internet and a variant of the Listing model.

Most newspapers and Internet companies make money through selling a space in their “real estate”.

One difference from the listing model is that the consumers for these companies come for a different purpose (social networking, reading news, etc…) and are often made to view advertisement from sponsors.

Advertising Model 24

----------------------------------------------------Rent a high traffic place for advertising

25Franchisee Model

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.

Summary and Key Takeaways 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.

------------

------------

www.zingfin.com 27

THANK YOU !Feel free to share the presentation with your friends.

FOR YOUR ATTENTION

------