BUSINESS MODEL

Business Model

is a firm’s plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it earns.

There is no standard business model, no hard‐and‐fast rules that dictate how firms in a particular industry should compete.

A firm’s business model takes it beyond its own boundaries.

Almost all firms partner with others to make their business models work.

Dell’s approach to selling computers versus traditional manufacturers’ represented a business model innovation in the computer industry.

Dell needs the cooperation of its suppliers, shippers, customers, and many others to make its business model possible.

The shining example of a good idea gone bad, online store and delivery service Kozmo.com. For urbanites, Kozmo.com was cool and convenient. You could order a wide variety of products, from movies to snack food, and get them delivered to your door for free within an hour. After expanding to seven cities, it was clear that it cost too much to deliver a DVD and a pack of gum. Kozmo eventually initiated a $10 minimum charge, but that didn't stop it from closing in March 2001 and laying off 1,100 employees. Though it never had an IPO (one was planned), Kozmo raised about $280 million and

even secured a $150 million promotion deal with Starbucks.

Core Strategy                                     how     a firm competes

Strategic Resources                           how a firm acquires and uses its resources

Partnership Network                        how a firm structures and nurtures its partnerships.

Customer Interface                           how a firm interfaces with its customers

 

Core Strategy

Example :

Starbucks Coffee Company 

Mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

Google 
Google’s mission is to Organize the  world's information and make it universally accessible and useful.

Strategic Resources

Resources are essential for a firm to implement its strategy and, hence,

affect its business model substantially.

core competency is a resource or capability that serves as a source of a firm’s competitive advantage over its rivals.

strategic assets are anything rare and valuable (plant, equipment,location, brands, patents, customer data, highly qualified staff, and distinctive partnerships, etc.)

Firms try to combine core competencies and strategic assets to create a sustainable

competitive advantage, to which investors pay close attention when evaluating a

business. A competitive advantage is achieved by implementing a value‐creating strategy

that is unique and not easy to imitate.

Starbuck – all their cafes are located at the prime location. They prepare a fine coffee that can be served for their customer.

Google – the most comprehensive search engine. A user can get almost anything through Google search. Google also have server farm at each country to make them as one of the best and fastest search engine.

Partnetship Network

New ventures, in particular, rely on partners to perform key roles.

suppliers Vendors/ suppliers are companies that provide parts tasks required to make their businesses work or services to another company. Almost all firms have suppliers who play a vital role in the functioning of their business models.

other key relationships

Firms partner with other companies to make their business models work. But partnerships also

·         involve risks if a single partner is a key component of a firm’s business model

·         often fall short of meeting the expectations of the participants.

Starbuck – have tied network partnership with Yahoo to advertise them online. This uses the current youth trend to use the social network to get nearer to customer and get to know their needs.

Google – Google also tied up with major data providers to help them to provide with all the data needed by them.

Customer Interface

The type of customer interaction depends on how the firm chooses to compete.

A target market is the limited group of individuals or businesses that a firm goes after or tries to appeal to.

The selection of the target market affects acquisitions of strategic assets, partnerships, promotional campaigns, etc.

Fulfillment and support describes the way a firm’s product or service “goes to market”; how reaches its customers channels a company uses, what level of customer support it provides) All these issues impact the shape and nature of a company’s business model.

Pricing structures/ models vary depending on a firm’s target market and its pricing philosophy philosophy.