ENT109 PRODUCT DEVELOPMENT AND
INNOVATION
MODULE 3 |
BUSINESS MODELS
NEW BUSINESS
MODELS
WHAT IS BUSINESS MODEL
DESCRIBES THE VALUE AN ORGANISATION OFFERS TO ITS CUSTOMERS. IT
ILLUSTRATES THE CAPABILITIES AND RESOURCES REQUIRED TO CREATE,
MARKET AND DELIVER THIS VALUE AND TO GENERATE PROFITABLE,
SUSTAINABLE REVENUE STREAMS
THE BUSINESS MODEL
is the key factor that leads to success in start-ups. It provides the starting
point that allows a company to maximise its profits – the sooner the business
model is in place, the easier it will be for the start-up to obtain support and
funding. Investors will be seeking to ensure that the model is scalable.
THE BUSINES MODEL AND THE BUSINESS PLAN
BUSINESS MODEL BUSINESS PLAN
A business model describes the specific way the A business plan is a detailed document, typically 50 to
business expects to make money. It should be on one 100 pages, with a lot of finan cial projections. To set
page and it would be more clearly shown as a diagram. up a new business and apply for a loan, the lending
The business model itself is a single concept institution will demand a business plan
THE RANGE OF BUSINESS
MODELS
REVENUE/PRICING ENTERPRISE INDUSTRY
MODEL MODEL MODEL
change how revenue is specialise and configure the redefine an existing
generated through new value business to deliver greater industry, move into a new
propositions and new pricing value by rethinking what is industry or create a new
models (to take advantage of done in-house and through industry
economies of scale) collaboration
are concerned specifically with
REVENUE the pricing element of the
MODELS business model.
THE BAIT AND HOOK REVENUE MODEL
The bait and hook business model is also referred to as the ‘tied products
business model’. It involves off ering a basic product at a very low cost,
some times at a loss (the ‘bait’), then charging compensa tory recurring
amounts for refi lls or associated products or services (the ‘hook’).
Examples include: razor (bait) and blades (hook); cell phones (bait) and air
time (hook); computer printers (bait) and ink cartridge refi lls (hook); and
cameras (bait) and fi lm (hook). An interesting variant of this model is
Adobe, a software developer that gives away its document reader free of
charge, but charges several hundred euros for its document writer.
ENTERPRISE
MODELS
focus on redefining the internal and external
boundaries of the organisation to create a new
business model
EXAMPLES
Samsung with chips for cell phones, or moving down the value
chain, like Apple with virtual (iTunes) and physical storefronts.
Enterprise Car Rental has developed a network of insurance
companies and car dealerships that help with sales and refer ra
INDUSTRY
MODELS
Google creating a new industry around
search
Uber completely disrupting the taxi industry
with its workforce of part-time drivers.
THE OFFERING
The value proposition statement consists of several key
components:
● what is on offer and how is it offered to customers;
● what type of, and how much, value or benefit is
associated with the offering (e.g., cost savings, time
savings, revenue increase, customer/employee
satisfaction);
● how the value is generated;
● why it is different from anything else on the market.
THE CUSTOMER
SIDE
Target market segment:
Defining the value proposition leads naturally
into a discussion about who is the target market
segment and what characteriZes the ideal
customer.
THE CUSTOMER
SIDE
Customer relationships:
The business needs to consider the kind of
relationship it wants to have with each
customer segment
THE CUSTOMER
SIDE
Distribution channels:
Keep in mind that the offering, in combination
with the relationship the business would like to
have with its target customer, has strong
implications for the choice of distribution
channel
THE
INFRASTRUCTURE
Core capabilities: List the business’s core capabilities:
the assets that it brings to the table when creating
the offering
Partners and allies: Building the offering may involve
third parties and suppliers who have key capabilities
to complement it.
Value configuration: Describe how all the components
together create the product and serve customers
THE FINANCES
Revenue streams:
Evaluate the streams through which the business will
earn revenues from value-creating and customer-
facing activities.
Cost structure:
Calculate the costs that will be incurred to run the
business model as determined by its infrastructure
REFERENCE
Innovation Management and New Product Development 6th Ed. Paul Trott