Upload
puneet-gandhi
View
122
Download
0
Embed Size (px)
Citation preview
1. Customer Solutions Profit
Time
0
Invest to know the customer, create a solution, and develop a relationship. This causes losses early in the relationship, and thereafter significant profits.
2. Product Pyramid Profit
Price
In a product pyramid profit model, meeting customer preferences of style, colour, price, etc, is of utmost importance. Variations in customer income and preferences make it possible to build a product pyramid.
Volume
Strategic role of creating a firewall at the bottom
3. Multi‐component Profit
Base Business
Other Components
There are multiple components within a system. Multiple component profit models apply to industries as diverse as beverages(profit is in fountain & vending), hotels(base is low margin but corporate conventions etc are profitable) , bookstores etc.
Disproportionate share of profits
4. Switchboard ProfitSome markets are characterized by multiple sellers communicating with multiple buyers, with high costs incurred by both.
SellersBuyers
The switchboard reduces the costs to both buyers
and sellers
Creation of a high‐value intermediary that concentrates
pathways through a single channel
5. Time Profit
Time
Cost
Price
Many times in business there is a first mover advantage that allows the innovator to generate excess returns before imitators begin to erode margins. Profit derives from uniqueness, translating into price premiums until imitation erases them.A key issue is not time to
market but the time lead from the next competitor as profits will be “up‐fronted”
6. Blockbuster Profit
Project Type
Cost
RevenueIn certain industries like pharmaceuticals, music, film making, publishing etc, the key economic activity is project‐based. The cost per type of project may vary by 5x, and the revenues generated by 50x.
Revenue realisation is so powerful that it pays the development costs
many times over
7. Profit Multiplier Model
Key Asset
Other Forms Profit multiplier model reaps gains from the same product, character, trademark or service, over and over again. The best example is Disney.
No‐one in Disney works harder than the
characters themselves
The risks of taking the brand to areas where it does not have authority with
the customer must be avoided
8. Entrepreneurial Profit
BaseBusiness
Spin‐Outs
As companies grow, diseconomies of scale effect: overhead grows, unnecessary expenses grow, decision making slows, customers become remote.To counteract these forces, some companies organise themselves into smaller profit centres to maximise accountability and maintain closeness to the customer.Potential
management ownership
9. Specialization Profit
Generalist Specialist
In many industries, specialists are several times more profitable than the generalists. They have higher quality, lower cost, stronger reputation and shorter selling cycles.This model is not limited to products but whole business units. Killer categories
meeting needs of particular groups
10. Installed Base Profit
Hardware/Base Product
Consumables/ Follow‐on Product
In many installed base businesses, the profit or initial product sales are slim, but the margins on follow‐on products are extremely attractive .
Also known as razors and razor blades model
Key point is to build the largest installed base to enable highly attractive follow‐on revenues
11. De Facto Standard Profit
Market Share
The most striking characteristic of a de facto business is increasing returns to scale. The value chain from suppliers to users are drawn into the gravitational orbit of the standard holder. The more users, the more valuable the network becomes.The losers will
experience diminishing margins
over time
12. Brand Profit
Market Price
Brand Price
Over a period of years, a brand building company expends significant marketing investment in order to build awareness, recognition, trust and credibility.These intangible experiences are reinforced by the customers’ experience with the service/product.
13. Specialty Product Profit
T‐5
SS
C
C
T
100%When a firm introduces a new product, it enjoys a premium on that product.Specialty products enjoy a greater portion of the profits until competitors begin their imitations.The PLC can vary from 8 ‐15 years
(The “S” denotes Specialization, the “C”denotes commodity).
Key task is astute selection of R & D projects to generate
tomorrows profit
Revenue % of S decreases over
time
14. Local Leadership Profit
Local Market Share
0
For many businesses, the economies of the company are almost entirely local. Examples include home health care companies, grocery stores, and many branches of retailing.
Local leadership to the point of dominance not
national scale
NB: Profitability supports growth not visa versa. Don’t
grow broke
15. Transaction Scale Profit
Size of Transaction
Cost
Revenue Certain industries are transaction based, as the size of the transaction goes up, the cost to perform or deliver a transaction does not rise as quickly as the revenue received.
Examples are investment banking, real estate, legal, commercial banking etc
Market share is irrelevant‐ 2 >
100
Invest in companies with largest deal
potential
16. Value Chain Position Profit
In many Industries, profit concentrates itself in certain parts of value chain and is absent in others. In PC computing, the profit is concentrated in microprocessors and software. In chemicals, it is in manufacturing, not distribution. In the auto industry, it is in downstream activities such as financial services and extended warranties, not assembly or distribution.
17. Cycle Profit
Utilization
Cost
PriceMany industries are characterised by distinct cyclical behavior. The profitability of the firm is a function of the cycle. Tell me the capacity utilization, and I will be able to tell you what the profitability is.
Industries such as chemicals, steel,
industrial equipment are examples.
Key element is to understand binding to the cycle. Toyota strives to lower its
breakeven profit. ma
Maximise your position in the cycle's grip
18. After Sale Profit
Base Product
Follow‐onProducts/Services
In some industries, such as manufacturing and airlines, it is not the sale of the product or service that generates the profit, but the after‐sale financing or service of the product.
Does not need an installed base to achieve this model
19. New Product Profit
Time
New product profits are a function of newness and growth. New, high margin products are introduced, and grow rapidly. As they mature, profits fall. Other industries subject to this model are cars, copiers, industrial equipment
Desktops are mature & profitlessLaptops are still profitable
Servers are immensely profitable
Product cycle may vary by 5‐7 years
Must shift investment to create undisputed leadership in next
generation products, closely matching customers most important current
priorities
20. Relative Market Share ProfitIn many companies and industries with high market shares tend to be more profitable because large companies have pricing advantages and cost economies due to greater manufacturing experience and volume purchasing ability.
Relative Market Share
RMS share refers to a company’s share in
relation to competitors
21.Experience Curve Profit
Cumulative Experience
As a firm become more experienced at manufacturing a product or delivering a service, its price per transaction decreases. A specialist firm that has experience in delivery will be more profitable than a firm without that experience.
BCG is predicated on this theory
Conventional Business Design
Low Cost Business Design
22. Low‐Cost Business Design Profit
Firms can trump cumulative experience with a low‐cost business design, which makes the incumbent’s cumulative experience irrelevant. Southwest did in airlines, Dell did it in computing. High experience with wrong business model doesn’t get you very far.Cumulative experience to achieve lowest cost is always vulnerable to a low cost
position through design
Sailing ships example