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January 4, 2022

What Is Price Elasticity? Price Elasticity In A Nutshell

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes. Price elasticity, therefore, is a measure of how consumers react to the price of products and services.

Understanding price elasticity

Consumers are sensitive to the price of a product or service when deciding whether to make a purchase decision. While most consumers are more likely to purchase a cheap product and less likely to purchase an expensive product, the role of price in the decision-making process is more nuanced.

Gasoline is one example of a product with inelastic demand. Consumer demand for the product is less responsive to price changes because it is considered a vital commodity. Common products with elastic demand include soft drink, cereal, clothing, electronics, and vehicles. Consumers are more responsive to changes in price because these products are not considered necessities and there are readily available substitutes.

Price elasticity data is valuable to a marketing team. The data enables them to determine how the market will react to price changes to existing products and whether such a reaction will impact the company’s bottom line.

The four types of price elasticity

There are four types of price elasticity, with each used to explain the relationship between two economic variables:

Price elasticity of demand (PED)

A measure of the change in consumption of a good or service in relation to a change in its price.

Price elasticity of supply (PES)

A measure of the change in the supply of a good or service in response to a change in its price.

Cross elasticity of demand (XED)

This is a measure of the change in demand for one good in response to a change in demand for another good.

Income elasticity of demand (YED)

A measure of the change in demand for a good in response to a change in the buyer’s income.

Factors that affect elastic and inelastic demand

In the introduction, we touched on some of the factors affecting elastic and inelastic demand. Let’s take a more detailed look at these below.

Factors affecting elastic demandAvailable substitutes

When there are many products of a similar type available, those with a lower price are more attractive than those that are more expensive. Chocolate bars are one example.

Homogenous products

Similarly, the presence of homogenous products gives consumers more choice and freedom. Demand for insurance is not affected by price increases because there is always a provider offering cheaper premiums.

Lower switching costs

If there are no costs associated with switching products, then demand is less likely to be impacted by price. For example, there is no cost to the consumer in switching to Mercedes if they consider BMW sedans to be too expensive.

Factors affecting inelastic demandPurchase frequency

Consumers tend to spend more money on one-off purchases such as a new car or smartphone.

Lack of substitutes

If there are no suitable alternatives, then demand tends to be elastic. For example, demand for milk does not change if prices rise by 10% because for most people, there is no substitute.

Geographical location

Some goods and services are inelastic because a company has geographical dominance. In most sports stadiums, food and beverage retailers can raise prices without affecting demand because fans have no choice but to purchase from them.

Basic necessities

Some products are necessary to survival, including medication, electricity, water, and some food items. Demand for these goods and services is unresponsive to price changes.

Key takeaways:Price elasticity is a measure of how consumers react to the price of products and services. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes.Price elasticity data is valuable to a marketing team. This data enables them to determine how the market will react to price changes to existing products and whether such a reaction will impact the company’s bottom line.Factors affecting elastic demand include available substitutes, homogenous products, and lower switching costs. Factors affecting inelastic demand, on the other hand, include infrequent purchasing, a lack of substitutes, geographical location, and whether the product is a basic necessity.

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Economies of Scale

In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining.

Negative Network Effects

Creative Destruction

Creative destruction was first described by Austrian economist Joseph Schumpeter in 1942, who suggested that capital was never stationary and constantly evolving. To describe this process, Schumpeter defined creative destruction as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Therefore, creative destruction is the replacing of long-standing practices or procedures with more innovative, disruptive practices in capitalist markets.

Happiness Economics

Happiness economics seeks to relate economic decisions to wider measures of individual welfare than traditional measures which focus on income and wealth. Happiness economics, therefore, is the formal study of the relationship between individual satisfaction, employment, and wealth.

Command Economy

In a command economy, the government controls the economy through various commands, laws, and national goals which are used to coordinate complex social and economic systems. In other words, a social or political hierarchy determines what is produced, how it is produced, and how it is distributed. Therefore, the command economy is one in which the government controls all major aspects of the economy and economic production.

Animal Spirits

The term “animal spirits” is derived from the Latin spiritus animalis, loosely translated as “the breath that awakens the human mind”. As far back as 300 B.C., animal spirits were used to explain psychological phenomena such as hysterias and manias. Animal spirits also appeared in literature where they exemplified qualities such as exuberance, gaiety, and courage. Thus, the term “animal spirits” is used to describe how people arrive at financial decisions during periods of economic stress or uncertainty.

State Capitalism

State capitalism is an economic system where business and commercial activity is controlled by the state through state-owned enterprises. In a state capitalist environment, the government is the principal actor. It takes an active role in the formation, regulation, and subsidization of businesses to divert capital to state-appointed bureaucrats. In effect, the government uses capital to further its political ambitions or strengthen its leverage on the international stage.

Boom And Bust Cycle

The boom and bust cycle describes the alternating periods of economic growth and decline common in many capitalist economies. The boom and bust cycle is a phrase used to describe the fluctuations in an economy in which there is persistent expansion and contraction. Expansion is associated with prosperity, while the contraction is associated with either a recession or a depression.

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Published on January 04, 2022 08:45

What Is Private Labeling? The Private Labeling Business Model In A Nutshell

Private labeling involves one company selling the products of another company using its own branding and packaging. In most instances, a retailer purchases products from a manufacturer that are then sold to consumers with the manufacturer’s brand and packaging visible. In private labeling instead, the retailer might have a third-party manufacturer produce goods and sell them under the retailer’s brand. Therefore the manufacturer acts as a private label, not showing its brand toward consumers.

Understanding private labeling

Sometimes, however, the retailer may sell private label products that are manufactured by a contract or third-party manufacturer and sold under its own brand name. The retailer acts as a de facto product manufacturer by controlling what goes in the product, how it is presented, and what the label looks like.

Private labeling is present in most consumer product categories, including personal care, beverages, pet food, cosmetics, condiments, dairy items, frozen foods, clothing, and household cleaners. In Australia and the United States, private label brands account for 18.1% and 17.7% of all retail sales revenue respectively. In Europe, these brands are more popular, comprising 41% of sales in the United Kingdom and 42% in Spain for example.

Examples of private labeling

Following is a look at some of the companies making a success of private labeling:

Amazon

Amazon has a diversified business model. Amazon’s primary revenue streams comprise its e-commerce platform, made of Amazon labeled products and Amazon third-party stores. In addition to that, Amazon makes money via third-party seller services (like fulfilled by Amazon), advertising on its platform, AWS cloud platform, and Prime membership.

The eCommerce giant owns over 100 private label brands that appear across various categories including food and beverage, electronics, and automotive. Many of Amazon’s private-label brands are created to mimic the success of brands that sell well on its platform. Examples include Amazon Essentials, Revly, Nod, and Happy Belly.

Trader Joe’s

American grocery chain Trader Joe’s sources most of its products from third-party manufacturers including PepsiCo and Snyder’s-Lance, the second largest salty snack maker in the United States.

Costco

In a retail business model, usually, the company has direct access to final customers, which will consume a final version of the product/service, sold in units, and at higher margins. Where in a wholesale business model, instead, a company usually sells raw products in bulk to retailers and middlemen who sell directly to customers. In a hybrid model (like Costco) the wholesaler also sells to final customers.

The retailer’s Kirkland Signature private label range sells everything from batteries to wine to rotisserie chicken. The company reported in 2020 that it made $39 billion in revenue from the Kirkland brand alone in the previous twelve months.

Walmart

With over $555 billion in net sales in 2021 the company operates a differentiated Omni business model with three primary units comprising Walmart U.S, Walmart International, and Sam’s Club (approximately 12% of its net sales) a membership-only warehouse clubs. Together with Walmart+, a subscription service including unlimited free shipping, unlimited delivery from its stores, and discounts launched in 2021.

Which has recently made a foray into private label apparel for men, women, and children. The supermarket chain also operates private label brands in wine, toys, tools, and consumer technology.

Advantages of private labeling

Private labeling has several benefits for the business that extends beyond the simplification of the product development process.

These include:

Control over costs

Despite not manufacturing the product, retailers still control the product pricing strategy and can optimize production costs to increase profit margins. Retailers also have the final say over specifics such as product quality, pricing, ingredients, and volume.

Product rotation

Retailers also use private label products to accelerate product rotation. Companies such as Nordstrom sell private label products to increase their responsiveness to seasonal trends and compete with fast-fashion retailers such as H&M.

Market stability

In countries where private label products are prevalent, consumers choose them for their quality, consistency, and affordability. Thanks to lower price points, private label products can boast steady sales even amid a recession. Since there is more stability and less price inelasticity, retailers may even increase their order quantities during economic downturns.

Nevertheless, there are some disadvantages too.

Disadvantages of private labelingProduction dependence

While retailers have control over many aspects of private labeling, they do not have control over the product manufacturer. Inefficient processes could cause inventory or quality issues and, in a worst-case scenario, the manufacturer may declare bankruptcy and severely disrupt operations.

Brand dilution and loyalty

Some consumers perceive private label products to be of poor quality, which can cause brand dilution for a retailer’s more premium brands. Furthermore, building any sort of brand loyalty to a bulk, low-cost product is difficult.

Cost

Some manufacturers will ask for an initial payment if it is the first time they are working with a retailer. There may also be a stipulated minimum order quantity to ensure both parties profit from the arrangement. These factors make private label products a challenge for retailers with smaller budgets.

Key takeaways:Private labeling involves one company selling the products of another company using its own branding and packaging.Private labeling is used successfully by companies such as Amazon, Trader Joe’s, Costco, and Walmart.Private labeling gives retailers more control over costs and product development and also allows them to maintain sales in economic downturns. However, the approach is only as robust as the product manufacturer and some companies may find it difficult to build brand loyalty in a low-cost product from scratch.Business Models Related To Private Labeling

C2M Business Model

Consumer-to-manufacturer (C2M) is a model connecting manufacturers with consumers. The model removes logistics, inventory, sales, distribution, and other intermediaries enabling consumers to buy higher quality products at lower prices. C2M is useful in any scenario where the manufacturer can react to proven, consolidated, consumer-driven niche demand.

B2B2C Business Model

A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Account-Based Marketing

Account-based marketing (ABM) is a strategy where the marketing and sales departments come together to create personalized buying experiences for high-value accounts. Account-based marketing is a business-to-business (B2B) approach in which marketing and sales teams work together to target high-value accounts and turn them into customers.

Retail Business Model

A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Direct-to-Consumer Business Model

Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

Marketplace Business Models

A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

E-Commerce Business Models

We can classify e-commerce businesses in several ways. General classifications look at three primary categories:
– B2B or business-to-business, where therefore a business sells to another company.
– B2C or business-to-consumer, where a business sells to a final consumer.
– C2C or consumer-to-consume, or more peer-to-peer where consumers sell to each other.

Marketing vs. Sale

The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.

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Published on January 04, 2022 08:18

Direct And Indirect Competitors

Direct competitors are companies that offer the same product or service and that might have the same business and financial profile. Indirect competitors, on the other hand, are companies whose products or services while different could potentially satisfy the same customer needs. Competition in the digital era has become way more fluid, thus it’s important to take into account various overlapping factors to assess the competitive landscape.

Direct competitors

Direct competitors are two or more companies that offer the same product or service in the same market to satisfy the same consumer need.

McDonald’s and Burger King are one example with their respective Big Mac and Whopper hamburgers. Direct competition also occurs between Apple and Samsung smartphones in the consumer electronics industry.

Identifying direct competitors

Companies can identify their direct competitors in the following ways:

Customer feedback – the first and most obvious way is to survey consumers. Who were the various brands they considered before making a purchase?Market research – a more intensive process requiring the business to gather information from the websites and social media accounts of related businesses. Are their prices, values, business methods, online activities, or customer loyalty programs similar? Social media – consumers often share their buying experiences on platforms such as Reddit, Quora, and Tumblr. Others will ask for brand-specific recommendations.Indirect competitors

Indirect competitors describe businesses that offer different approaches to consumers to reach the same goal or satisfy the same need.

Many assume McDonald’s only competes with other fast-food restaurants, but the company also indirectly competes with home cooking, diet plans, and subscription meal boxes. Each of the businesses involved in offering these services is an indirect competitor because they are satisfying the same consumer need to avoid hunger.

When discussing indirect competition, it is also important to note that the comparison may be between two companies or two products. Indeed, the Monash University Marketing Dictionary says this about indirect competition: “A product that is in a different category altogether but which is seen as an alternative purchase choice; for example, coffee and mineral water are indirect competitors.”

Identifying indirect competitors

Indirect competition can be identified using these methods:

Keyword research – companies can use a dedicated keyword research tool to identify competitors who are targeting the same keywords. Alternatively, it may also be useful to perform a simple Google search for a broad keyword and take note of the competitors occupying the first few positions.Content research – many indirect competitors also write SEO-friendly blog posts and landing pages that are closely related to a product or service. In this context, indirect competitors may include businesses, individual bloggers, and publications.Key takeaways:Direct competitors are companies that offer the same product or service. Conversely, indirect competitors are companies whose products or services while different could potentially satisfy the same customer needs.McDonald’s and Burger King are one example of direct competitors with their respective Big Mac and Whopper hamburgers. Businesses endeavoring to determine their direct competitors can do so via market research, customer feedback, and social media.McDonald’s also has indirect competitors, including home-cooked meals, diet plans, and subscription meal boxes. Each of these is a McDonald’s competitor because they address the same need.

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The multi-criteria analysis provides a systematic approach for ranking adaptation options against multiple decision criteria. These criteria are weighted to reflect their importance relative to other criteria. A multi-criteria analysis (MCA) is a decision-making framework suited to solving problems with many alternative courses of action.

The SPACE (Strategic Position and Action Evaluation) analysis was developed by strategy academics Alan Rowe, Richard Mason, Karl Dickel, Richard Mann, and Robert Mockler. The particular focus of this framework is strategy formation as it relates to the competitive position of an organization. The SPACE analysis is a technique used in strategic management and planning.

Psychosizing is a form of market analysis where the size of the market is guessed based on the targeted segments’ psychographics. In that respect, according to psychosizing analysis, we have five types of markets: microniches, niches, markets, vertical markets, and horizontal markets. Each will be shaped by the characteristics of the underlying main customer type.

Agile Business Analysis (AgileBA) is certification in the form of guidance and training for business analysts seeking to work in agile environments. To support this shift, AgileBA also helps the business analyst relate Agile projects to a wider organizational mission or strategy. To ensure that analysts have the necessary skills and expertise, AgileBA certification was developed.

Business valuations involve a formal analysis of the key operational aspects of a business. A business valuation is an analysis used to determine the economic value of a business or company unit. It’s important to note that valuations are one part science and one part art. Analysts use professional judgment to consider the financial performance of a business with respect to local, national, or global economic conditions. They will also consider the total value of assets and liabilities, in addition to patented or proprietary technology.

Social psychologist Kurt Lewin developed the force-field analysis in the 1940s. The force-field analysis is a decision-making tool used to quantify factors that support or oppose a change initiative. Lewin argued that businesses contain dynamic and interactive forces that work together in opposite directions. To institute successful change, the forces driving the change must be stronger than the forces hindering the change.

In his 1985 book Competitive Advantage, Porter explains that a value chain is a collection of processes that a company performs to create value for its consumers. As a result, he asserts that value chain analysis is directly linked to competitive advantage. Porter’s Value Chain Model is a strategic management tool developed by Harvard Business School professor Michael Porter. The tool analyses a company’s value chain – defined as the combination of processes that the company uses to make money.

It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.

The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.

A SOAR analysis is a technique that helps businesses at a strategic planning level to:
Focus on what they are doing right.
Determine which skills could be enhanced.
Understand the desires and motivations of their stakeholders.

Developed by American academic Michael Porter, the Four Corners Analysis helps a business understand its particular competitive landscape. The analysis is a form of competitive intelligence where a business determines its future strategy by assessing its competitors’ strategy, looking at four elements: drivers, current strategy, management assumptions, and capabilities.

The 3C Analysis Business Model was developed by Japanese business strategist Kenichi Ohmae. The 3C Model is a marketing tool that focuses on customers, competitors, and the company. At the intersection of these three variables lies an effective marketing strategy to gain a potential competitive advantage and build a lasting company.

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Published on January 04, 2022 07:45

What Are Customer Retention Strategies? Customer Retention Strategies In A Nutshell

Customer retention strategies are used by businesses to retain their existing customers and build positive relationships with them. Customer retention itself is the ability for a business to turn its customers into repeat buyers and prevent them from doing business with a competitor. Some of these strategies comprise responsive customer support, customer loyalty programs, email marketing, customer surveys, and contextual customer support.

Understanding customer retention strategies

Customer retention strategies are those that help an organization retain customers.

Customer retention is more efficient and more profitable than customer acquisition, which aims to move customers through a marketing funnel and convince them to buy products or services.

Perhaps unsurprisingly, customer retention strategies are the lifeblood of subscription-based companies and service providers. Regardless of the business, however, customer retention strategies must focus on improving the customer experience to a point where customers are willing to recommend a brand to their friends or family.

Five customer retention strategies

Here are five ways a business can make its customer experience more convenient, personal, or rewarding:

Responsive customer support

Research proves that agile and responsive customer support results in higher customer satisfaction. In fact, a 2021 study found that 73% of surveyed customers considered speedy support resolutions the key to a good experience. Even when a problem cannot be solved right away, it is important businesses respond as quickly as possible to set the process in motion.

Customer loyalty programs

These are an effective way to boost customer retention because the promise of rewards motivates customers to purchase more frequently. Businesses can award customers points simply for creating a new account. Others may reward customers based on the total purchase amount or offer a discount code for a subsequent order. Today, buyer analytics data makes it easy for a business to determine its most loyal customers and reward them accordingly.

Email marketing email-marketing

Email marketing leverages a set of tactics to build a stronger brand, drive traffic to your products, and build a solid funnel for converting leads into loyal customers. While email marketing isn’t new, it’s still one of the most effective marketing strategies to build a valuable business.

A customer retention strategy where purchase frequency is the focus. Many businesses shy away from email marketing, but in truth, the approach can be used to develop deeper relationships with customers before and after an initial purchase. Email marketing should always add value and not be seen as a carte blanche excuse to spam customers with offers.

Customer surveys

These are critical to determine what the business is doing right and what it could do better. While an organization can never please every customer on every occasion, surveys are used to gather important feedback that can help identify overlooked patterns or trends. This feedback can be supplemented by customer support officers who can identify complaints or problem topics that reoccur frequently.

Contextual customer support

For consumers, there is often nothing worse than having the explain the same problem multiple times to different support staff. To increase customer retention, staff can use a tool such as Zendesk to give them context and personalize the experience. For example, support staff can easily pull up information on a customer’s contact details, notes, preferred language, and any previous conversations to get up to speed quickly.

Key takeaways:Customer retention strategies are those that help an organization retain customers.Customer retention strategies are particularly important to subscription-based businesses. However, the supreme importance of customer retention over customer acquisition is relevant to any organization regardless of its business model.Examples of customer retention strategies include responsive customer support, customer loyalty programs, email marketing, customer surveys, and contextual customer support.

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Ansoff Matrix

You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

Blitzscaling Canvas

blitzscaling-business-model-innovation-canvas

The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Blue Ocean Strategy

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost–value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

Business Analysis Framework

Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

Gap Analysis

A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Business Model Canvas

The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Lean Startup Canvas

The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.

Digital Marketing Circle

A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

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Published on January 04, 2022 02:35

What Is Corporate Social Responsibility? Corporate Social Responsibility In A Nutshell

Corporate social responsibility (CSR) is a self-regulating business model that helps an organization remain socially accountable to itself, its stakeholders, and the general public. Corporate social responsibility is typically categorized into four types: environmental, ethical, philantropic, and economic.

Understanding corporate social responsibility

For most of recorded history, businesses have been driven by the singular desire to turn a profit, with money-making potential impacting every action taken or initiative pursued.

However, modern businesses have started to realize that they must do more than simply maximize profits for shareholders and executives. They now have a social responsibility to act in the best interests of employees, consumers, and society as a whole.

Corporate social responsibility is a form of self-regulation where the business strives to become socially accountable. While there is no single way to implement CSR principles, employees, consumers, and other stakeholders are now more likely to choose a brand that contributes to society in some shape or form.

To illustrate the importance of corporate social responsibility, a 2017 study found that 63% of American citizens hoped businesses would drive social and environmental change without being forced to do so by the government. Almost 75% said they would not do business with a company if it supported an issue contradictory to their own beliefs.

Corporate social responsibility types

Corporate social responsibility is typically categorized into four types:

Environmental

One of the most common forms of CSR is environmental responsibility. Here, companies seek to become environmentally friendly by reducing their greenhouse gas emissions and increasing their reliance on renewable energy. Alternatively, some companies choose to offset their environmental impact by planting trees or funding scientific research.

Ethical

Or any practice that compels the organization to behave in a fair and ethical manner, including the equitable treatment of stakeholders, leadership, investors, suppliers, employees, and customers. Ethical responsibility may also be demonstrated by an organization paying above minimum wage or making a commitment to avoid sourcing products from child labor.

Philanthropic

Where a business aims to make a positive impact on society by donating to charities, non-profits, or a similar organization of their own making. Certified B Corporations are a new kind of business type that balances purpose with profit. These organisations are legally required to consider the impact of their decisions on stakeholders.

Economic

The foundation for environmental, ethical, and philanthropic responsibility for without profit, the business would not survive long enough to implement other initiatives.

Corporate social responsibility case studies

Who are the companies leading the way in corporate social responsibility?

Let’s take a look at three examples below:

Starbucks

Starbucks is a retail company that sells beverages (primarily consisting of coffee-related drinks) and food. In 2018, Starbucks had 52% of company-operated stores vs. 48% of licensed stores. The revenues for company-operated stores accounted for 80% of total revenues, thus making Starbucks a chain business model.

On its website, Starbucks states that “It’s our commitment to do things that are good to people, each other and the planet. From the way we buy our coffee, to minimising environmental impact, to being involved in local communities.” To that end, Starbucks only purchases responsibly grown, ethically traded coffee. The company is also on a mission to donate 100 million coffee trees to suppliers by 2025 and also offers a pioneering college program for its employees.

Lego

Over the years, the Danish toy company has invested millions of dollars into addressing climate change and reducing waste. The company has an ambitious goal to go carbon neutral by 2022. It also recently launched the Lego Replay scheme, where unwanted Lego bricks are donated and redistributed to children in need.

TOMS

The strategy was popularized by TOMS Shoes in 2006, with the shoe company donating a new pair of shoes to a child in a developing country for every pair of shoes sold to a consumer. The one-for-one business model is based on the idea that for every consumer purchase, an equivalent or similar product is given away to someone in need.

A shoe, eyewear, and apparel company that was founded with corporate social responsibility embedded in its mission. TOMS donates a pair of shoes to disadvantaged children from more than 50 countries with every customer purchase. The company also has a strong environmental focus, with shoes made from hemp, organic cotton, and recycled polyester. Shoe boxes are also made from 80% consumer waste and printed with soy-based ink.

Key takeaways:Corporate social responsibility (CSR) is a business model helping an organization remain socially accountable to itself, its stakeholders, and the general public. Most consumers now expect businesses to adopt CSR principles before they make a purchase.Corporate social responsibility is broadly divided into four different types: environmental, ethical, philanthropic, and economic. The latter is important in ensuring the business remains viable long enough to make a positive impact.Starbucks is a company with established corporate social responsibility principles, sourcing fair-trade coffee beans and donating coffee plants to its farmers. Danish toy company Lego is reducing toy waste and donating used bricks to those in need, while shoe company TOMS matches every shoe purchase with a donation to disadvantaged children in over 50 countries.

Read Next: ESG Criteria, Competitive Intelligence.

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Environmental, social, and governance (ESG) criteria comprise a set of standards socially responsible investors use to evaluate a company based on three main criteria: environmental, social, and corporate governance. Combined they help assess the social responsibility effort of companies in the marketplace. change-management

Change is an important and necessary fact of life for all organizations. But change is often unsuccessful because the people within organizations are resistant to change. Change management is a systematic approach to managing the transformation of organizational goals, values, technologies, or processes. risk-management-framework

An effective risk management framework is crucial for any organization. The framework endeavors to protect the organization’s capital base and revenue generation capability without hindering growth. A risk management framework (RMF) allows businesses to strike a balance between taking risks and reducing them.

Timeboxing is a simple yet powerful time-management technique for improving productivity. Timeboxing describes the process of proactively scheduling a block of time to spend on a task in the future. It was first described by author James Martin in a book about agile software development. herzbergs-two-factor-theory

Herzberg’s two-factor theory argues that certain workplace factors cause job satisfaction while others cause job dissatisfaction. The theory was developed by American psychologist and business management analyst Frederick Herzberg. Until his death in 2000, Herzberg was widely regarded as a pioneering thinker in motivational theory. kepner-tregoe-matrix

The Kepner-Tregoe matrix was created by management consultants Charles H. Kepner and Benjamin B. Tregoe in the 1960s, developed to help businesses navigate the decisions they make daily, the Kepner-Tregoe matrix is a root cause analysis used in organizational decision making. adkar-model

The ADKAR model is a management tool designed to assist employees and businesses in transitioning through organizational change. To maximize the chances of employees embracing change, the ADKAR model was developed by author and engineer Jeff Hiatt in 2003. The model seeks to guide people through the change process and importantly, ensure that people do not revert to habitual ways of operating after some time has passed. catwoe-analysis

The CATWOE analysis is a problem-solving strategy that asks businesses to look at an issue from six different perspectives. The CATWOE analysis is an in-depth and holistic approach to problem-solving because it enables businesses to consider all perspectives. This often forces management out of habitual ways of thinking that would otherwise hinder growth and profitability. Most importantly, the CATWOE analysis allows businesses to combine multiple perspectives into a single, unifying solution. agile-project-management

Agile project management (APM) is a strategy that breaks large projects into smaller, more manageable tasks. In the APM methodology, each project is completed in small sections – often referred to as iterations. Each iteration is completed according to its project life cycle, beginning with the initial design and progressing to testing and then quality assurance.

A holacracy is a management strategy and an organizational structure where the power to make important decisions is distributed throughout an organization. It differs from conventional management hierarchies where power is in the hands of a select few. The core principle of a holacracy is self-organization where employees organize into several teams and then work in a self-directed fashion toward a common goal. cage-distance-diagram

The CAGE Distance Framework was developed by management strategist Pankaj Ghemawat as a way for businesses to evaluate the differences between countries when developing international strategies. Therefore, be able to better execute a business strategy at the international level. balanced-scorecard

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business. what-is-scrum

Scrum is a methodology co-created by Ken Schwaber and Jeff Sutherland for effective team collaboration on complex products. Scrum was primarily thought for software development projects to deliver new software capability every 2-4 weeks. It is a sub-group of agile also used in project management to improve startups’ productivity. kanban

Kanban is a lean manufacturing framework first developed by Toyota in the late 1940s. The Kanban framework is a means of visualizing work as it moves through identifying potential bottlenecks. It does that through a process called just-in-time (JIT) manufacturing to optimize engineering processes, speed up manufacturing products, and improve the go-to-market strategy.

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Published on January 04, 2022 01:58

What Is Competitive Intelligence? Competitive Intelligence In A Nutshell

Competitive intelligence is the systematic collection of information by a company on its industry, business environment, competitors, products, and consumers. Insights are then used to help the company develop its strategy or improve its competitive position. Competitive intelligence can be assessed according to seven elements: sector intelligence, market intelligence, competitive intelligence, innovation intelligence, sales intelligence, procurement & supply chain intelligence, and Environmental, social, & governance (ESG) intelligence.

Understanding competitive intelligence

Today, the rate of competition and market disruption is cause for concern for many businesses. According to research by Accenture, 63% of companies are currently experiencing disruption with 44% of those companies highly susceptible to the phenomena.

Competitive intelligence helps a business secure and maintain a competitive advantage by developing a core strategy based on data-backed predictions. In other words, the business uses competitive intelligence to capture, analyze, and then act on information related to their particular competitive landscape. This information can be gleaned from the market, competitors, products, supply chain, industry, and target audience.

Perhaps unsurprisingly, there are many benefits to developing strategies based on competitive intelligence. These strategies enable businesses to:

Identify industry trends or competitive threats ahead of time.Better analyze their strengths and weaknesses. Allocate resources more efficiently. Maximize their return on investment (ROI), andImprove product development and product launching.The seven elements of competitive intelligence

The seven elements of competitive intelligence help remind businesses that there is more to the approach than simply analyzing its competitors.

To develop a broad, holistic strategy, each business should consider the following seven elements of intelligence:

Sector intelligence external-economies-of-scale

External economies of scale describe factors beyond the control of a company that are present in the same industry and that lead to cost benefits. These factors may be positive or negative industry or economic trends. External economies of scale, therefore, are business-enhancing factors occurring outside a company but within the same industry.

Sectors are large groups of companies with similar primary business activities such as finance, healthcare, and communications. Sector intelligence evaluates large-scale economic trends and fluctuations.

Market intelligence comparable-company-analysis

A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.

As the name suggests, market intelligence pertains to information about the market the business operates in. Market intelligence can strengthen market positioning and clarify competitors, customers, growth opportunities, and current or future problems. Since most markets are dynamic, the business needs to prioritize the regular collection of market intelligence to remain competitive.

Competitive intelligence porter-five-forces

Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces

Which is focused on the movements and decisions of competitors in a given industry. How is the competitor negotiating sales deals or developing products? What are the key takeaways from their marketing campaigns?

Innovation intelligence innovation-funnel

An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.

Businesses need to innovate without overextending themselves and diluting their brand. Disruptive businesses need to find gaps in a market where innovation is likely to be commercially viable.

Sales intelligence sales-cycle

A sales cycle is the process that your company takes to sell your services and products. In simple words, it’s a series of steps that your sales reps need to go through with prospects that lead up to a closed sale.

This is a form of data-backed intelligence where sales teams create customer profiles, generate leads, and close accounts. Sales intelligence encourages businesses to monitor the market for certain triggers which indicate that a customer is ready to buy.

Procurement and supply chain intelligence supply-chain

The supply chain is the set of steps between the sourcing, manufacturing, distribution of a product up to the steps it takes to reach the final customer. It’s the set of step it takes to bring a product from raw material (for physical products) to final customers and how companies manage those processes.

This type of collective intelligence gives the business insight into supply and demand figures, production costs, storage costs, regulatory and taxation costs, material supply intelligence, and competitive sales prices. Essentially, procurement and supply chain intelligence details the required rate of production based on demand.

Environmental, social, and governance (ESG) intelligence esg-criteria

ESG intelligence tracks the environmental footprint of a business and details the sustainability measures introduced by competitors. ESG also encompasses social welfare and humanitarian initiatives and the relationships between organizations and national and foreign governments. As consumer awareness around ESG principles increases, organizations must incorporate them into their strategies to remain competitive.

Key takeaways:Competitive intelligence is the collection of information by a company on its industry, business environment, competitors, products, and consumers. Insights are used to help the company develop its strategy or improve its competitive position.Strategies based on competitive intelligence help a business improve product development, identify industry trends or competitive threats ahead of time, and maximize return on investment.The seven elements of competitive intelligence remind businesses that there is more to the approach than simply analyzing competitors. Intelligence must also be considered from a sector, market, innovation, sales, procurement, and ESG perspective.

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Published on January 04, 2022 01:20

What Is A Comparative Advantage? The Comparative Advantage In A Nutshell

Comparative advantage was first described by political economist David Ricardo in his book Principles of Political Economy and Taxation. Ricardo used his theory to argue against Great Britain’s protectionist laws which restricted the import of wheat from 1815 to 1846. Comparative advantage occurs when a country can produce a good or service for a lower opportunity cost than another country.

Understanding comparative advantage

To better understand the rationale behind comparative advantage, one must first understand the concept of opportunity cost. An opportunity cost is simply the potential benefit that is relinquished when one option is selected over another.

In the context of comparative advantage, the opportunity cost for a nation is the cost required to produce a good or service. The nation with the lowest opportunity cost, or the one able to produce a good or service for the lowest price, is the nation holding a comparative advantage.

Ricardo used his theory to argue that free trade was viable even when one partner in the deal held an absolute advantage in all areas of production. In other words, where one nation could produce goods and services more cheaply and more efficiently than its trade partner.

The primary concern for nations undertaking free trade is that they will be outproduced by a country with an absolute advantage in most areas, resulting in many imports but no exports. To that end, the theory stipulates that a nation should specialize in exports where it enjoys a comparative advantage and import any good or service where it does not. Specializing in this way means the country can channel additional labor, capital, and natural resources to strengthen its advantage in a given market.

Comparative advantage examples

Comparative advantage can be seen in the following examples:

Call centers

Many Western companies relocate customer support call centers to India because it is cheaper than operating them in their own countries. While many customers experience miscommunication issues with support staff due to the language barrier, the cost of operating these foreign centers is so low that the opportunity cost for the company remains viable. Indeed, the company may use the savings derived from low-cost call centers to then provide cheaper internet or phone services to consumers.

Oil producers

Nations such as Saudi Arabia, Kuwait, and Mexico have a comparative advantage in chemical production since many of the raw materials required to synthesize chemicals are produced when oil is distilled. This makes the chemicals inexpensive to produce, which reduces opportunity costs.

Food production

Ireland has a long-established comparative advantage in producing milk, cheese, butter, and grass-fed beef. This is because the country enjoys a relatively wet climate and has a large amount of arable land suitable for grazing. Ireland has also invested heavily in these exports via the Origin Green program to educate producers on environmentally sustainable farming and food production. This investment makes Ireland’s food and drink products sought after globally and reinforces its comparative advantage.

Key takeaways:Comparative advantage occurs when a country can produce a good or service for a lower opportunity cost than another country. In this context, the opportunity cost for a nation is the cost required to produce a good or service.Comparative advantage was popularised by economist David Ricardo, who suggested that a nation should specialize in exporting goods that it could produce for the lowest cost and import any goods or services where it could not.Comparative advantage can be seen in the way some companies operate customer support call centers in India and then use cost savings to offer cheaper products to consumers. Comparative advantage can also be seen in Irish food exports and chemical production in oil-rich nations.

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Economies of Scale

Diseconomies of Scale

Network Effects

Negative Network Effects

Creative Destruction

Happiness Economics

Command Economy

Animal Spirits

State Capitalism

Boom And Bust Cycle

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Published on January 04, 2022 00:57

January 3, 2022

The Razor Blade Business Model In A Nutshell

The razor blade business model, also known as the razor-razorblade model, involves selling a product at a lower price to then selling a related product later for a profit. The razor and blade business model has been popularized by King C. Gillette, founder of safety razor company Gillette, which sold a durable razor at cost while selling disposable blades at a premium.

Understanding the razor-blade business model

The razor blade business model describes the strategic positioning of one product as free or complimentary to boost sales of a dependent product that generates revenue.

The model is often attributed to King C. Gillette, founder of safety razor company Gillette. The entrepreneur reasoned that if he could sell consumers a durable razor handle for very little, he could sell the disposable replacement blades at a premium price.

The company reaped the rewards of Gillette’s strategy since the expensive blades needed to be replaced constantly. What’s more, the consumer had no choice but to purchase them as they were the only blades that were compatible with the razor handle. The strategy was such a success that current owner Proctor & Gamble continues to use it today.

The razor-blade business model intends to avoid competition by offering a free or low-cost product in the first instance – even if the business must incur a loss. Once customer loyalty has been attained, the company has an easier time selling them more profitable products.

Note that the razor-blade model is similar to the freemium model, where digital products and services are offered for free under the expectation that a consumer will pay for features at some future point.

Companies utilizing the razor-blade business model

Aside from razor blades themselves, there are many other brands in different industries utilizing this business model.

Let’s take a look at a few of these below:

Keurig – the company sells a range of single-serve coffee makers, with some available for less than $100. Where Keurig makes money is in the sale of coffee pods, with a 6-pack alone retailing for around $20. Microsoft, Nintendo, and Sony – these companies have almost always sold their video game consoles at close to cost price or less. The razor-blade model is prevalent in the industry because consoles require hardware updates and price cuts to ensure they remain relevant over long periods. The “blade” in this case is the video game itself. Hewlett Packard – HP has a wide range of printers, with some of the cheapest retailing for around the same cost as an ink refill. The company is counting on its customers having to constantly replace the toner cartridges to make moneyPotential limitations of the razor-blade business model

The benefits of the razor-blade business model for businesses are well stated. But there do also exist some limitations:

Environmental costs – some companies using the model have been criticized for the amount of waste they generate. In today’s world, businesses are expected to be environmental stewards and those that are seen to be destructive will lose customers to their competitors. Coffee pod brands were banned in some workplaces because their compositional mix of plastic, metal and coffee grounds made them impossible to recycle.Brand resentment – some consumers also become resentful of the company for effectively forcing them to use a certain product. This feeling may be exacerbated by prices the consumer considers too expensive. For example, many consumers are bemused by the fact that the price of ink is comparable to the price of a printer.Outlay risk – brands who implement the razor-blade model always run the risk that they will not recoup their initial costs. If the business is heavily subsidizing the initial product, poor sales in the premium product may result in an overall loss.Competition – when a company sells its premium product with a higher margin, a competitor can offer the same product for less without incurring the expenses associated with developing the free or low-cost product.Key takeaways:The razor blade business model also known as the razor-razorblade model, involves selling a product at a lower price to then sell a related product later for a profit.The razor blade business model has been used by brands such as Keurig, Microsoft, Nintendo, Sony, and Hewlett Packard.The razor blade business model endeavors to reduce competition and enable consumers to try a product at a low cost before turning them into repeat buyers. However, the model has been associated with environmental concerns and brand resentment. There is also the risk that the premium product becomes unprofitable or a new competitor emerges.

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Franchising is a business model where the owner (franchisor) of a product, service, or method utilizes the distribution services of an affiliated dealer (franchisee). Usually, the franchisee pays a royalty to the franchisor to be using the brand, process, and product. And the franchisor instead supports the franchisee in starting up the activity and providing a set of services as part of the franchising agreement. Franchising models can be heavy-franchised, heavy-chained, or hybrid (franchained).Total cost of Ownership total-cost-of-ownership

The total cost of ownership (TCO) estimates the total cost associated with purchasing and operating an asset. TCO is a more comprehensive way to understand the real cost of ownership. Thus, how much it really costs in the long-term to own something, with all its related direct and indirect purchase costs.Fractional Ownership $fractional-ownership$ Fractional ownership is percentage ownership in an asset where individual shareholders share the benefits in the asset. These benefits may include income sharing, priority access, reduced costs, or other usage rights. Fractional ownership occurs when an individual splits the costs of an asset with others while retaining a portion of the ownership and usage rights to the asset. This makes fractional ownership ideal for expensive items such as vacation homes, yachts, sports cars, high-end motor homes, and private jets.Leasing Business Model leasing-business-model

Under the leasing business model, a company purchases a product and then leases it to a customer for a periodic fee. The seller passes the property of the item to the lessor, which is a financier, that enables a buyer (the lessee) to use the item for a given period of time. In the end, the buyer can exercise the option to buy the item at the current market rate. This agreement makes it possible for the seller to dispose of the item, for the financier to make a profit on it, and for the buyer to use it while avoiding total costs of ownership.

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Published on January 03, 2022 06:09

What Is Product-As-A-Service? Product-As-A-Service In A Nutshell

Product-as-a-service is a business model where a service is provided in an area traditionally served via the purchase of a product. Product-as-a-service enables consumers to purchase a desired result rather than the product responsible for delivering that result. In the Web 2.0 era where subscription-based business models took over, many companies turned their static products, into dynamic services, sold on a product-as-a-service business model.

Understanding product-as-a-service

Product-as-a-service has gained traction in recent years as more companies attempt to replicate the software-as-a-service (Saas) business model and its associated subscription revenue. Early in the piece, product-as-a-service was an add-on to standard products. For example, the purchaser of a new car could also purchase maintenance for a monthly fee because the dealership had access to advanced performance data and technical equipment.

The difference today is ambient computing, a broad term that describes an environment of smart devices, artificial intelligence, and data that enables computers to function without the need for direct human commands. This environment has been facilitated by the proliferation of cloud computing and Internet of Things (IoT) devices, which means PaaS can now realize its full potential as a business model.

Everything from washing machines to wind turbines are now available as a service, with consumers not purchasing a product in a lump sum but instead paying for access to the product as and when they require it. This approach means product-as-a-service incorporates the circular economy model, where the product can be reused, repaired, recycled, or redistributed as necessary. For the manufacturer, PaaS is a business trend that advocates practicality and sustainability over conspicuous consumption.

The three entities of a PaaS agreement

In a PaaS agreement, there are normally three entities:

The client – who purchases the product as a service.The manufacturer – who delivers the product and its associated services, andThe platform provider – who handles infrastructure that, depending on the product, may include data collection, installation, transmission, maintenance, storage, security, and analytics. In some cases, the manufacturer and platform provider may be the same company.Product-as-a-service examples

The product-as-a-service model is apparent in any situation where a consumer pays to use a product instead of purchasing the product outright. Examples include:

Leasing or renting a car leasing-business-model

Companies such as Hertz, Avis, Dollar, and even Uber can be considered product-as-a-service providers. Instead of selling cars, they sell transportation services.

Tool and equipment hire

The company hiring out elevated work platforms is in fact selling the service of clean windows to apartment block owners. Similarly, the company selling pressure washers is selling homeowners a spotless driveway or patio.

Airport lighting

Schiphol Airport in the Netherlands is powered by lighting that is rented from Philips. The lighting system remains the property of Philips who is responsible for maintenance, repairs, and replacement.

Aircraft engines

As part of its TotalCare service, Rolls-Royce removes the burden of engine maintenance from airline companies and absorbs the associated risks. Both Rolls Royce and the airline benefit from this service. Rolls Royce makes money when its engines are in service and the airline makes money when its aircraft are in service.

Key takeaways:Product-as-a-service is a business model where a service is provided in an area traditionally served via the purchase of a product. PaaS is a more sustainable business model because products are reused, repaired, recycled, or redistributed as necessary.There are three entities in a product-as-a-service agreement: the client, the manufacturer, and the platform provider. Platform providers have benefitted from the proliferation of ambient computing, artificial intelligence, and IoT devices.Product-as-a-service has existed in the leasing or hiring of vehicles, tools, and other equipment for many years. Modern interpretations of the business model can be seen at Schiphol Airport and in Rolls Royce aircraft engines.

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C3 AI is a cloud-based Enterprise AI SaaS company. It built a set of proprietary applications (known as the C3 AI suite) that offer its clients the ability to integrate digital transformation applications with fast deployment and no overheads. C3 AI makes money primarily via its subscription services and professional fees.Microsoft Azure make-money-with-machine-learning/

The AI Ecosystem has generated a multi-billion dollar industry, and it all starts from data. Going upward in the value chain there are the Chips (GPUs) that allow the physical storing of Big Data (a dominant player is NVIDIA). That Big Data will need to be stored on platforms and infrastructures that SMEs can’t afford. That is where players like Google Cloud, Amazon AWS, IBM Cloud, and Microsoft Azure come to the rescue. At a large scale, a few corporations control the Enterprise AI market; while nations like China, the USA, Japan, Germany, the UK, and France have widely bet on it!

As you can see from the visualizations above, cloud players are manufacturing models and algorithms, that becomes an integrated part of their cloud-based offering and platform. This is what attracts more AI developers and companies to become part of the ecosystem, thus, in turn, consuming more cloud infrastructure.

Google Cloud google-cloud-business-model

In 2019, Alphabet’s (Google) Cloud Business was an almost $9 billion unit within Alphabet’s Google overall business model; to gain a bit of context; Microsoft intelligent cloud netted nearly $39 billion and Amazon AWS $35 billion in the same year.Amazon AWS amazon-aws-business-model

Amazon AWS follows a platform business model, that gains traction by tapping into network effects. Born as an infrastructure built on top of Amazon’s infrastructure, AWS has become a company offering cloud services to thousands of clients from the enterprise level, to startups. And its marketplace enables companies to connect to other service providers to build integrated solutions for their organizations.IBM Cloud ibm-business-model

Started in 1911 as Computing-Tabulating-Recording Company (CTR), called then International Business Machines by 1924. IBM primarily makes money by five segments (cognitive solutions, global business services, technology services, and cloud platforms, systems, and global financing) with also innovative products such as IBM Watson and IBM Blockchain. ibm-competitors

International Business Machines Corporation (IBM) is an American multinational technology company. It was founded in New York as the Computing-Tabulating-Recording Company in 1911 by Charles Ranlett Flint. IBM is a diverse company with a similarly diverse portfolio of products and services. It produces and sells hardware, middleware, and software. It also offers hosting and consultancy services in nanotechnology and mainframe computers. What’s more, IBM has a strong culture in research and development, filing the most U.S. patents of any business for the past 28 years.

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Published on January 03, 2022 03:10

What Is The Pay-As-You-Go Business Model? The Pay-As-You-Go Business Model In A Nutshell

The pay-as-you-go business model enables consumers to make a one-time purchase of a product or service without having to subscribe to a regular payment. The pay-as-you-go business model has become an important companion and alternative, to subscription-based business models. Where users that don’t want to pay regularly for a service, can opt into a pay-as-you-go-plan. For cloud business models, an hybrid (subscription and pay-as-you-go) is often the standard.

Understanding the pay-as-you-go business model

For whatever reason, many consumers are reluctant to migrate to a subscription plan from a free product. Unless the product is supported by a revenue stream such as advertising, there can be little scope for the business to make money.

One alternative is the pay-as-you-go (PAYG) business model, which minimizes costs for the consumer since they only need to pay when they require access and can afford to do so. As a result, this model may appeal to budget-conscious consumers who are infrequent or temporary users of a product or service.

There are two ways this model can be implemented:

The customer purchases a certain amount of credits for a fee, with the credit balance decreasing as they use the product or service. Once the credit balance reduces to zero, the customer no longer has access and must purchase more credit. The customer is billed for the number of resources they use over a predetermined period. Resources may be data, user, feature, storage, or time-based.

Note that some companies will utilize a mixture of both approaches.

Examples of the pay-as-you-go business model

Consumption-based pricing models can be found in many industries, including:

Telecommunications

Most smartphone and internet providers offer prepaid data to consumers for a fee. Once the data has been used, some providers revert to dial-up speeds or require the consumer to purchase more.

Internet advertising

Google and Facebook make money by selling prepaid advertising credits for their respective pay-per-click (PPC) platforms.

Software-as-a-service (SaaS)

These platforms tend to charge clients based on the resources they consume, including the number of messages sent or the amount of storage used in gigabytes.

Cloud infrastructure

Similarly, companies selling access to cloud infrastructure may charge based on storage costs, API calls, or bandwidth, among other things.

Utilities

Power and water companies bill customers according to how much power and water they use. Some may also offer consumers credit to put toward future bills if they pay the current bill before the due date.

Strengths and weaknesses of the pay-as-you-go business model

There are several clear and important strengths of the pay-as-you-go business model for consumers and businesses. These include:

A smaller barrier to entry – for the low-income consumer, the model makes products and services once out of their reach more accessible. Accessibility is also increased for the consumer who prefers not to commit to a subscription. For the business, this increases the size of the total addressable market.Better tracking – since the consumer is only paying when they use the product, the business can better manage its cost-per-use. Products and product features that deliver the best returns will become evident over time and the business can gain a deeper understanding of consumer buying and usage patterns.

Let’s now take a look at some of the weaknesses:

Lack of customer retention – by its very nature, the pay-as-you-go business model does not favor customer retention. Without an established and consistent opportunity to build a relationship, the business may find it difficult to keep consumers engaged. Unpredictable revenue – it can also be problematic to predict revenue because consumers are purchasing the product or service on their schedule. Revenue may fluctuate to such an extent that cash flow may be impacted.Key takeaways:The pay-as-you-go business model enables consumers to make a one-time purchase of a product or service without having to subscribe to a regular payment.The pay-as-you-go business model is found in many industries, including telecommunications, advertising, software-as-a-service, cloud infrastructure, and utilities.The pay-as-you-go business model lowers entry barriers for consumers and enables the business to determine the products delivering superior ROI. However, the model does not favor customer retention and revenue is difficult to predict.

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