Gennaro Cuofano's Blog, page 199

Customer Segmentation: Types, Examples And Case Studies

Customer segmentation is a marketing method that divides the customers in sub-groups, that share similar characteristics. Thus, product, marketing and engineering teams can center the strategy from go-to-market to product development and communication around each sub-group. Customer segments can be broken down is several ways, such as demographics, geography, psychographics and more.

Why customer segmentation matters



[image error]Market segmentation is the process of dividing the market into sub-groups. Market segmentation can be based on characteristics such as age, behaviors, income levels, and more. This process helps to understand what your key customers want, where they are, and how to talk to them effectively.

No matter how niche your brand may be, it is important to keep in mind that every customer is, in fact, an individual. What’s more, they deserve to be treated as such.

Of course, most businesses will not have the resources to cater to every customer on an individual basis. They can, however, more broadly assess the needs of their customers according to certain metrics.

Customer segmentation in a nutshell

Customer segmentation is the process of separating your customers into groups according to certain traits (e.g. personality or interests) and factors (age or income level). 

So why should customers be segmented? There are several important reasons:

It allows businesses to tailor marketing strategies and ad campaigns according to particular groups of people.It enables businesses to learn about their consumers on a deeper level. And with this increased understanding, to create better products that resonate with consumer needs.Enhanced customer support – since businesses with customer segments are better able to predict problems ahead of time.Conversely, segmentation may also identify groups of consumers previously unknown to the business – allowing marketing resources to be directed toward these untapped groups.

Now that we have a basic understanding of customer segmentation and why it should be implemented, let’s look at some common customer segment types.

Demographics 

Demographic data is relatively straightforward and includes information on age, gender, marital status, income, and education level. It is perhaps the most well-known and well utilized of all customer segments, because demographic data is easy to obtain through market research.

A simple example of demographic customer segmentation might involve the marketing of a high-end sports car. The manufacturer may want to target consumers that are unmarried or divorced, have a high income, and be at or approaching retirement age.

While the above examples deal with business to consumer marketing, demographic segmentation can also be used in business to business marketing. In this case, businesses may target the industry, job function or company size as part of their marketing efforts.

Geography

Geographical segments detail such parameters as climate, zip code, land use (urban or rural), and the radius around a particular point of interest. But it also concerns the scope and extent of potential marketing efforts. Smaller organizations, for example, may target consumers living in specific towns or cities. Larger organizations may target consumers according to their country or continent of residence.

If we return to the sports car example, let’s assume that the car is marketed primarily as a convertible. As a result, the manufacturer may choose to target specific countries (or geographic areas) with sunny climates that are conducive to driving with the top down, so to speak. 

Public transport operators could also use geographic segments to target commuters living within 15 minutes of a train station. They could use this information to develop a marketing campaign to convince commuters to leave the car at home and take the train instead.

Psychographics 



[image error]Psychographic segmentation is a form of market segmentation, that looks at consumers into sub-groups that share specific psychological characterises, that comprise activities, interests, and opinions of customers. The rise of data-driven marketing enabled psychographic segmentation to become a key element of digital marketing activities to personalize those campaigns and reach a micro-audience.

Psychographic segments include such things as socioeconomic class, lifestyle, and personality traits. They also include factors that are big drivers of buying decisions, such as values, motivations, attitudes, and conscious or subconscious beliefs. 

However, psychographic data is more difficult to collect than demographic data. Why? Because it is more subjective and requires deeper research to unearth. Psychographic segments and the information that comprises them are also more fluid because motivations, beliefs and values can change over time.

The luxury sports car manufacturer may target consumers whose values and motivations relate to status, freedom, and fine craftsmanship. But if, for example, the consumer who bought a 2-seater convertible suddenly welcomed grandchildren into his life, he may then prioritize safety and reliability over status and freedom.

Of course, marketing departments cannot plan for every contingency. But they must be aware that psychographic customer segmentation is fluid and has the potential to shift over time.

Behavioural 

Behavioral segments include a consumer’s direct interactions with a business. In other words, behavior dictates how they act according to their demographic and psychographic attributes. 

The behavioral segment encompasses spending habits, product/service usage, and the perceived or actual benefits of such usage.

Behavioral segments are derived from internal data that is collected by the business itself. It may include data on how consumers use a product and the frequency with which they do so. Furthermore, information may also include the specific benefits that the consumer is after, such as a time or money saving or loyalty status. 

Perhaps most importantly, behavioral segments clarify a consumer’s willingness to purchase. If a typical sports-car driver likes to upgrade to the new model every three years, then it is the marketing team’s priority to understand this cycle and market to this segment accordingly. Similar predictive behavioral learning is also utilized by Netflix, who segment their users according to their content preferences and then recommend content in similar genres.

Technographic 

Technographic segmentation is segmentation according to a consumer’s preferred choice of technology. Think smartphones, software, operating systems, desktops, and apps. As technology becomes increasingly prevalent in the lives of consumers, technographic segmentation has never been more important to marketing departments. 

Business to consumer marketing can also use technographic segmentation to target consumers according to their social media use. In their Harvard Business School published book Groundswell, authors Li and Bernoff suggest that marketing teams further divide their technographic segments according to social media use.

Each “sub-division” requires a different marketing strategy. Some of the more common sub-divisions include:

Creators – who maintain a blog or website or upload music or videos.Critics – who post reviews of products or services or who like to contribute to forums or blog posts.Joiners – who maintain active social media accounts.Spectators – who read blogs, listen to podcasts, or watch video content without contributing or participating. 

Business to business (B2B) also stands to benefit by technographic segmentation. Specific parameters in the B2B sphere include network and storage capabilities, cloud utilization, and big data technologies. All B2B interactions should segment businesses according to the prevalence of their technological capabilities before the marketing strategy is developed.

Key takeaways  

Customer segmentation is a crucial part of any marketing strategy, but some businesses may be daunted by the initial investment of time and money. 

However, customer segmentation concerns serving customers and serving them well. Those who do not invest in segmentation run the risk of losing their customers to a competitor. Accurate and detailed segmentation allows businesses to understand their customers on a deeper level and increases the probability of retaining them.

For the business, this increases conversion rates and drives down marketing costs through efficient, customer-focused communication.

Read next:

Types of Business Models You Need to KnowBusiness Strategy: Definition, Examples, And Case StudiesWhat Is Market Segmentation? the Ultimate Guide to Market SegmentationMarketing Strategy: Definition, Types, And ExamplesMarketing vs. Sales: How to Use Sales Processes to Grow Your BusinessHow To Write A Mission StatementWhat is Growth Hacking?

The post Customer Segmentation: Types, Examples And Case Studies appeared first on FourWeekMBA.

New Product Development (NPD): New Product Development Process In A Nutshell

Product development, known as new product development process comprises a set of steps that go from idea generation to post launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization and post launch review.

Why product development matters

In an increasingly connected world, average product life-cycles are incredibly short. To remain competitive, businesses must continually innovate by developing new products. And yet most of them fail.  

So how do businesses maximize their chances of success? It starts by adopting a systematic and strategic product development process. The process should also have a clear understanding of consumers, competitors, and the market in which the product might be released.

The New Product Development (NPD) process is one such way that a new product idea can graduate beyond the concept stage. Here is a more detailed look at this eight-step process, which turns a market opportunity into a product that is available for sale, thus enabling a sustainable business model.

1. Idea Generation 

Every great product starts with an even better idea. Ideas can be generated from a variety of internal and external sources. Internal sources include ideas stemming from market research conducted by the Research and Development team. Much internal creativity can also be attributed to employees, with a PricewaterhouseCoopers study suggesting they are responsible for at least 45% of creative ideas.

External sources of idea generation, on the other hand, are derived from distributors and even from competitor analysis. But perhaps the most useful ideas come from the consumers themselves. Since the consumer is the sole person who will define the success or failure of the finished product, businesses must understand their needs, wants, and desires above all.

2. Idea Screening

As you might have guessed, the idea generation step will generate ideas for a lot of potential products. Unfortunately, not all will be commercially viable.

How do we sort the wheat from the chaff, as it were?

Each idea should be evaluated on its own merits according to some key constraints:

Compatibility – is the idea compatible with the objects of the business?Relevance – is the idea relevant to the niche the business occupies and to the goals of the business itself?Assumptions – are the assumptions that the idea is based on valid? That is, is there enough scope or confidence to move past the screening step?Constraints – what (if any) are the internal and external impediments that would potentially prohibit the idea becoming a real product?Feasibility – is the idea feasible, given the resources available?Value – an important step that predicts an idea’s return on investment (ROI).Risks – similar to constraints in that internal and external risks can delay idea development.

Importantly, the screening process prevents two types of errors. The first is called a drop error – or the dismissal of a good idea. The second, a go error, involves proceeding with a bad idea.

3. Concept Testing

In this third step, an idea evolves into a tangible concept that has been refined by screening.

Another way to think about a concept is that it is a presentable idea. For example, an idea may be a new barbershop. A product concept, however, might be a barbershop that caters to middle-aged professionals who enjoy a beer or glass of whiskey while their hair is cut.

Indeed, businesses should be crystal clear on the potential target audience of the product and the value the product would provide. In other words, does the consumer understand the product or service? Do they even need or want it? Often, the best way to find out is to ask them or have them order it.

4. Business Case Analysis

By the time a business reaches this fourth step, they hopefully have a product that has been the subject of internal and external review. A business case analysis involves making sales, costs, and profit projections to determine how valuable the potential product or service is in dollar terms.

Accurate sales projections can be gleaned by considering the sales figures of direct competitors. From this data, a business can clarify how many units they must sell to break even or better still, make a profit.

Of course, there is more to new product development than profit and loss. The business case analysis must also consider the cost of developing the product itself. Research and development, manufacturing, finance, and marketing are all expenditures that must be accurately forecasted.

5. Product development

Up until this point, the potential product has existed in 2-D form on a piece of paper. Now, in the fifth step, it is time to turn the concept into three-dimensional reality.

This is achieved by the development of several prototypes – with each representing various physical versions of the product. Prototypes help businesses avoid putting all their eggs in one basket because with more iterations, there is more chance that at least one prototype will be successful.

Such prototypes will then need to be tested for safety, durability, and functionality while still living up to customer expectations. This brings us to the next step!

6. Test marketing

Test marketing is where it all starts to come together. A prototype is launched with its marketing plan to a specific pilot market segment. This allows businesses to track the effectiveness of the overall package without spending vast sums of money on a full rollout. 

Test marketing is a validating process and allows for product refinement if required. It also allows for changes to be made to the marketing strategy – whether that be in pricing, branding, positioning, or advertising.

Businesses can use a few different test markets, including:

Standard test markets – small representative markets that are subject to a full marketing campaign. The response of the smaller market is extrapolated outward to gauge the potential success of a broader campaign.Control test markets – some businesses will agree to showcase new, untested products in their stores for a fee. Control test markets are generally less expensive and more efficient than the standard test market. But there is also the risk that competitors gain access to the new product before it has been commercialized.Simulated test markets – as the name suggests, businesses simulate a shopping environment and analyze consumer behavior around the new product. Simulated test markets have the benefit of incorporating customer interviews for deeper research around buying preferences.



7. Commercialization

Commercialization is the process that consumers are undoubtedly most familiar with. The new products are being mass-produced and distributed widely. But behind the scenes, businesses must decide when to launch a product and where it will be launched.

Early in the commercialization process, there may also be teething problems. It is important to monitor supply chain logistics and ensure that product shelves do not become bare. Marketing departments must also develop advertising campaigns that keep their new products top-of-mind with consumers who are ready to buy. Primarily, this can be achieved by sales promotions or introductory pricing.

8. Post Launch Review

Once the product is well established in the market, it is important to plan ahead. Businesses should develop long-term marketing plans and ensure that competent sales and distribution teams are in place to cater for demand.

Prices should also be reviewed regularly, particularly after the expiration of introductory promotions. As customers are introduced to the product, the marketing team must endeavor to turn them into brand evangelists. The business must also balance these customer retention strategies with profits and staying one step ahead of the competition.

Each NPD process should always be reviewed, irrespective of whether the product was a success. This enables mistakes to be addressed and then corrected for next time, increasing the success rate and improving productivity.

Key takeaways 

The New Product Development process is certainly high risk, but the rewards of a successful product campaign can be similarly immense.

However, businesses that fail to bring new products to the market can also learn from their mistakes, emerging stronger as a result.

In both cases, the NPD process represents a formalized, repeatable process that allows businesses the best chance of creating one of the 5% of products that gain commercial success and build a viable business model.

Read next:

Types of Business Models You Need to KnowBusiness Strategy: Definition, Examples, And Case StudiesWhat Is Market Segmentation? the Ultimate Guide to Market SegmentationMarketing Strategy: Definition, Types, And ExamplesMarketing vs. Sales: How to Use Sales Processes to Grow Your BusinessHow To Write A Mission StatementWhat is Growth Hacking?

The post New Product Development (NPD): New Product Development Process In A Nutshell appeared first on FourWeekMBA.

What Is A Platform Company And Why It Matters

A platform company generates value by enabling interactions, transactions or relationships. A platform company leverages network effects (direct/same side or indirect). Platform companies are also known as platform business models, given their intrinsic way to create value for users.

[image error]



[image error]Linear business models create value by selling products down the supply chain. Platform business models create value by enabling exchanges among consumers.



[image error]A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.



[image error]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. 

Read next: 

Platform Business Models In A NutshellNetwork Effects In A NutshellWhat Are Diseconomies Of Scale And Why They Matter

Other resources for your business:

Types of Business Models You Need to KnowBusiness Strategy: Definition, Examples, And Case StudiesWhat Is Market Segmentation? the Ultimate Guide to Market SegmentationMarketing Strategy: Definition, Types, And ExamplesMarketing vs. Sales: How to Use Sales Processes to Grow Your BusinessHow To Write A Mission StatementWhat is Growth Hacking?

The post What Is A Platform Company And Why It Matters appeared first on FourWeekMBA.

What is Steemit? Steemit Business Model And How It Makes Money

Steemit is a platform that combines blockchain technology, social media, and cryptocurrency for the creation of user-generated content and community building. The social community helps to produce content and curate it, while it gets rewarded with two main cryptocurrencies: 50% in Steem Power and 50% in Steem Dollars.

Steemit is the platform where users publish content, and the Steem is the cryptocurrency and Blockchain protocol underlying it.

Understanding the Steem ecosystem

Before we move forward, let me explain shortly how blockchain-based applications work (so called dapps or decentralized applications). Where in a web-based economy most of the value might be captured at application level. 

In a Blockchain Economy, as of now, a good chunk of value is at protocol level. Therefore, you will have a Blockchain Protocol (in this case Steem is the protocol) which has a set of underlying rules. 

In the Steem protocol, to reach consensus, its algorithms follow a proof-of-stake (contrary to Bitcoin where there is a proof-of-value mechanism).

On top of the Steem protocol, several applications can be freely built. Those applications will be decentralized, as they will be based on a decentralized network in the first place.

In the Steem Blockchain context, Steemit is among the largest and most important (Steemit was the first application launched as a use case for the Steem Protocol).  

That is also why here, I’m using Steem and Steemit interchangeably. However, Steem is the Protocol (defining the underlying core rules) and Steemit is one of the most important decentralized applications built on top of the Steem Blockchain.

How did Steem start? A brief history of Steemit

The company was co-founded by Ned Scott, CEO, and Daniel Larimer, CTO in January 2016. Both Ned Scott and Daniel Larimer were looking at ways to put into action the blockchain technologies for practical problems. The more they thought about it the more it made sense for them to use the blockchain to build up a community. In fact, as Ned Scott affirmed in an interview for coinreport.net:

“When the idea of Steem and Steemit really began to form we had been exploring several different blockchain-based business models. We were looking at micro insurance on the blockchain and a few other ideas, but ultimately, we kept coming back to the idea that the most useful and powerful thing to leverage around a cryptocurrency is a community.”

And he went on:

“Steem was born out of ideas about insurance and mutual aid: it was the idea that people would be able to help each other peer-to-peer if they were struggling to solve problems or needed assistance. It quickly grew into a much larger vision and Steemit was born as a place where individuals get rewarded by a community for posting and voting on content. That was back in January of this year.”

By April 2016, Steemit had launched an alpha testing, helped by more than 150 early adopters. As specified by Ned Scott in the same interview, the uniqueness of Steemit stands on the fact that everything that is done on the platform (posts, comments and votes) sit directly on the blockchain. Why is this important? This not only allows to manage things with a distributed system, where there is no central authority. It also should put an end to the old paradigm that took over the web in the last two decades, of a few tech giants that take over the world thanks to the data users give away for free.

What are the key principles behind Seemit? The three founding principles of Steem

Where platforms like Facebook, Twitter, and Reddit get most of their value from the data created by its users without rewarding them. Steemit (also called Steem) instead tries to build its platform based on a few fundamental principles:

Everyone who contributes to a venture should receive pro-rata ownership, payment or debt from the venture.
All forms of capital are equally valuable: in short, either people of the community put cash or devote their time to grow the platform, they’re both considered as capital.
The community produces products to serve its members.

What does the Steem community do?

According to Steem White Paper, there are five primary values provided by its community:

A source of curated news and commentary.
A means to get high-quality answers to personalized questions.
A stable cryptocurrency pegged to the U.S. dollar.
Free payments.
Jobs providing above services to other members.

The Steem community starts from the assumption that with the incentives created by cryptocurrencies it is possible to bootstrap a social media platform like Steemit.

As further explained within the Steem White Paper (pg. 13):

“The vast majority of people have more free time than they do spare cash. Imagine the goal of bootstrapping a currency in a poor community with no actual cash but plenty of time. If people can earn money by working for one another then they will bootstrap value through mutual exchange facilitated by a fair accounting/currency system.”

And it continued:

“The tasks that can be entirely evaluated by an objective computer algorithm are limited in nature and generally speaking have limited positive external benefits…

…In order to give everyone an equal opportunity to get involved and earn the currency people must be given an opportunity to work. The challenge is how to judge the relative quality and quantity of work that individuals provide and to do so in a way that efficiently allocates rewards to millions of users. This requires the introduction of a scalable voting process. In particular it requires that authority to allocate funds must be as distributed and decentralized as possible.” 

How does the Steem work?

As specified in Steem White Paper:

“The fundamental unit of account on the Steem platform is STEEM, a crypto currency token. Steem operates on the basis of one-STEEM, one-vote. Under this model, individuals who have contributed the most to the platform, as measured by their account balance, have the most influence over how contributions are scored. Furthermore, Steem only allows members to vote with STEEM when it is committed to a vesting schedule. Under this model, members have a financial incentive to vote in a way that maximises the long term value of their STEEM. Steem is designed around a relatively simple concept: everyone’s meaningful contribution to the community should be recognized for the value it adds. When people are recognized for their meaningful contributions, they continue contributing and the community grows. Any imbalance in the give and take within a community is unsustainable. Eventually the givers grow tired of supporting the takers and disengage from the community”

What are the Steem currencies? The Steem (STEEM), Steem Power (SP) and Steem Dollars (SBD) explained

To allow the Steemit community to be built on top of incentives that will enable its growth in the long-run, there are three main currencies. Each of those currencies serves a different purpose:

The Steem (STEEM): The social media cryptocurrency

The STEEM is the cryptocurrency of the social media platform. In other words, this is the unit of exchange based on the blockchain that can be easily exchanged on the market. Of course, its value can change quite quickly. Steem was valued at $19 cents as of June 2020.

The Steem Power (SP): The stock option of the Steem community

Stock options for startups are an effective tool to fuel their growth by giving ownership to employees; to create a strong incentive for growth. From the Steem community the equivalent of the stock options is the Steem Power currency. In fact, the users are rewarded for their activity on Steemit through Steem Power. This is a currency that follows a thirteen-week vesting schedule before. In short, those amounts cannot be easily traded on cryptocurrency exchanges. In short, the more SP you have, the more you can influence the reward system over the platform. And it is reinforced by the language used in converting a Steem in SP and vice-versa:

Converting a Steem in Steem Power (SP) is called powering up. This is because you stop being a speculator and become part of the community. Thus an active participant in building up the community
Converting a SP in Steem is called powering down. That’s because you are no longer a community member and will receive the payment of your currency in thirteen weeks. In fact, the week after you “power down” you will receive the total amount in the course of the thirteen weeks vesting schedule

As we’ve seen the Steem and Steem Power have two specific aims. The Steem is the cryptocurrency that has more speculative logic. The Steem Power instead is the currency with wich Steemit members are paid with. When you convert a Steem to a SP you become an active member of the community. Thus, you’re “powered-up.” Vice Versa by converting the SP in Steem you become a speculator, thus you’re “powered-down.” There is also another critical aspect of the Steem Power. This gives as we will see the power to its holders to elect a group of people, called “witnesses” in charge of publishing price feeds.

The Steem Dollars (SBD): The convertible notes of the Steem community

The Steem Dollars main aim is stability. In fact, the Steem dollars work as convertible notes. In fact, where startups use convertible notes as short-term debt instruments that allow startups to finance their operations by giving back ownership at a rate determined at the next funding round. The Steem Community leverages on Steem Dollars.

As specified in the Steem White Paper, the SBD:

“A blockchain based token can be viewed as ownership in the community whereas a convertible note can be viewed as a debt denominated in any other commodity or currency. The terms of the convertible note allow the holder to convert to the backing token with a minimum notice at the fair market price of the token. Creating token-convertible-dollars enables blockchains to grow their network effect while maximizing the return for token holders.”

The Price Feed, the witnesses and the anti-fraud mechanism of the Steem community

The price feed is the mechanism that allows a group of elected people to set the price of the Steem Dollars. In fact, to maintain parity with the dollar, it cannot be left free to fluctuations, but interest payments need to be made and withdrawn accordingly. As specified in the White Paper:

“SP holders elect individuals, called witnesses, to publish price feeds. The elected witnesses are presumably trusted by those who have a vested interest in the quality of the feed. By paying those who are elected, Steem creates market competition to earn the right to produce feeds. The more the feed producers are paid the more they have to lose by publishing false information.”

As defined in the White Paper:

“The primary concern of Steem feed producers is to maintain a stable one-to-one conversion between SBD and the U.S. Dollar (USD). Any time SBD is consistently trading above $1.00 USD interest payments must be stopped.”

How does Steemit Payout work?

When you produce content that gets upvotes and shares, you will automatically accumulate rewards. Those rewards will be paid out as it follows:

50% SBD
50% SP

The Steem Power (SP) currency can be converted in Steem (power down). If kept this gives its holder increasing voting power and influence over the platform. The Steem Dollars (SBD) give its holders an immediate and more stable currency that can be exchanged on the market.

However when you post something you have three options:

Power up 100%: you will only get rewarded with Steem Power currency
Default 50%/50%: you would get paid half in SP and half in SBD
Decline payout: in this scenario, your payout will be distributed to users

Steemit leverages on Zipf’s Law. That is, “if there are a million items, then the most popular 100 will contribute a third of the total value, the next 10,000 another third, and the remaining 989,900 the final third. The payout distribution is to offer large bounties for good content while still rewarding smaller players for their long-tail contribution.” 

Why?

As specified in the White Paper:

“The economic effect of this is similar to a lottery where people overestimate their probability of getting votes and thus do more work than the expected value of their reward and thereby maximize the total amount of work performed in service of the community. The fact that everyone ‘wins something’ plays on the same psychology that casinos use to keep people gambling. In other words, small rewards help reinforce the idea that it is possible to earn bigger rewards.”

Forks, protocol wars and the rise of Blockchain Capitalism

Whether or not Steemit will work out, it’s hard to say. And as of now, as we’ll see, there are many things going on that moved away the Steem from its original mission. But I believe this case study is interesting because it shows how the Blockchain can be applied to publishing, and social media.

The fundamental idea behind the Steem blockchain is powerful. It’s about enabling the platform to be sustained by the community, at a decentralised level, both from a content generation standpoint and an investment perspective (Steemit users can both get rewarded with Steem currency and invest in the platform by being the Steem cryptocurrency.

In February 14 2020, the Tron Foundation announced it had acquired Steemit, the decentralized social media platform which at the time had over 10,000 daily active users. In the first two years, Steemit did gain traction, yet by 2018, the main decentralized application built on top of the Steem blockchain had to lay off more than 70% of its staff. Lack of financial resources might have been one of the causes that brought to the deal with Tron.

Yet, the community didn’t take this well, and it reacted. Justin Sun, founder of Tron in an open letter addressed the concerns of the Steemit community but that didn’t help.  The community, fearing that the new take over would transform Steemit into just another centralized app. The community reacted, trying to take control of the decentralized app.

That became a real war between centralization on the blockchain and pure decentralization. The community managed to fork the protocol and to create a new one called Hive, which later on outperformed the Steem itself.  While this story still goes on it’s interesting to notice this power struggle between who tried to take over the app and the community. 

This sort of dynamic, probably new to corporations, might probably be the new normal in the Blockchain era, that might help build a new form of capitalism.

Next:

Steemit is part of the 100 Business Models Book by FourWeekMBA.

Other business resources:

What Is Business Model InnovationWhat Is a Business ModelWhat Is Business DevelopmentWhat Is Business StrategyWhat is BlitzscalingWhat Is a Value PropositionWhat is Growth Hacking

The post What is Steemit? Steemit Business Model And How It Makes Money appeared first on FourWeekMBA.

When Can You Call A Freemium A Business Model?

The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Is a freemium a business model?

You create a product or software, you make it available for free on the web, thus (if the tool is good) it gains visibility quickly, and you call your company a freemium business model.

Looking at things in this perspective makes you confuse your business strategy with your marketing strategy. This can be extremely limiting. 

A marketing strategy will focus primarily in acquiring users, leads or potential customers for the business. 

A business strategy looks at understanding the whole logic of your business to find a viable and potentially scalable business model. 

To understand this key difference let’s look at the whole story behind freemiums. 

The origin story

On March 2006, venture capitalist Fred Wilson wrote an article entitled “My Favorite Business Model” which said:

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.

He mentioned examples of this successful business model at Skype, Flickr, and a few others . 

According to Fred Wilson, the core advantage of a “Freemium business model” is about fast customer acquisition. But he made clear that it had to be as frictionless as possible:

A customer is only a click away and if you can convert them without forcing them into a price/value decision you can build a customer base fairly rapidly and efficiently.  It is important that you require as little as possible in the initial customer acquisition process.  Asking for a credit card even though you won’t charge anything to it is not a good idea. Even forced registration is a bad idea.  You’ll want to do some of this sort of thing once you’ve acquired the customer but not in the initial interaction.

The main aim was to “eliminate all barriers to the initial customer acquisition.” He didn’t have yet a name for this kind of revenue model.

Giving it a name 

At the end of his article, Fred Wilson had clear in mind what the Freemium business model looked like. However, he didn’t have a name for it.

That is why he invited people to comment and to come up with a proper name for this business model. A commenter, Jarid Lukin suggested the name Freemium model.

Thus, a service and product wholly free and frictionless, where most users don’t pay, and a small base of users pay for a product that has premium features.

Over the years Fred Wilson kept emphasizing the importance of free. Today the freemium business model has taken over also the gaming industry. But it has also become the most debated business model in the software industry.

On the power of free

Building a free product and make it available to anyone and then expect to make money isn’t the right strategy.

Instead, the “free” within the freemium, if appropriately used, can be a lever for quick success.

As Fred Wilson pointed out in October 2008 “freemium is far from dead, in fact, it may be the business model de rigueur.“

What did he mean? He recounted in a later article:

Facebook is a perfect example of freeconomics at work. A woman who works for a major media company was in my office recently. She quoted her CEO as saying “why doesn’t Facebook just charge a monthly subscription fee, they’d be making money hand over fist?”. Well I believe that if Facebook did that, they’d be vulnerable to other networks offering a free service. And certainly not every one of those 200mm users are going to cough up a monthly subscription. But by offering a friction free service, they have built a powerful and growing network that they are now starting to monetize in various ways and that they will monetize even further in additional ways. And they are super hard to compete with because they are free.

Freemium isn’t new

As pointed out on broadstuff.com:

The new Free! plan is in fact Freemium – where a small number of people subsidise the majority, who get it for free. But “Freemium” models have existed since antiquity, they work in some situations, don’t work in others. This is also likely to be true for Digital goods. The issue lies in the price sensitivity

This point is critical, as freemium is not a size fits all (the “free” in it is meant to make money).

In fact, that also depends on the cost structure of the company offering the service. Also, freemium seems to work well in conjunction with advertising spending.

Think of the most popular services and apps we use today, like Facebook and Google. Those are free but not freemiums.

In short, users do not pay for the service, it gets subsidized by another player (in Facebook and Google cases there are companies investing marketing budgets) and that comes with a cost for the users (privacy, conflicts of interests). This is at the core of asymmetric business models, that are highly scalable. 

In fact, millions of users are accessing them for free and with the least friction possible. Thousands of businesses are paying and financing those services through advertising.

This is also the power of the hidden revenue business model. In other cases, free needs to be offset with a different monetization strategy, just like the razor and blade monetization strategy. Where you get something for free, but then a complimentary service associated is costly.

Freemium is not a size fits all

In 2015 a SaaS company, Baremetrics, started to experiment with the Freemium, business model. In short, they created a version of the product the was entirely free.

That product version allowed users to switch to the premium if they wanted to add specific features or capabilities.

As the story went, the conversion rates on the freemium-based business model turned out to be also quite good compared to the traditional subscription-based business model.

In fact, in 11 weeks over a thousand accounts were created. The math on those new accounts wasn’t exciting, but it worked. As explained on Baremetrics blog:

So, of the 1,000 accounts, 461 were actually eligible to even think about becoming a paying customer.

Of the 461 eligible paying customers, 53 actually upgraded.

53 as a % of 461 = 11.5%

Considering a 3-5% conversion rates on B2B the rates from the freemium seemed to be promising, until…
Beware of the cost structure

As pointed out by Baremetrics on the experiment they run with the freemium:

Quickly, we started coming up against a lot of performance and database issues. Within a few weeks our “free” customers were outnumbering our “paying” customers and the amount of data were both storing and processing had doubled.

This, in turn, created an adverse effect on the revenues:

[image error]

Source: baremetrics.com
In short, the freemium resulted in higher server costs and the loss of active paying customers, rather than an increase in revenues.
Free isn’t free after all
With the advent of Open Source and mass-scale free services like Google, Facebook (and many other tech giants become part of our daily routines) the assumption that everything needs to be free has become pervasive.
 
 

Yet, besides the matter of whether free is after all good for the users, let’s take a different approach. Is free good for your business in the first place?

Yes, but only if you acknowledge the fact that sustaining the free infrastructure will be extremely expensive. 

A company like Grammarly that has implemented successfully a freemium business model knows it well. 

In Grammarly’s case, a browser expension might seem a simple thing, yet as the Grammarly engineering team specified:

These extensions may look easy on the outside because they are low profile and easy to use. But it is actually a complex product supported by a full team of engineers. We have been developing and perfecting it for 6 years.

That is why the engineering team has implemented a branching model to reduce manual tasks, which as you can imagine, on a user base of 20 million might be impossible to keep up for a company with a few hundreds of employees of which only about 24 people in support, according to LinkedIn:

[image error]

Grammarly branching model to eliminate as much as possible manual actions, architectured by the engineering team (Source: Grammarly Engineering Blog) as an example of how tech helps to support Grammarly growth channels. In these cases, technology and engineering are the most important marketers, as they enable a free product to scale, thus making the brand resonate across millions of users across the world.  

This raises a critical question to understand whether to go for the freemium or not. 

Is “your 1” big enough to pay the bills for them all?

On September 2009 MailChimp went freemium. Its user base went in one year to 450,000 users. Ever since MailChimp has grown into a successful company.

As pointed out one year after the experimentation with the freemium-based model, a critical question to ask is “whether or not your “one” is big enough to pay your bills yet.”

MailChimp didn’t start as a freemium. When they launched the company back in 2001, they didn’t even have a free trial.

They didn’t have an idea of what the freemium was. They only started to consider that the freemium model as a viable option when they realized that that paying customers was able to keep them going with the other nine unpaying customers.

As remarked by MailChimp:

We’d never consider freemium until our “1” was big enough. Enough to pay for 70 employees, their health benefits, stash some cash for the future, etc.

Are you using the freemium just to get VC money?

In the Silicon Valley archetype “users” have become the most important asset a company seems to need to be eligible to get billion dollars of capital.

However, this system –  I argue – is broken because it draws on the myth that once you have users then monetizing them is easy.

However, for anyone that has ever tried to grow a startup you know that monetization is the hardest part.

It might seem a trivial concept for small business owners that to build a sustainable business you need to balance things up so that your revenues will exceed your expenses.

The so-called “profit” seems to be a thing of the past. Thus, they use large user base to get VC money to keep growing revenues without focusing on profits.

Cases like ConvertKit are a great example of why generating profits is critical for your business. Many counterargue by mentioning cases like Google and Facebook.

Yet they forget that Google and Facebook were extremely profitable not long after they launched their services and I would not define them as freemiums (those are asymmetric business models subsidized by the core customers, made of businesses and enterprise clients). 

Freemium business models that work: Dropbox case study
[image error]Dropbox generated over 90% of its revenue via its self-serve channels to convert users in paying customers through in-product prompts and notifications, time-limited free trials of paid subscription plans, email campaigns, and lifecycle marketing. Dropbox generated over $1.1 billion revenue in 2017, with an average revenue per paying user of $111, $305 million in free cash flow and 11 million paying users

Dropbox is a classic example of a startup that managed to grow at a massive scale thanks to its freemium model:

[image error]

The free basic account has a storage of 2GB. The free plan also allowed Dropbox to benefit from massive network effects. The more people joined in to get the free storage, the more people they invited. To speed up the organic growth of its user base, Dropbox also built incentives that allowed users to get more free space if they invited more users to join!

Related: Dropbox Self-Serve Business Model In A Nutshell

How to align your business model to a freemium offering

The primary advantage of a freemium model is the fact it can be used as a powerful marketing tool. Indeed, if you offer a great product or service for free, the chances are that you won’t need much salesforce to bring you to more paying customers.

However, that highly depends by the customer profile (are you selling to individuals or to organizations?). In that case, you will need to align your sales team around the free service, just like in the Zoom freeterprise model. 

Instead, if your product is simpler, and it targets smaller, individual customers, you’ll have to experiment on conversion marketing tactics to allow free members to become paying users quickly and at a sustainable rate.

This is a critical difference between marketing vs. sales and why your free service will become your best companion to scale up growth!

[image error]

Freeterprise: Free dominating also the enterprise space 
[image error]A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Free also became a powerful way for brands to gain traction in the enterprise space.

As I explained in Zoom business model though, the whole organizaiton needs to be structured around the freeterprise model, where on the one end the company seamlessy uses teh fee product as entry point within companies.

And on the other end, sales people with the ability to built strong relationship with the account can get the whole company onboard, thus transforming a free professional account into a potential enterprise customer.

Of course, this leads the organization to skew its resources toward building an army of qualified salespeople to handle the volume of leads generated by the free offering (in 2019 Zoom spent 54% of its revenues primarily in salespeople headcounts).

What questions should you ask before you go with a freemium?

So that you know what key questions to ask that person to make sure the freemium is the right growth tool for your business. Some of those questions are:

Do we have the resources to sustain a free product? Many forget that a free product still requires a lot of maintenance, updates, support or else. If you don’t have those things in place, your free product won’t be good, which will make it flop quickly.
Is the free product cannibalizing my premium offering? It might sound obvious for some people, but engineering a free product isn’t easy. Do you know how much of that free offering is enough to be valued? Do you know how to strike a balance between what you offer for free and what instead should be paid? Is the free product in line with your overall business strategy?
Is the freemium in line with my overall business model? For instance, if your organization is primarily structured on a sales team, which works with enterprise customers a freemium might make sense as it enables your brand to be known by more people. But will the fact that more people will know my brand a way to speed up the process of acquiring another potential enterprise customer? If not, is a freemium aligned with a business strategy where I want to get the lower-end of the market?

Below an example of how a freemium decision tree might look like:

[image error]

Key metrics to track to understand whether the freemium is working

To make the freemium business model work it is critical to look closely at a few key metrics. Some of those metrics are matured from the gaming industry but are also used by traditional freemium business models:

The average cost of serving a free user
The rates at which free users convert to premium (paying) customers
DAU (Daily Active Users) is used to show the number of people who engage with the product, service on a daily basis. For other platforms, other metrics like monthly active users might be more appropriate
ARPU: Average Revenue Per User
ARPDAU: Average Revenue Per Daily Active Use
ARPPU: Average Revenue Per Paying User
LTV: Lifetime Value
Daily Sessions: The number of play sessions a user engages each day.
CPA: Cost Per Acquisition or Cost



A final remark on how to do the Freemium right

I want to close this article with the extract from the MailChimp Freemium business model. The reason being, MailChimp has been one of the most effective companies in applying the freemium, and this is the greatest lesson learned:

I think there are too many startups out there who are interested in going freemium because that big “10” number is so attractive. This is dangerous when they don’t even have the “1” yet. How will they pay their bills while they figure out how to “monetize?” Answer: they will need to borrow that money. Does your VC have the patience for the long term, while you try to figure out how to “monetize” and build up that measely “1” number? Answer: No — no they don’t. Build up that “1” before you chase the “10.” After you’ve got your “1” all set, use VCs to help you chase after that “10” (if you must). That’s my personal opinion. Disclaimer: I’m wrong about 99% of the time.

 

Handpicked business resources:

Types of Business Models You Need to Know
The Complete Guide To Business Development
Business Strategy: Definition, Examples, And Case Studies
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is Market Segmentation? the Ultimate Guide to Market Segmentation
Marketing Strategy: Definition, Types, And Examples
Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
How To Write A Mission Statement
What is Growth Hacking?

Business models analyses: 

How Does PayPal Make Money? The PayPal Mafia Business Model Explained
How Does WhatsApp Make Money? WhatsApp Business Model Explained
How Does Google Make Money? It’s Not Just Advertising! 
How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
The Google of China: Baidu Business Model In A Nutshell
Accenture Business Model In A Nutshell 
Salesforce: The Multi-Billion Dollar Subscription-Based CRM
How Does Twitter Make Money? Twitter Business Model In A Nutshell
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained

The post When Can You Call A Freemium A Business Model? appeared first on FourWeekMBA.

What Is The Net Promoter Score And Why It Matters

The Net Promoter Score (NPS) is a measure of the ability of a product or service to attract word of mouth advertising. NPS is a crucial part of any marketing strategy, since attracting and then retaining customers means they are more likely to recommend a business to others.

Why does the Net Promoter Score matter?

While the old adage of “the customer is always right” may be somewhat outdated now, there is no denying that customer satisfaction is the ultimate benchmark of successful businesses.

Especially in the era of customer obsession.

[image error]

Word of mouth (viral engine) is very powerful, and among the engines of growth, and the Net Promoter Score is one of those simple, yet powerful metrics to measure that.

[image error]



How is the Net Promoter Score calculated?

A survey is usually offered to customers to gauge their willingness to recommend products or services to others on a scale of 1-10. Depending on the results of that survey, the customers will fall into these three categories:

Promoters

Loyal customers who score either a 9 or a 10 are your biggest fans and will happily tell others about their buying experience.

Passives

Satisfied customers who score a 7 or 8 but who are not enthusiastic enough to tell others. Passives may be indifferent to repeat buying and could switch to a competitor.

Detractors

Unsatisfied customers who score between 0 and 6. Detractors are likely to share bad experiences with their friends and family and so are damaging to your brand.

How do you compute the Net Promoter Score?

The NPS score, then, is simply the percentage of promoters minus the percentage of detractors. Any score above 0 is considered a pass mark because there are more promoters than detractors. However, the companies who experience the most growth will have scores in the range of 50-80.

Businesses can tap into this growth by incorporating NPS data into their marketing strategies.

Here are some of the benefits of doing so.

Case study: Imagine you asked 100 people to score your software. Of those, 30 were detractors, 30 passives, and 40 promoters. Your net promoter score will be 10 (40 promoters – 30 passives).

Clarifies customer satisfaction and marketing liabilities

Let’s face it, every business likes to think that it offers the best products in the world.

But is this reflected in reality? The Net Promoter Score is a good way to find out, because it compares the perceived level of customer satisfaction with the actual level.

If a difference of opinion exists between the marketing department and the customer, then the NPS will quickly identify where it exists.

These gaps often exist because of marketing liabilities such as:

Advertising claims that don’t live up to consumer expectations of reality.Product defects, weaknesses, or flaws.Improper or incomplete usage instructions.

The NPS allows your business to clarify where its marketing strategy is falling short. Furthermore, it allows certain shortcomings to be rectified that have the potential to cause customer dissatisfaction and hurt the brand image.

Encourages employee investment and provides a relevant benchmark

Firstly, the NPS is easy to understand. From the survey results, every member of the marketing department will be clear on what they are doing right and what still needs improvement. 

A high NPS not only increases customer satisfaction, but it also increases employee engagement. Multiple studies have shown that engagement, or the emotional commitment an employee has to their employer, produces marketing campaigns that result in higher and repeated sales.

Secondly, the NPS is a universal benchmark. It allows you to compare your efforts with publicly available data in your niche and also from your competitors. NPS data also provides marketing teams with tangible information that they can use to demonstrate progress to clients and stakeholders associated with the company.

Fuels organic growth by identifying loyal customers

When businesses receive the results of their NPS surveys, the temptation may be to focus on customers who fall into the passive and detractor categories. 

However, it is important not to overlook the promoter category. Research by Nielsen found that over 70% of study participants were more likely to buy a product if a friend mentioned it through email or social media. A Harvard Business Review study also found that customers referred through word of mouth were worth 16% more in dollar terms than those who found a business through other channels.

Why else are promoters so important? There are several reasons:

Promoters fuel organic growth of your business through brand advocacy. To some extent, they become your marketing department. They are more than happy to spread the word about your business for free.Promoters allow your marketing strategy to focus on what matters and build a sustainable business model. By understanding what promoters love about your brand specifically, you gain clarity on what sort of marketing is most effective at recruiting new customers.Research by RJMetrics also suggests that promoters spend 30 times more money on your products than the once-off buyer. Thus, it is important to develop marketing strategies that keep promoters happily engaged. Loyalty programs, discounts off future purchases and incentives for spreading the word are examples of effective strategies.



Allows your marketing strategy to be trackable

It might seem obvious, but you cannot improve what you cannot track. 

The most effective marketing strategies are backed up by hard data. Tracking your Net Promoter Score allows the marketing team to refine their strategies based on how well certain changes are received. With this feedback, they can devote more resources to strategies that work and less to those that do not. So that you can build a viable business model, quickly.

Regular tracking also allows trends and seasonal changes to be identified quickly. Technology, for example, is always evolving and some consumers will inevitably become passive or unsatisfied customers if they are left with outdated products.

Passive customers, as we have learned, are indifferent to your products and can be lost to competitors easily. Since it is much easier to retain existing customers than it is to recruit new ones, it is crucial that marketing efforts be directed toward converting passives into promoters.

Here, NPS survey data is invaluable. It enables businesses to refine their products and associated marketing strategies. Such strategies become more flexible to current trends and stand a better chance of retaining customers who might be potentially lost forever.

Key takeaways

Considering the ease with which NPS data can be collated, the benefits of using it to deliver marketing strategies are tremendous.

NPS data clarifies customer satisfaction and addresses gaps in marketing message or product development. NPS data is also easy to digest, increasing buy-in across different departments and increasing employee engagement. It also provides a relevant benchmark that businesses can use to judge their efforts against others in their industry.

Perhaps most importantly, it allows businesses to devote their resources to where it matters most – their promoters. Businesses with effective marketing departments understand that promoters are enthusiastic brand evangelists. They offer a low-cost, high-profit opportunity for growth and by tracking the relative proportion of promoters over time, businesses can stay one step ahead of trends and prevent brand desertion before it occurs.

Other business resources:

Types of Business Models You Need to KnowThe Complete Guide To Business DevelopmentBusiness Strategy: Definition, Examples, And Case StudiesBlitzscaling Business Model Innovation Canvas In A NutshellWhat Is a Value Proposition? Value Proposition Canvas ExplainedMarketing Strategy: Definition, Types, And Examples

The post What Is The Net Promoter Score And Why It Matters appeared first on FourWeekMBA.

Value Proposition Examples You Can Learn From

A value proposition is one of the key building blocks for any business model. It is the benefit both in terms of gains or reduced pains a potential customer, or key partner might experience.

Indeed, the value proposition isn’t just a promise and payoff for customers, but that is also very important to connect key players (employees, distributors, partners and more) both internally and externally to the organization.

What is business value?

There isn’t a single definition of value. But that is somewhat relative, and we need to ask “to whom?”

For instance, when it comes to the business world, value can be created for investors, for shareholders, for partners, employees, customers, and more.

Thus, depending on the interactions the company has with several stakeholders, at each interaction, the company has the chance to create and capture business value.

For what matter we might define business value as:

The payoffs that a stakeholder (partner, employee, customer, user or any other key player for the organization) gains from interacting with a company.

Business value isn’t intended just as monetary value. Business value is also created when from the interaction, there is no money exchanged, yet the interaction has an economic benefit for someone else.

For instance, Facebook is a media business, which offers a free platform to its users. Thus, (as of now) there is no exchange of money between Facebook and its users. However, the actions users take on the Facebook platform are valuable for businesses willing to capture some of that value by advertising on Facebook‘s newsfeed.

What is a value proposition then?

A value proposition might be defined as anything the is valuable to a set of key partners and players for the company’s business model. Indeed, a value proposition is the glue that keeps together the company’s business model in the long-run and what makes it sustainable.

The value proposition in a linear vs. platform or scaled business

It is essential to distinguish between a value proposition between a linear business vs. a more complex, platform, or scaled business model.

Indeed, it would be a mistake to believe that a value proposition is the same for a small organization vs. a business which has scaled up and it has already hundreds if not thousands of employees and hundreds of thousands of customers.

A larger, complex organization will have multiple value proposition for as many players it has that are critical for the company’s business model.

Three value proposition examples

For the sake of this analysis, we’ll look at the value proposition of three large organizations:

Apple
Amazon
And Google

That is why we’ll look at companies that offer “multi-sided” value propositions. Or more variations of a core value proposition, based on the key players the company interacts with.

Apple’s value proposition
[image error]Apple is a tech giant, and as such, it encompasses a set of value propositions that make Apple’s brand recognized, among consumers. The three fundamental value propositions of Apple’s brand leverages on the “Think Different” motto; reliable tech devices for mass markets; and in 2019, Apple also started to emphasize more and more about privacy to differentiate from other tech giants.

Read: Apple Value Proposition In A Nutshell

Amazon value proposition
[image error]A company like Amazon has multiple value propositions, as it serves several target customers in different markets. With its mission “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online and endeavors to offer its customers the lowest possible prices,” Amazon value propositions range from “Easy to read on the go” for a device like Kindle, to “Sell better, sell more” to its marketplace.

Read: Amazon Value Proposition In A Nutshell

Google value proposition

[image error]

For a tech giant like Google, which has a sophisticated business model, based on a hidden revenue generation, there is also a multi-sided value proposition.

Some of those would be:

Users: a free search engine for billions of users around the world. Users get a free, seamless engine that helps them find an answer to anything. Google also provides now advanced features that enable a very advanced and rich experience to users. Among all the partners Google‘s users are the most important. Even though users don’t pay for Google search, they are at the core of the overall Google business model. Without users, Google would not have a business model in the first place.
Businesses advertising on Google: The core of the Google business model is advertising, focused on targeted text-based ads for businesses offered via the AdSense network. Before Google existed,d there was no way for marketers to know in details all the conversion metrics of their ads. While Overture was the first in offering CPC advertising, Google managed to scale it up at massive levels.
Publishers: Before Google disrupted the advertising world and took over the digital advertising market, a few established publishers could make money via advertising. With its AdSense network, Google also allowed small publishers to monetize their content. 
Developers: in a world where AI and machine learning have become critical to create products that people want, developers have become even more important than publishers  – I argue – for the development and evolution of Google‘s future business model.

DoorDash Value Proposition
 
[image error]DoorDash is a platform business model that enables restaurants to set up at no cost delivery operations. At the same time, customers get their food at home and dashers (delivery people) earn some extra money. DoorDash makes money by markup prices through delivery fees, memberships, and advertising for restaurants on the marketplace.

For restaurants, more exposure for their brands and an additional revenue stream. 
For dashers, the ability to earn income flexibly. 
For eaters, the comfort of having food delivered straight to their doors.

Vroom Value Propositions

[image error]

Vroom is an e-commerce platform for used cars. Its value propositions are in line with its key partners: 

Car buyers, get a curated, wide and reconditioned inventory, with a set of value added services (insurance and more), together with the car purchase. 
Car sellers can get the easy valuation of the car, and in case also a simple set up process to sell the car directly to Vroom. 

Honey Value Propositions
[image error]Honey earns affiliate commissions from stores when users find savings, as the purchase is confirmed. Honey also makes money with its Honey Gold earning a commission when the member visits a partner store while it offers members a digital coupon to apply at purchase. PayPal acquired honey in 2020 for a $4 billion cash acquisition.

For members Honey makes available discounts, to shop conveniently in many shops, part of the network. 
For stores, part of the network, they get additional exposure on the platform, thus attracting more potential customers. 

Udemy Value Propositions 
[image error]Udemy is an e-learning platform with two primary parts: the consumer-facing platform (B2C). And the enterprise platform (B2B). Udemy sells courses to anyone on its core marketplace, while it sells Udemy for Business only to B2B/Enterprise accounts. As such, Udemy has two key players: instructors on the marketplace, and business instructors for the B2B platform.

Instructors get an additional income stream, and the ability to work flexibly, with a scalable product, like a course. 
E-learners get access to the Udemy marketplace, with a wide variety of courses, usually available at an affordable price. 
Companies get access to a whole library of courses, so they can reduce the training costs for employees and an smoother transition with the company, as they have unlimited learning resources available for their growth.  

Discord Value Propositions
[image error]Discord makes money in several ways. From its Discord Store, where users can buy premium games, to the seller shops, that primarily works with a 90/10 revenue share for developers and game sellers. And the ability for sellers to get more visibility on the platform by adding features to the game visibility.

Gamers get a platform where they can interact with other gamers.
Developers get an ecosystem where they can make money by developing games on the platform. 

Craiglist Value Propositions
[image error]Craiglist is a local posting website that enables people to post any sort of classifieds on the platform, mostly for free, except for some categories of ads and the advertising of vehicles on the website. Therefore, craigslist monetizes based on some premium categories of listings (like job postings or apartment rentals).

Users get access to a free website that has any sort of listings, from jobs, to rents and sales of used items. 
Companies get mostly free postings on the platform, except for a few categories of products where the listings is paid.

WordPress Value Propositions 
[image error]WordPress.org became the most popular CMS and blogging platform in which the Foundation owns the trademark, and revenues come from donations. The Foundation holds a public-benefit-corporation who manages the revenues coming from WordPress events and conferences. Automaticc – the business arm – monetizes premium tools built on top of WordPress.com (a premium platform) through freemiums.

Website owners get an easy to set up blogging platform for free, with the possibility to expand its capability with plugins and extensions. 
Developers get access to an ecosystem where they can develop their own tools to be hosted on the WordPress marketplace and build a business around that tool.

Key takeaways

A value proposition is a key building block for any business model
Value is created not just from the monetary standpoint
Larger, more complex organizations will have also multiple value propositions

Business resources:

Types of Business Models You Need to Know
The Complete Guide To Business Development
Business Strategy: Definition, Examples, And Case Studies
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
What Is Market Segmentation? the Ultimate Guide to Market Segmentation
Marketing Strategy: Definition, Types, And Examples
Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
How To Write A Mission Statement
What is Growth Hacking?

 

The post Value Proposition Examples You Can Learn From appeared first on FourWeekMBA.

The Blue Sea Strategy In A Nutshell

In the business world, a Blue Sea is a space/market easier to navigate as it’s not crowded like the classic red ocean. However, while the Blue Ocean focuses on creating uncontested markets. The Blue Sea strategy looks at zooming as much as possible within existing markets to find your minimum viable audience.

Blue Sea vs. Blue Ocean

The core premise of a Blue Ocean Strategy is to break down the trade off between value and cost, by creating uncontested markets.

This is all very interesting, and we all would like to create those incredible uncontested markets where we can redefine the whole business playbook.

However, in a few cases, companies manage to transition toward uncontested markets. And even when that happens, followers come quickly, to steal as much market share as possible.

Thus a blue ocean is often times, more the result of a bloody war, rather than a space exploration. A Blue Sea strategy instead tries to redefine value, not for a whole market, but only for a small group of people, craving for that value to be provided.

Let’s see what really makes up a Blue Sea.

Zooming in to find your MVA

Where Blue Oceans create an uncontested markets by looking beyond the boundaries of existing ones (it zooms way out to understand how a whole market might look different a decade from now).

The Blue Sea Strategy instead looks at existing markets and it zooms in as much as possible to find a minimum viable audience. 

[image error]The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.



Redefine value by going from “a product for everyone” to a “product made for a few”

In a Blue Ocean Strategy competition is made irrelevant by changing the business playground. As a whole new market is created the Blue Ocean player will be able to capture most of that market opportunity.

In a Blue Sea Strategy competition is made irrelevant by redefining value for the minimum viable audience, that is not satisfied in full by existing products available on the market.

You go where existing players, can’t, won’t or are not able to go.

In a Blue Sea there is space for all

In a Blue Ocean Strategy new demand is captured by being the first-mover or among the first movers in a new market.

In a Blue Sea Strategy you can be very late and still build a valuable business. That’s because the Blue Sea player will redefine value by going where the existing, established players can’t, perhaps because it would be too expensive for them, or not scalable at all.

An audience so small that is not threatening for existing players, and yet interesting to get the business off the ground.

In a Blue Sea, price sensitivity is flipped upside-down

Where the Blue Ocean Strategy breaks the cost-value trade-off (offer more at a lower cost). In a Blue Sea Scenario, your smallest viable audience will be so keen to support your business, to be happy to pay you a premium price for your product, as soon as you keep it tailored to them. 

Look at the present and change it fora few

A Blue Ocean Strategy looks at the future, it envisions it and it builds it. A Blue Sea Strategy instead, looks at the past and it redefines it for the smallest audience that didn’t like how that future turned out to be. 

Is the Blue Sea strategy only for niche players?

Not really. A Blue Sea strategy does start from a minimum viable audience, but it creates options to scale. Those options can be exercised by time to time.

However, when a company scales up it might bring to the end of value for its minimum viable audience.

Therefore, as in a classic Crossing The Chasm scenario, the Blue Sea player will need to think through this option.

Read next:

Technology Adoption CurveBlue Ocean StrategyNiche Marketing Marketing Strategy

Read more:

Business Strategy ExamplesTypes of Business Models You Need to KnowBlitzscaling Business Model InnovationWhat Is a Value Proposition?What Is Business Model Innovation And Why It MattersPlatform Business ModelsNetwork Effects In A NutshellDigital Business ModelsDigital Marketing Channels

The post The Blue Sea Strategy In A Nutshell appeared first on FourWeekMBA.

The Facebook Statistics To Understand Its Business Model

Facebook business model is based on hooking users on its feed, which is a highly personalised page, with an infinite scroll, where users find whatever kind of entertainment or connection they are looking for and companies can segment their markets, thus targeting potential customers for their products and services.

From ARPU to ARPP



[image error]

The average revenue per user is a key metric that Facebook continuously monitors on all its products. This coupled with the monthly active users on the platforms help assess the level of engagement coupled with the ability of the company to monetise that engagement through it advertising machine.

However, Facebook has the so-called power users (those who engage more like super-fans or produce higher quality content like influencers) that drive the business.

In 2020, Facebook renamed its ARPU into ARPP (the user is finally called person to make it more human):

[image error]



Mobile advertising turned in a cash cow



[image error]In the first nine months of 2018, mobile advertising was estimated at 92% of the total advertising on Facebook products. Active monthly users decreased from 376 million to 375 million in Europe. In the US and Canada, users increased from 241 million to 242 million. At the same time, average revenue per user grew worldwide. Besides all the buzz of 2018, the Facebook business model seems (for now) unshakable.

Facebook started to transition to mobile-first a few years back and that paid off. Today mobile advertising is Facebook‘s cash cow.

Most of its revenues come from there. What else? There is a specific product that turned the most successful so far.

Instagram is the core product



[image error]Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc. overall business model. Acquired by Facebook for a billion dollar in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger, left the company, as Facebook pushed toward tighter integration of the two platforms.

The successful transition to mobile-first for Facebook, as a company, was also successful thanks to a product that Facebook owns (Instagram) that is a native mobile players (Instagram was born as an App).

Therefore, most of the advertising revenues sold on the Facebook platform (comprising all its products) goes through Instagram.

North America is still the most important market



[image error]ARPU or average revenue per user is a critical measure to assess Facebook ability to monetize its users. ARPU is given by total revenue in a given geography during a given quarter, divided by the average of the number of monthly active users in the geography at the beginning and end of the quarter.

The most profitable advertising market for Facebook is North America. While Facebook expanded globally and Europe also represents a good chunk of its revenues, the average revenue per user in the US and Canada is much much higher compared to any other countries.

Of course, going forward, countries in the Asia and Pacific Area might also turn out to be extremely profitable in the next few years.

Read next:

Facebook Business Model Instagram Business ModelGoogle Business ModelPinterest Business Model

Read more:

Business Strategy ExamplesTypes of Business Models You Need to KnowBlitzscaling Business Model InnovationWhat Is a Value Proposition?What Is Business Model Innovation And Why It MattersPlatform Business ModelsNetwork Effects In A NutshellDigital Business ModelsDigital Marketing ChannelsNiche Marketing

The post The Facebook Statistics To Understand Its Business Model appeared first on FourWeekMBA.

The Psychographic Segmentation In A Nutshell

Psychographic segmentation is a form of market segmentation, that looks at consumers into sub-groups that share specific psychological characterises, that comprise activities, interests, and opinions of customers. The rise of data-driven marketing enabled psychographic segmentation to become a key element of digital marketing activities to personalize those campaigns and reach a micro-audience.

The birth and rise of psychographic segmentation

Psychographic segmentation divides consumers into sub-groups based on shared psychological characteristics. Those might include subconscious or conscious beliefs, motivations, and priorities to explain and predict consumer behaviour.

Psychographics started as an attempt to go beyond demographics. As computational power grew more data became available, this gave a chance for marketers to better segment potential customers.

As recounted on archive.ama.org when Emanuel H. Demby, one of the founding fathers of psychographics when he was asked “What do you call what you’re attempting to do?” he said “Psychographics!” which was meant as a combination of psychology and demographics.

Another founding father of psychographics was Paul Lazerfeld and his associates during the 1950s at Columbia University’s Bureau of Applied Statistics.

As pointed out by Emanuel H. Demby, Paul Lazerfeld taught that any market research that wanted to understand consumer behavior had to “involve an interplay among three sets of variables; predisposition, influences, and product attributes.“

Therefore, psychographics is an attempt to move away from just demographics and give meaning to numbers by focusing more on individuals with feelings and tendencies.

Give meaning to numbers is the primary aim of a marketer. Imagine those two scenarios, Mr. X earns $40K per year. With the other situation, Mr. X earns $40K, after getting a 10% rise compared to the previous three years’ salary. 

Without going too far we can put ourselves in the shoes of Mr. X, how accomplished he feels, and the purchasing tendencies he might have after such a raise.

Maybe he wants to buy a new car or a new TV set. Keep in mind that marketers’ focus is to increase sales. And there is no better salesperson who has insights and personalized information about her target customer.

While in the past it was tough to get valuable psychographic data, that isn’t the case anymore.

Tools for psychographic segmentations

With the rise of digital advertising, and advertising machines like Google and Facebook Ads, it has become easy to create targeted marketing campaigns, primarily focused on performance and able to target potential customers with an incredible focus.

[image error]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.

Google Ads and Facebook Ads allow marketers to go quite in-depth with psychographics definition of their audience:

[image error]



Source: searchengineland.com

Above an example of how Google Ads enables marketers to target specific interests and psychographic traits of a group of people. This allows a segmentation that can be laser targeted.

[image error]The digital advertising industry has become a multi-billion industry dominated by a few key tech players. While the industry advertising dollars are also fragmented across several small players and publishers across the web. Most of it is consolidated within brands like Google, YouTube, Facebook, Instagram, Amazon, Bing, Twitter, and Pinterest.



[image error]Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage on several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.

Read next:

Market Segmentation Guide

Read more: 

Business Strategy ExamplesTypes of Business Models You Need to KnowBlitzscaling Business Model InnovationWhat Is a Value Proposition?What Is Business Model Innovation And Why It MattersPlatform Business ModelsNetwork Effects In A NutshellDigital Business ModelsDigital Marketing ChannelsNiche Marketing

The post The Psychographic Segmentation In A Nutshell appeared first on FourWeekMBA.