Business Models: Swati Chaudhary Tanushree Soni Ayush Saxena Anusha Parihar

Swati Chaudhary
Tanushree Soni
Ayush Saxena
Anusha Parihar
Business Models
Formulating Strategy and Developing a Business Model
Business Model
• A business model describes the rationale of how an organisation creates,
captures and delivers value;
• It describes the value an organization offers to various customers and portrays

the capabilities and partners required for creating, marketing, and delivering
this value and relationship capital with the goal of generating profitable and
sustainable revenue streams;
• It describes the key income and expense drivers for the organization, and the
critical success factors (key assumptions) related to the financial sustainability
of the organization;
• The business model reflects the company’s way of competing, whether it

concerns being unique or being the most cost-efficient company in the industry.
Business Model vs. Strategy
 Business model articulates and interprets strategy with action: it is the
operational aspect of strategy;
 Strategy gives the conceptual base of action: it is a critical part of any

business model, but does not fully comprise it;
 The business model is like a blueprint for a strategy to be implemented

through organizational structures, processes, and systems;
Components of a Business Model
Key Customer
Partnerships Relationships
Key Value Customer
Resources Proposition Segments
Key Distribution
Activities Channels
Cost Revenue
Structure Streams
Customer Segments
 The Customer Segments defines the different groups of people or
organizations an enterprise aims to reach and serve;
 Customer groups represent separate segments if:

• Their needs require and justify a distinct offer
• They are reached through different Distribution Channels
• They require different types of relationships
• They have substantially different profitabilities
• They are willing to pay for different aspects of the offer
Value Proposition
 The Value Propositions describes the bundle of products and services that
create value for a specific Customer Segment;
 It solves a customer problem or satisfies a customer need. Each Value

Proposition consists of a selected bundle of products and/or services that
caters to the requirements of a specific Customer Segment.
 In this sense, the Value Proposition is an aggregation, or bundle, of benefits

that a company offers customers.
Distribution Channels
 The Channels describes how a company communicates with and reaches its
Customer Segments to deliver a Value Proposition;
 Channels serve several functions, including:

• Raising awareness among customers about a company’s products and services
• Helping customers evaluate a company’s Value Proposition
• Allowing customers to purchase specific products and services
• Delivering a Value Proposition to customers
• Providing post-purchase customer support
 Channel types:
• Sales force
• Web-sales
• Stores: own or partner
• Wholesaler
Customer Relationships
 The Customer Relationships describes the types of relationships a company
establishes with specific Customer Segments;
 Customer relationships may be driven by the following motivations:

• Customer acquisition
• Customer retention
• Boosting sales (upselling)
 Customer relationships could be:

• Personal Assistance/ Dedicated Personal Assistance
• Self-service
• Automated Service
• Communities
• Co-creation
Revenue Streams
 The Revenue Streams represents the cash a company generates from each
Customer Segment;
 Each Revenue Stream may have different pricing mechanisms, such as

fixed list prices, bargaining, auctioning, market dependent, volume
dependent, or yield management.
 A business model can involve two different types of Revenue Streams:

• Transaction revenues: resulting from one-time customer payments
• Recurring revenues: resulting from ongoing payments to either deliver a
Value Proposition to customers or provide post-purchase customer
support
Key Resources
 The Key Resources describes the most important assets, required to make a
business model work;
 These could be :
 Physical
 Financial
 Intellectual
 Human
Key Activities
 The Key Activities describes the most important things a company must do to
make its business model work;
 They are required to create and offer a Value Proposition, reach markets,
maintain Customer Relationships, and earn revenues;
 They differ depending on business model type. E.g.: For software maker
Microsoft, Key Activities include software development. For PC manufacturer
Dell, Key Activities include supply chain management. For consultancy
McKinsey, Key Activities include problem solving.
 Three primary forms:

 Production
 Problem-solving
 Platform/network
Key Partnerships
 The Key Partnerships describe the network of suppliers and partners that
make the business model work;
 Companies create alliances to optimize their business models, reduce risk,
or acquire resources.
 Four different types of partnerships:
• Strategic alliances between non-competitors
• Competition: strategic partnerships between competitors
• Joint ventures to develop new businesses
• Buyer-supplier relationships to assure reliable supplies
 Reasons to form partnerships:
• Optimization and economy of scale
• Reduction of risk and uncertainty
• Acquisition of particular resources and activities
Cost Structure
 The Cost Structure describes all costs incurred to operate a business model;
 Two forms of cost-structures most commonly observed:

• Cost-driven: focus is on minimising costs wherever possible. This approach aims at
creating and maintaining the leanest possible Cost Structure, using low price Value
Propositions, maximum automation, and extensive outsourcing. E.g.. No-frill airlines like
Deccan etc.
• Value-driven:Some companies are less concerned with the cost implications of a particular
business model design, and instead focus on value creation. Premium Value Propositions
and a high degree of personalized service usually characterize value-driven business
models. E.g. Luxury hotels, with their lavish facilities and exclusive services, fall into this
category
Example: the “Facebook” Model
 Mark Zuckerberg, Chris Hughes, and Dustin Moskovitz, saw the “Facebook”, the
University directory of sorts, in need of expansion and improvement. Facebook.com
is on online database of everything the old paper facebooks had and more.
Zuckerberg developed a personal niche

•Selecting the Customer segment
for his site in making it specifically for
•Selecting the Value Proposition high school (recently), college and
university communities, primarily in the
•Key activities
United States.
•Customer Relationships
•Distribution and Promotion channels
•Planning the Revenue Stream
•Deciding the key Resources
•In the beginning, Facebook was the only

brand of these sites that was for students
•Key activities and students only.
•The profile is was makes up the users’
•Selecting the Value Proposition
personal sites.
•Customer Relationships •The friends feature is one of the major
ways that students are able to become
connected through the site.
•Planning the Revenue Stream •The other way that the site connects
students is through the groups feature.
•Started as a a site to connect college

students ;
•Key activities •It capitalized greatly in forming a very
real online social network.
•The utility that Facebook creates for its
•Customer Relationships customers is essential in creating traffic.
•Networking is very important in college
and Facebook helps students to establish
•Planning the Revenue Stream these with little effort on their part
•Facebook gained popularity in US

universities as it allowed easier
•Key activities interaction between the old and new
students.
•Facebook acquires customers as students
•Customer Relationships realize their personal need for online
networking;
•Keeping the customers is a very easy
•Planning the Revenue Stream task once they are on Facebook. Users
continue to visit the site to partake in one
of the newest activities,
•Distribution: primarily through the

Internet. This is common with other
•Key activities social networking sites as well.
•Promotion: Facebook started as an
online directory of Harvard students,
•Customer Relationships Within a month Facebook was available
at Columbia, Stanford, and Yale and by
the summer The promotion of the site has
•Planning the Revenue Stream been mostly by word of mouth. Publicity
in the media has also helped the
company’s promotion along.
•Advertising: Advertisements on
Facebook are very valuable considering
•Key activities the amount of traffic the site is able to
generate.
•Facebook offers three different ways to
•Customer Relationships advertise: banner ads, sponsored groups,
and text announcements.
•The major resources of Facebook are the

servers that keep the site running despite
•Key activities the heavy amounts of traffic. These
servers are very essential because the
services and operations of Facebook
•Customer Relationships depend solely on the website. A down
server could result in the loss of millions
of page hits.
Example: Apple iPod/iTunes Model
 Apple launched the iPod portable music player in
2001, and although Apple was not the first entrant, it
quickly became the market leader; owing to its model:
• iPod worked in conjunction with iTunes software. This

enabled users to transfer music and other content to and
from a computer. The software also provides a seamless
connection to Apple’s online store so users can purchase
and download content. It allowed customers to easily
search, buy, and enjoy digital music.
• Also, to make this value proposition possible, Apple had

to negotiate deals with all the major record companies to
create the world’s largest online music library.
Example: Xerox 914 Copier
 The 914 copier, introduced by Xerox in 1959, used the relatively new
electrophotography process, which is a dry process that avoids the use of wet
chemicals. In seeking potential marketing partners, Xerox repeatedly was turned
down by the likes of Kodak, GE, and IBM, who had concluded that there was no
future in the technology as seen through the lens of the then-prevalent business
model.
 While the technology was superior to earlier copy methods, the cost of the machine
was six to seven times more expensive than alternative technologies.
 The new model leased the equipment to the customer at a relatively

low cost and then charged a per copy fee for copies in excess
of 2000 copies per month.
Case in Point:
Disney around the World
Application of Strategy and Business Models

Introduction
 Started by Walt Disney, company was initially an
Animation Studio
 The company is credited with not Inventing the
Amusement Parks, rather Re-Inventing the concept
 Diverged into a Amusement Parks known as “Theme
parks” with mixed success
 Company is known to promote “Creativity” and
“Individuality”
 Peer Pressure rather than complex policies guide
Employee Performance here
Journey and Lessons
 Anaheim, California, 1955
o Built on a very large area
o Adults : Children ratio = 3:1 on popular rides
o $8mn investment was recovered very early, Inspite the entry
fees being twice the other parks
 World Disney Resort, Orlando, Florida, 1971, 1982,
1989 and 1998
o Model migrated successfully from West to the East Coast in
USA due to Homogenous Population
o Disney Branched out into Hotels, Merchandise and Retailing
Business
o The key Factor was the Introduction of Breathtaking Rides
Journey and Lessons
 Tokyo Disneyland, 1983 and Tokyo DisneySea, 2001
o Saw a successful carry of the “Americanized” model of
Disney into Japan (Minimum Adaptations)
o Successful due to high population of Tokyo and the
Japanese “Fetish” for American Culture
 Disneyland Paris, 1992
o The Successful “Americanized” model of Disneyland Failed
Miserably in Paris
o Still indebted to the tune of $2.71 bn., due to the following
reasons:
Journey and Lessons
 Disney not selling Wine
 No preference to Local Food
 Culture Imperialism (Minimum Adaptations)
 Not enough utilization of Travel Agents
 Hong Kong Disneyland Resort, 2005
o Having “stunned” by the criticism of Disneyland in
Paris, company took a cautious approach here
o They Adapted their model of Business to Chinese
Cultural sensitivities by the following ways
 Designing the park according to Feng Shui
Journey and Lessons
 Hamburger being customized to Local Tastes
 Signage were in English, Traditional Chinese and
Simplified Chinese
 Rides designed to resemble Asian Jungles
o This model tried to find “Optimum Balance” between
Tokyo and Paris model, although space was a concern
 Shanghai, 2010 (Yet to be operational)
o Disney seeks to take advantage of China’s 1.25 Bn. strong
population
o Shanghai is the most populous city and the Financial
Capital
o Shanghai would be different from Hong Kong, in terms of
its lack of International Influence like Hong Kong
Conclusion
 International Expansion has been the prime growth Driver
for Disney
 The company has to learn from its mistakes and has to
“Adapt” its Business Model according to the Local
Customs
 In countries like China where Disney Characters are not
so popular, the company has to educate the local
Population
 The company would have to constantly Innovate to Fend
off rivals even where it is successful
Conclusion
Moral of the Story:
 Vision and Mission which are Long Term Objectives of
the Organization
 However, Strategy and Business Model which are made
to fulfill these Objectives, are relatively Short Term and
Flexible
 Strategies have to be Tweaked according to several
Internal and External Factors, which are necessary for a
Business to stay Profitable
Case Discussion Questions
1. What is Disney’s Core Competence and Distinctive
Competence?
2. What is Disney’s Business Model? Is this model
transferable?
3. Is Amusement Park a Global Industry? Why or Why
Not?
4. What mistakes has Disney made in its domestic and
International Operations?
5. What Strategy should Disney Adopt in Shanghai?
Thank You
Relevant Questions Please

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Swati Chaudhary

• It describes the value an organization offers to various customers and portrays

• The business model reflects the company’s way of competing, whether it

 Strategy gives the conceptual base of action: it is a critical part of any

 The business model is like a blueprint for a strategy to be implemented

 Customer groups represent separate segments if:

 It solves a customer problem or satisfies a customer need. Each Value

 In this sense, the Value Proposition is an aggregation, or bundle, of benefits

 Channels serve several functions, including:

 Customer relationships may be driven by the following motivations:

 Customer relationships could be:

 Each Revenue Stream may have different pricing mechanisms, such as

 A business model can involve two different types of Revenue Streams:

 Three primary forms:

 Two forms of cost-structures most commonly observed:

Zuckerberg developed a personal niche

•In the beginning, Facebook was the only

•Started as a a site to connect college

•Facebook gained popularity in US

•Distribution: primarily through the

•The major resources of Facebook are the

• iPod worked in conjunction with iTunes software. This

• Also, to make this value proposition possible, Apple had

 The new model leased the equipment to the customer at a relatively

Disney around the World

Application of Strategy and Business Models

Relevant Questions Please

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