Corporate Issuers
Business Models & Risks
LOS a Describe
Business Models & Risks
Elements of a Business Model
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What will be produced?
How will it be produced/provided? (key suppliers, expertise)
Who are the potential customers? (size of market)
Why will they buy? (who are competitors)
How will customers be acquired? (at what cost)
How will the product be priced, sold, and delivered?
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LOS a Describe
Business Models & Risks
Features of Business Models
Customers: B2B, B2C, governments
Differentiation from competing product/services – lower price,
premium quality, innovative solution
How to sell (channel strategy)
• Direct sales, e.g. physical location, online, trade shows, direct
mail, telemarketing
• Through intermediaries, e.g. retailers, wholesalers
(perhaps value-added), agents, franchisees
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LOS a Describe
Business Models & Risks
Features of Business Models
Examples of Key Assets and Suppliers
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Expertise
Skilled employees
Patents
Software
Suppliers – raw materials, outsourcing, possible vertical
integration
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LOS a Describe
Business Models & Risks
Pricing Models/Strategies
Value-based vs. Cost-based
Pricing strategy examples
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Price discrimination
Tiered, dynamic, or auction pricing
Penetration pricing
Freemium pricing
Hidden revenue pricing
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LOS a Describe
Business Models & Risks
Pricing Models/Strategies
Strategies With Multiple Products
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Bundling
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Razors-and-blades
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Options/add-ons
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LOS a Describe
Business Models & Risks
Pricing Models/Strategies
Alternatives to Outright Sales
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Leasing
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Subscription model
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Fractional ownership
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Licensing
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Franchising
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LOS a Describe
Business Models & Risks
Business Models
Other business models include:
 Private label manufacturers: Companies produce products for
others to market under their own brand name
 Licensing agreements: A company brand is used by another
company on its products for a fee
 Value-added resellers: Offer such things as installation, service,
support, or customization
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LOS a Describe
Business Models & Risks
Business Models
E-commerce terms
 Affiliate marketing: Another company is paid a commission for
sales, leads, or page views
 Marketplace businesses: Provide a platform for buyers and sellers
 Aggregators: Provide a marketplace but sell products
and services under its own brand name (e.g., Spotify)
Network effects refer to the increase in the network value
Crowdsourcing – User input increases value of product
(e.g., Waze, open source software)
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LOS a Describe
Business Models & Risks
Terminology
Value proposition: How the firm will create value for its customers
Value chain: Assets of the firm and firm activities that will create
value and exploit competitive advantage
Supply chain: All steps, including those performed by external firms
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LOS b Describe
Business Models & Risks
Business Risk and Financing Needs
External risk factors affect business risk and the cost/availability of
financing, e.g.
 Economic conditions/cycles
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Changes in demographics
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Legal, regulatory, and political changes
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LOS b Describe
Business Models & Risks
Business Risk and Financing Needs
Firm-specific risk and financing needs affected by:
 Greater business risk increases financing costs/reduces
availability of financing
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Age of firm (start-up vs. mature)
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Vulnerability to competition
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LOS b Describe
Business Models & Risks
Business Risk and Financing Needs
Business models that reduce financing needs
 Asset-light models (lease assets, franchisees)
 Lean start-up (much work done outside the firm)
 Pay in-advance models (insurance, retailers)
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Business Models & Risks
LOS c Explain/Classify
Types of Business Risks
Macro risks affect all businesses
e.g. economics, climate, politics, demographics…
Business risk (variability of EBIT) from:
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Firm-specific risks, including operating leverage
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Industry risk
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