Basic Elements of a Business Model
In the simplest terms, a Business
Model is how a business makes
money. It explains the sources of
the organization’s revenues, how
these sources pay and how often.
It outlines the business logic
required to earn a profit (if one is
available to be earned) and once
adopted, defines the way the
enterprise “goes to market.”
This introductory presentation is
intended to introduce a
framework for further thought and
discussion through which AIRN will
define its Business Model.
Select features
embedded in product or
service
Design mechanisms to
capture value
Confirm available revenue
streams
Determine benefit to the
customer from using the
product or service
Identify market segments
to be targeted
EMBEDDED SERVICES -- MEMBER BENEFITS
The distinction between the
terms benefits and features is an
important concept in developing
and marketing a service.
Features are characteristics that
the service provides. Benefits
are the reasons members pay
for the service.
AIRN services must have features
which its members perceive as
valuable (i.e., as beneficial to
them). It is important to
remember that members pay
dues or fees because they want
to solve a problem or meet a
need. Members, whether
openly or not, will always be
asking the question, “What’s
in it for me?”
Identify Member Benefits
The six steps in identifying the benefit of a service
are:
1. Evaluate the potential of a member seeing the
value (benefit) of each service without it being
pointed out. List the obvious benefits and then
start looking for others.
2. Investigate. Ask members about the service.
How would they use it? How would they change
it? Would they add anything to it?
3. Value. Does the service deliver value to the
member? The more benefits the service has the
less important the cost becomes.
4. Test. If a new service, test it on some of your
members. Ask them to evaluate and suggest
improvements.
5. Examine the cost of the service to determine
whether it can be provided for less cost.
6. Adjust membership development to reflect any
new benefits (which may include adjusting to
delete or modify negatives) you have discovered.
It is always better to be the organization that is
introducing the benefits than being the copycat.
(BSA, BFA, BCPA – threats, competitors?)
Segmentation Marketing
Market segmentation is the act of
subdividing the market (AIRN
membership) into a group or groups
of people who have similar needs,
but with differing needs between the
groups.
In order to clearly define market
segments for AIRN services, it is
important to divide prospective
and/or current members into groups
and then decide which services best
fit each group. AIRN also may
determine after defining the member
segments that the ideal member is
one who can belong to two or more
of the of the groups shown in the
chart and discussed in the next
slides.
4 Key Market Segments
Key Market Segmentation
Geographic Segmentation –
Geographic segmentation is used to
identify business target markets based
on where the businesses are located.
Segmentation by Size – Size might be
measured in terms of number of
employees or in terms of annual sales.
Segmentation by Industry - Industry
segmentation (e.g., seeds, fertilizer,
crop protection products, wholesale,
retail, etc.) may be used when
providing services with specific appeal
in certain industry segments.
Business Need – Segmentation based
on business need allows AIRN to
identify and connect with members
that span geographies, size and
industry (e.g. gender), but share a
common need addressed by its
services.
Segmentation Criteria
As noted in the previous
slides, segmentation is simply
the process of dividing a
particular market (AIRN
members) into sections which
display similar characteristics
or behavior.
After selecting a segment (of
the market), an organization
(such as AIRN) should
evaluate its choice carefully
and ensure it has made the
correct decision.
A successful market segment
usually meets the criteria in
the pie chart and will be
explained more fully in the
following slides.
SEGMENTATION REQUIREMENTS
DEFINED
MEASUREABLE
ACTIONABLE
SUITABLE
ACCESSIBLE
Segmentation: Defined & Measureable
Defined: The chosen segments should
be clearly defined to avoid doubt about
which part of membership AIRN’s
marketing activities are aimed.
Otherwise, there is a risk that market
activities will “spill over” into different
segments. As AIRN will have more than
one segment, each should be made up
of markets (members and/or clients)
which require specific services due to
differences in behavior.
Measurable: As AIRN embarks on its
marketing strategy, it is important for it
to know the demand for services in that
segment. Over a period of time it will
be important to be able to measure the
income derived from services to that
segment relative to the cost of
providing those services and whether
the demand for a service, and its
related expense and income, is growing
or decreasing.
SEGMENTATION
Defined
Measureable
Actionable
Suitable
Accessible
Segmentation: Accessible, Suitable & Actionable
Accessibility is about communicating with
members and being able to actually get
services to them. The other aspect of
accessibility is being able to deliver AIRN
services to its chosen segments.
Suitability means that the characteristics
of the members making up a segment,
indicate they are likely to use/pay for the
service and have the spending power to do
so. It also includes the size of the
segment, e.g., if the number of members
in the segment are too few, the cost of
services will be high and the income
derived too little to support them. If the
segment is too large, it will be difficult to
create services to suit all the member
subgroups included in the segment.
Actionable: Even if all of the criteria
above are satisfied, a segment is
unsuitable unless AIRN has the resources
to satisfy the need of the segment.
DEFINED
MEASUREABLE
ACTIONABLE
SUITABLE
ACCESSIBLE
Revenue Streams
How, and from where, will AIRN get its income?
The “Golden Egg”
The 80/20 rule: It is possible that some
of your services that require the most
amount of time and energy are your
least “profitable”—generate the least
amount of income. Analysis may not be
your favorite thing to do but it can help
you see where you can stop wasting
time and money.
1. For every service you offer calculate
the “profit” (net income) each
generates (total revenue minus total
costs = profit).
2. In addition to the actual costs, add in
the average amount of time you spend
to market and deliver each service
because time is another form of money.
3. Combine the information from steps
one and two and identify which services
have the highest “profitability.”
Creating Value -- Capturing Value
CREATING VALUE: Value is created
anytime an action is taken for which the
benefits exceed the costs, or anytime
an action is “prevented” for which the
costs exceed the benefits.
CAPTURING VALUE: The concept of
value creation says nothing about
profit. The benefits are measured to
the consumer; the costs to the firm—
you can’t determine profit just from
that.
The membership dues (or fee for a
particular service) determines the
amount of value that is “captured” —
that which contributes to AIRN’s
income and sustainability.
The other value isn’t lost. It is retained
by the consumer. It is the difference
between what the consumer would
have been willing to pay and the price.
POLITICAL, ECONOMIC, SOCIAL & TECHNOLOGICAL (PEST) ANALYSIS
Measurement of the Business Market according to External Factors
There are four factors in analyzing outside issues that play a
role in a business’s success, in this instance how each
affects AIRN members and thereby impacts AIRN.
Political: This factor looks at how political and legal issues
affect a business’s chance to be profitable and successful.
Such issues include political stability, tax guidelines,
constraints on the structure and activities of an
organization, etc.
Economic: This factor examines the outside economic issues
that can play a role in an organization's success. Such items
include the effects on members of economic growth,
inflation and interest rates, the country’s current business
policies, etc.
Social: This issue analyzes the demographic and cultural
aspects that can help determine whether a business can
compete in the current market. Among the examined are
country demographics, population growth rates, age
distribution, education, and environmental and health
consciousness.
Technological: This factor takes into consideration the
technology issues that impact how an organization brings its
service to the marketplace. Among the items to be
considered are technology advancements, the role of the
Internet and the impact of potential information technology
changes, and so forth.
POLITICAL, ECONOMIC, SOCIAL & TECHNOLOGICAL (PEST) ANALYSIS
(Example of factors influencing businesses)
SWOT ANALYSIS
SWOT measures a business unit,
a proposition or an idea.
Strengths,
Weaknesses,
Opportunities, and
Threats
SWOT analysis is an excellent
tool to use if the organization
wants to take a step back and
assess the situation they are in.
It is a subjective assessment of
data which is organized by the
SWOT format into a logical
order that helps understanding,
presentation, discussion and
decision-making.
A SWOT analysis is part of any
prudent marketing strategy.
Basic Elements of a Business Model
Select features
embedded in product or
service
Design mechanisms to
capture value
Confirm available
revenue streams
Determine benefit to
the customer from using
the product or service
Identify market
segments to be targeted