56 CHAPTER2 THEBUS

INESSMODELANDTHEREVENUEMODEL

Cas
e2.
2 TheL
ow-
Pri
ce,No-
Fri
ll
sAi
rl
inesBus
ines
sModel UK,US,I
rel
and

● Ver yl ow pr ices .T ypical l

yt hepr iceswi l
ls t artr eal ly
l
ow f ort hef i
rs tse a t
ss oldf oraf l
ight ,a ndt hen
i
nc re as ea st hepl a nef ill
supduet ohi ghdemand.
● Aut oma tedt icke ti
nga ndonl ydi re ctbook i
ngsnow
us i
ngt hei nt erne te xtens ive ly
.Out lawi ngt rav el
age ntsc anme a nas av i
ngofupt o15pe rc ent .
● Limi tedf ril
ls.L imi tedr efres hment s( wi thnonef ree),
nov i
de osa ndj us tonec l
a ssofs ea ti
ng.I ns ome
pa rtsoft hewor ld,s imi lara ir
line swi llse rv eonl y
sof tdr ink s,r athe rt ha nc of feea ndt e a( wi t
ht he
i
ne vitabl emi lk,s uga rands tirrer )a siti se asiert o
collec tpas sengerr ubbi shandt huss peedupc abi n
cleani ngbet weenf li
ght s.

T he a
f
US l
ri
ll
s
awy
,l
ir
li
ne
ow c
erHe
st

r
ha
os
b Ke
twe woul
tand l
l
lehe
ow pr
rf
dt
i
c
odayde
e’r
ounded Ai
e
all
s
ybe
rSout
c
ri
be as‘
gan when
hwes
no

ti n
● Thea
us
i
emobi
rl
inesha
lephone
ves t
sa
artedt
nds
oal
ma rt
l
ow pa
phone
ss
si
e
nt
nger
heai
st o
r–
be ca us et heyc a ne arnac ommi ss i
on.
1967,c ha nging i tsna me t o Sout hwe stAi ri n 1971, ● Hist orica l
ly,nos eata s signme nts ,a ttempt ingt o
withas impl einte nti
on–‘ f
lype oples afely,che apl
ya nd enc our agepa ssenge rst oa rrivee arlys ot he yc anbe
convenie ntlybe t
we enDa l
las,Hous tona ndS anAnt onio’, towa rdst hef rontoft heboa r
dingl i
ne,whi ch,i nt urn,
thr
e ek eyc i
tiesi nT exas.Theai rli
nepr ov eda ni nstant me anspl a ne sar el i
k elyt ot a keof font ime .T ypi cally,
successandr out esgrewr apidly.Thei ndustry‘tookof f’in and,i nr e spons et oc us tome rpr e ssur e,t he rea re
Europemuc hlater ,when, i
nt he1990sbot hRyanai rand now s e ata ssi
gnme nt sa ndpr iorityboa rdings yst ems ,
easyJetbec ames er
iouscompet i
tors.Althought herear e whi c hnor ma ll
yr e qui r
ea nex tr
apa y me nt .
dif
ferenc esi nc ulture,valuesandr e putation,t herea re ● As tanda rdiz edf le etofe i
t he rBoe ing737sorc er tai
n
manyc ommont heme sa cr
osst heindus trysector,anda n Airbus e stos impl ifyma intena nc e .
unde r
lyingbus i
ne ssmode ladopte dbya l
lthea irl
ines. ● Airc rafta r
eof te nboughtwhe nt hema nuf ac tur er s
Thei r s tr
ategy , c ompet i
ti
ve adv antage ( whe n aree xpe ri
enc i
ngt ra dingpr obl ems ,t husdr iving
compa re da gains t‘f
ull
-servi
ce ’ai
rli
ne saroundt hewor ld) downt hepr i
c e.
ands ucc esshav ea l
way sbeenbas edons everalfactors: ● Of tent her ear enoai rbr i
dgesf orboar ding.
● Frequenta ndr eliablede par t
ur es.Thea i
rl
ineshav e Pa sse nge rsmus twa lkoutt ot hea ir
c r
a ft.
mul tiplehubsf r
om whi cht heyf lyvar i
ousr out es. ● Cr ewc os ts.P ayr a tesa rel owe rt ha nr i
v a lfull-s erv i
ce
● Relat i
velys hor tjour ney s;few,i fany ,truelong- haul car ri
er s,andt her ear ej us tt hreec abi nc rew oneac h
fl
ight s.Thats aid,Sout hwes tplaneswi l
lcrosst he fl
ight–l ow f ora nai rc ra f
toft hes izei nv ol ved.Cr ew
Uni tedSt ateswi thv a ri
ouss tops,muc ha sat rain arenott he ret os ervef ooda nddr inks ,butr at hert o
woul d. l
ooka fterpas se ngers a fet y.Andt hes afe tyr ec or dof
● Thec hoiceofs mallerai rpor ts.Somet imesa i
rpor t
s Sout hwe st,e a syJe ta ndRy a na irha sbe env er ygood,
near ert oc i
tyc ent resar ec hos eni npr efer
enc e unl iket het ra gic‘ critter’( na me da fte ritsc allsign)
toi nternationalai rpor t
swhi char ef urtherawa y Val uJet592t hatc rashedi nt ot heF l
or i
daEv er gl ades
from t hec ent re.Ry anai r,though,hasal soalwa ys i
n1996wi t
ht hel os sof110l ive sduet odange rous
soughtai rpor tswi thr elati
v elylow c harges ,eveni f car goonboar d,andwhi chc aus edVal uJ ett ogoout
theyar esev eralmi lesout sidet hec i
tyt heys erve. ofbus ine ss.
Forex ampl e,t heira irportofc hoicef orserv i
ng ● Se atde ns ity.Ry a na ir
,f ore xa mpl e ,pac k s15per
Brus sels(Char leroi)is40km t ot hes outhoft he centmor epas senger si ntoi tsBoei ngs .(Thes ea ts
city;thec ommut et oS toc khol mi s100km;and,at aref reque ntlypl a stic,f ore asy,f a stc lea ni ng) .In
onepoi nt,t heonedes ignat edasCopenhage nwa s pa rt,t hisi mpl iesar educ ti
oni nl egr oom;i tal so
actua ll
yov ert hebor deri nSwedeni nMa lmö.T hi
s me ansr educ ingt hes pac et ak enbyt oilet sand
arrangementc anpr ov i
deas ubstantialcosts aving. ga ll
e ys–al t
houghnotmuc hf oodi ss t
or edonboar d,
● Fastgat etur na r
oundst oma ximizethet imet he dut y -
fre egoodsar ea ndt he ser equi res pa c
e. ..s o
planesar eint heai r. ‘r
e strooms ’mi ghtbes a cri
f i
c ed!
 I
NTRODUCTI
ON 57

● Somea i
rlinesbeganc hargingf ore verycaseputi nto l
e s
ss ympa thet i
ct hant hef ull-se rvicec arriersifpa ssenger s
thehol da nde v
ene xpe r
ime nte dwi thf l
ightswhe re missthei rfli
ghtort hef li
ghtha st obec anc elled.
nohol dba gswe rea ll
owe d,whe ree ve r
ythi
ngmus tbe Si
gni f
icant ly,though,t hebus i
ne ssmode lhaspr ov ed
carr
iedonbutwi t
hnor ma ls i
zer e s
tric
tionsa ppl
y i
ng. to be r esil
ie nt.I n 2018 s ev eralRy anai rf li
ghtswer e
● Theai rl
inesmayc har gepeopl ewhoneedma nua l cancell
e d,a nd pa ss enge rsl e fts tra nde d,whe n pi l
ot
helpt oc hec kin;instead,c ustomer sa reexpe c
t edto rost
e r
swe re mi sma nage d.T hos e pa ssenge r
saf fe c
t ed
uset hes elf-s
e r
viceboot hs. we r
ec ertai
nl yunha ppy ,butt hec ompa nys ubs equent ly
● Empl oyeesar eenc our agedt oac ce ptempowe rme nt postedr evenuea ndpr of iti nc rea s
e sofa round 10pe r
andar emot i
vatedt owor khar danddel i
verhigh centfort hey e araf fe cted.S omepa ss enge rs,butnota ll
,
l
evelsofs ervi
c econs istently.Rul esandr egulati
ons i
ts e
e ms ,wi l
l tolera t
er elati
v elypoors ervi
c ef orlow pr ices
aremi nimi zedt oallow s taffthef reedom t ode al onr el
a ti
velys hor tflight s.T hist olera ncedoe snotme an
withi s
suesa sthe ya rise. theyenj oyt her elativelyl ow l ev elofs erv i
ce ,ofc ours e.
● Passengerl oy al
tys chemesar et heex cepti
on,r ather Andt hisphe nome non, ofte nr ef er r
e dt oa s‘s l
ummi ngi t’,
thant henor m.I n2018eas yJetbr okewi t
ht radi
tion appliestobot hbus ine ssa ndl e i
sur epa ss
enge r
s.Anot her
forlow- cos tair
li
nesandi ntroduc edone. excell
ente x ampl eint hisse ctori sNor we gianwhi c
h, pr i
or
totheCOVI D- 19pa nde mi c,wa sv erys uc ces sf
ulwhe ni t
I
n addi tion,f rom t he v erybegi nni ng,Her b Ke l
lehe r
adde dal ow- costt rans atlant icf li
ghtt oitse xisti
ngs horter
enc our agedSout hwes tf lightat tendant st oc ra ckj ok es
routes:a v alue pr opos iti
on t ha t unde r
pi nne d wha t
dur ingi n-fli
ghtemer genc ybr i
ef ings,but ,att hes ame
seeme dl i
keav e ryluc rati
v ebus ine ssmode la tthet ime.
time,oper atewi thv eryhi ghs afet ys t
andar ds .Hewa s
Somec omme ntat orsha vea rgue dt ha tstaff a
repar ti
al ly
det er mi nedt hatpas s enger swoul denj oyt hei rf li
ght s.
expl
oite dwi thl onghour sa ndr e l
ativelyl ow wage sf or
‘AtSout hwes twe don’ twa ntc l
ones– ev ery one i s
theindus try,butt he rei snos hor tageofr ec ruits.Enough
ex pec tedt oc ol orout sidet hel ines .’
peoples ee mt ol i
k ea ndwa ntt histy peofwor k.
Someoft heS out hwe s tpl ane swe res oonde c orate d
Theno- frillsca rri
e rshav ec e rtainlyha dama jorimpac t
ex ter nal l
yt or einfor cet hef uni mage.Whent hisbe ga n,
ont hea ir
linei ndus try,a ndt he irs uc cessha s,inpa rt,
thr eeoft hem,pr omot ing maj ors pons orSe aWor ld,
beena tthee xpe nseoft hef ull-servicec arri
e rs,suc ha s
we ref ly i
ngk ill
e rwhal es ;onewa spai ntedwi tht heT ex as
BAi nt heUK,whi chhav ehadt or espond.BA,f orone ,
flag;anot herwasc hr i
stened‘ Ar i
z onaOne’ ,as poofon
haswor kedha rdt ot ri
mi tsc os tsa ndr educ ei tsfaresi n
Ai rF or ceOne.Adv ert i
seme ntsa lsobe ga nt oa ppe aron
ordert ona rrow t hepr icega p.
theout sideofs omeRy anai r( andot her )pl anes .
The‘ low- pr ice,no- fri
l
ls’ produc tis,inr ealit
y,apa c
k age
ofs erv i
c es,ma nys ubc ont ra ctedi n. Thea irl
inewi llprov i
de
Ques
tions
thepl a ne sa ndt heirc rews ,andma rketands e l
l thef l
i
ght s. 1 Beforewedi ssectt hec ompone ntpa rtsoft he
Asac ompa ny,i ti sf oc us ed.Che c k-
ina ndi nf ormat ion bus i
ne ssmode lindept h,asky our self:whoa r
et he
se r
v ices ,s nac ks( f
orpa ssenge rst obuybef oret he yboa rd targetc ustomer sf ort heno- f
ill
s,low- priceairli
nes?
theae ropl aneaswel l asonboar d) ,ba ggagehandl i
ngand Wher ea ndwhydot he ype rc
eivev a lue ?Wha treall
y
fl
ee tma i
nt enanc ea rea l
l boughti nf r
om s pec i
al i
s t
s. ma tterst othe m?
Ev erya ctivity,e ve ry ope rat i
on,i san oppor t
uni ty 2F rom y ourowne xpe ri
e nces,thinka boutwhi ch
tor educ ec os tsand enabl ec ompet i
ti
v elyl ow pr ices. air
linesy oupr ef
e ra ndc hoose,a ndwhy .Doy ous ee
‘Ev ery thingwedoi sdes ignedt opas sonl owerf ares’ your sel
fa st ypi
ca lorunus ua lasac us tome r
?
(Mi c haelO’ L ear y
,CEO,Ry anai r).Butt hisc an l ead t o 3 Cons iderNor we giana nds omeot he re xampl es
vul ner abi lit
y… a lthough,of ten,t he r eleva ntev ent s oflow- c osta i
rl
ine st ha tyouc a nide nt i
fy( perhaps
af f
ec tf ull-s
er v i
ce ai rl
ines as wel l
.I nt he pa st,f or i
nc ludingAi r
As i
a)a ndc l
ari
fyt hes pe cifi
c sof
ex ampl e,pr of i
tshav e been hi tbyr i
sing f ue lc osts, theirbus inessmodel s.How wer et hes ebus iness
somet imesl eadi ng t or ec or dedl os ses.TheCOVI D- 19 mode ls
:( a)ex t
ens ionsoft hec onc e ptof‘ nof r
il
ls’
pandemi c,ofc our se,hasaf fec tedev eryai rli
nea st he topr evious l
yunt a ppedai rrout es;and( b)affected
numberofpas senger shasc ollaps ed. byt hepa nde mic?Doy out hinkt hes ec ompa nies
The rear eot her lessobv ious ,buts i
gni f
ica nt, reduc t i
ons hav ebe e nr e
s i
l
ient ?I sthispa rti
cula rbus i
ne ss
i
nt hes er vi
cespr ovidedbyt heno- f
rill
sai rl
ines .Ry ana ir
, mode lmor er esi
lientt hant hatoft hos eai rl
ines
fore x ampl e,onl yha sar el ativelys mal lcus tomers ervi
c es termed‘ fullservi
c e’andwhi char eof tennat i
onal
ac tivity.Thel ow- c ostmodelmeanst heyar el ike lyt obe fl
agc arri
ers?
58 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

On eofth emo rer ecentex amp leso fthen ee dtor e thinkt h ebu s
inessmo d elisth ec ha nget ha thasc omea boutin
thenewsa ndma gazi
n ema r
ke t.Ch argingmo neyf ort hene wslinkedt oa dv erti
singr e venue swa stheb asisofthe
indust
ryi nt heUni tedSt atesa ndt heUK. In20 08t h en ewsi ndus tryr ea che dat ippi ngpo intwh ent hen u
mb er
ofpe oplege ttingn ewsonl inef orf re
eou tst
rippe dt ho sepa yingfort hene ws .Th emo stv oc alrespon setothis
iss
uewa stha tofRu pertMur d och, wh oh a sledt hea ttempt t
og etc o nsume rst op ayf o rne wso nli
n e.I ntheUK
somed ai
lyn e ws papersa ren owgi vena wa yf r
e eo nwe ek days,paidf orb ya dvertising. I
nLo ndon, theEv ening
Standardi st hepr imee x amp le.I ntheUKa sawh ole,lo calediti
o nso ft heMe t
roa rep rod uced.Th esep apers
areallleftat tra
n sporthub sf orp eop l
et op ickupa st heyc ommut e .Wi l
l thes ede velopme ntsc ha ngea n ythingin
ter
msofwha tish appenin gton ewsr eve nue ?I tc anb ea r
g uedtha tb us i
ne ssmo de l
sne edt oi nno vateb yl ooking
forwardnot b ack.Tryingt os t
i l
lc hargef orn e wsi na ne rao ftabletc ompu te rsan dsma rtpho nesmi ght bea rgued
asawa yo flook ingba c ka ndn ot forwa rd,a ndi twi llc easetob ea sr e l
ev an tasi tha sbe eni nt hep as t
.
Thesel aste xa mpleshi ghlightt hei mpor tan ceo ff indingv alu ablene w wa yst obedi ff
eren t,a ndt he
result
ingv a l
ueo fne wbus ine ssmode li de asfort he i
rc re at
orsift he ys atisfyc ustome rn e edsmor ee ffici
ently
ande ffecti
ve ly–b utonl yf ort hos eorg ani zationst hats uc ceedina pp rop riati
ngt heva l
ueoft heiri de as
.Itis
not al
wa yst hei nventorori nno vatortha tbe n efitsthemos t
.Re lat
e dt ot hist heme ,andl a terint hisc ha pter
,we
willdiscu ssth es i
g n
ifican ceo fop ena n dn ewb u sine ssmo dels.
Reade rso ft hisbookwhoa rea cqu ainte dwi thb usine sspitche s,pe rha psb ec aus et heywa t
chDr ago n
s’
De n(ors imi larp rogramme s
)o nt el
ev ision ,wi llh a veb eene xpo sedb ot ht op ersua sivea ndl essc o nv i
ncing
businessmo dels.He rep otentiali nvesto rsr eq uiret h ewo u l
d-bee n t
re p r
e neu rstoe xp laint heirp rod uc
to r
servi
cei nas hortp eri
odoft imea ndp rov i
deba sica ns we rstot hewha t,whoa ndwhyque st
ionswepos ed
abo v
e.Thenot iono fb usine s
spi t
ch esliket hisc anbel inkedt owh a tares ome time sc al
le d‘ elevatorpi tches’
.
Thei deabe hindt hisist haty ouha veab usine ssi de aa ndbyc ha nc eyoume e tsome onet owho my ouwo uld
lik
et ose lly ouri dea–b uty oua rea bou ttor idea ne lev at
ora ndyouha v eo nlyt het imet hee l
ev ato rcaris
goingu p( ordown)t oe xpla i
ne nought owa r
ra ntf urthe rd i
scussion.

2.
1 Thebus
ines
smodel

Wh enwea rguet ha tano rgan i

zationn eed sas oun d–o rawi n
n ing–b usin essmo d el
,weme a nthatt he r
ei sa
needf orav e r
yc learpi ct
urec on cerni
n gwha ttheo rga niza t
ioni s–a ndwha titisn ot–a ndwh owi llb uyi ts
produc tsa nds e rvices,andwh y.Theb u sines
smod elt h use mb ra
c e
st hr
eeke yt he me s:thea ctualp rodu ct( or
service); thema rket,specif
ica l
lythec ustome rs;andt he ir‘compe ll
ingreas ontob uy’fro map articul
a rs upplier
asdi st
inc tf roma nyc o mp eti
tors.
Itisimpor t
a nt t
or eme mb erheretha tstrat
egya lwa y si nvo lvescho i
ces.Or gani zati
on sh avet oma ked ecis
io ns
abo utwh att heyi nte ndtodo–a tthes amet imea sr u lingo utthingsitisle ssa pprop ri
a t
eord es i
rablef orthe m
todo.Pe rh apst hisi sbe causec ompe titi
o nisto oi nte ns e,o rth e
ydono tp ossesst her equi redc omp e tencies
andc apa biliti
e s.Thi sp ict
uret henne e dst ob ec ommun ica t
eda ndund ers t
oo dt hrougho utt heo rga nization.
Mo r e
o ve r,themo del–a ndt hes t
rategiesth a
tu nderp ini t –n eedst ober e
v iewe dc on st
ant l
y. Th ep ict
u res hou l
d
embr ac et heb u sinessa sitisno wa n
dho wi twillbei nt hef uture–wh erea ndh owi twi llc hangea ndg row.
Theb us ines smod elp ro
vi desane xpl anati
ono fa nor g aniz a
tion’s‘recipef ors uccess ’,andi tcontain stho se
factorst ha te s
s entiall
yde f
inetheb usi
ne ss.Ma nyoft hedi ffer
e ncesa r
eof tenob vioust oc u stome rs,a lthough
somea remor es ubt l
e. I
nde ed,earlywor ko nb u
s i
ne ssmo de lsha i
ledfromt hee -bu si
ne ssfie l
d( Ami ta ndZot t,
200 1)be caus ema nyb us i
ne ssmode linnov a
tionsa nde x ampl e
so finnov ativeb usine s
smo de l
swe rer elatedto
thes hiftf romof f l
inet omor eonl ineore lec
tronicbus ine ssmode l
s.
Itmus tnotbea ssume dt hate it
he rf i
nd i
ngord efe ndingadi st
incti
v eb u si
ne ssmod eli se it
h ere a
syo r
str
a i
ght for wa rd. Tos upp ortthisargume nt,conside rwha ty oukno w( f
romyou rs hoppi nge xpe ri
enc es )about
thel e
a dinggr o ce r
yr etail
ers.Ta lktoo the rpeoplea bo utwh er
ea ndwh yt heyma kethe ir‘ we e kl
ys h op ’
.I tis
rar
et of indp eopl ewh oa r
e‘ e
xc l
usive’t oo nep a r
tic ula rre t
ailer–a lt
hought heyma yha v eaf avou rite
.Th e
fol
l owingn arrativedi scussestheb usine ssmo del oft hel eadingc ompe ti
to rs.Itisimpor tant tof la
gt ha tduri n
g
 2.
1 THEBUSI
NESSMODEL 59

theCOVI D- 19pa n de mi ch omede live riesa ndc l

ic k-a ndc ollec t(f r
om onl i
neor de ring)gr e wt o2 0p erc ent
oft het otals pe nd( from 12pe rc e nt) .Ye tt woo ft hel ea dingr eta i
le rs,Al dia ndLi dl ,h a veh is toricallyn ot
offe redt hiss ervi c e.Pe rh apst hepr ices ens iti
vi t
yoft he irc or ec us tome rsa nd/ ort hema rg inst he irb usine ss
mo de li nvo lve sa nd /ort hed esiret os ta yt igh tlyf o cu sedh elpse xpl aint h is.Fr o my o u ro wne x p erien ces,y o u
ma y( a n dr ea llys ho u ld !)h aver ea l
iz edh o ws imi la rthes h opl ayo utsa rea ndwh ered i
ffer en ti temsc anb e
fou ndwi thint hes tor es . The rea rec erta i
nl ymor es imi la r
itiest ha ndi ffere nce s.
In202 1Te sc owa st hema rke tle a derwi thagr oc eriesma rke ts ha reo fr ough ly27pe rc ent .I nthep a s
t
thispe rcent a geh adbe e ngr eater.Foranumb e ro fye a rsTe scoh a dbe enpur sui ngas trate gyofop eni ng
sma lle rloc als tor es,t ypi callyo nt hef ringe soft ownsa ndwi thl oc a tionso nma j
ore ntryr oa ds .Th erea lso
se eme dl ittledoub tt ha tt hes uc ce ssofAl dia ndLi d lwa sama jorc ont ribu tort ot hede cis ionma d eb y
Te sc ot ha ti two uldnotbeope ninga n yf urthe r‘ me ga stor es’i nt hef ore se eabl ef utur e .Me ga sto res–whi ch
Te sc obr an dsTe scoMe tro–a rewh e ret hel argegr oc eryr e tail
e rsa lsos e l
le xt ens iv er ange so fnon- food
itemss u cha se lec t
r ica lgoods ,c lothi ng ,a ndho mea ndg a rde ninge qui pme nt.Ma nyo ft he sepr od uctsc an
no w bebough to nl inef rom Ama zon.I na ddi tion,Te scoha dpur sue dav e rticali nt egr at ions trategya nd
me rge dwi thBo ok er,al e adingf oo dwh ol es aler,t oh elps ec urel o we rpr icesf rom i tss up pl i
e rs.I n2 01 8
Te sc oe mbr ac edt hec ha llengef romAl dia ndLi dlwi t
ha not he rini tiativ e–Te sc oope ne ds omet r i
alJ ac k’s
dis count ss tor es ,na me da fterthec ompa ny’ sor igi na lf ound e r,Ja ckCohe n. The ses toresma ybea l
o ngt he
line soft hel oc al s t
or e s, butt he yf ea tu reve ryl owpr i
c esa ndr e l
yl arge lyono wn -br a ndpr odu c ts. Ther an ge
isl imi te da ndt h ea mbi e nc eis‘ nof rills’.Pa lletsa rea sl ike l
ya ss he lve s .Itwa sp re dic t
e dt ha ts omepo o rly
pe rfor mi ngl a rge rs t
o r eswou ldb ec on ve rtedi ntot heJ a ck’sf orma tb ut,i nt hee ve nt,t heJ a ck’ si niti
a tive
wa sa ba ndo ne di ne a rly20 22a ndt hee xis t
in gs tor esc lose d. Ar o undt hes amet ime ,Te sc oa ls oc los edi t
s
in-s t
or ef r
e shf oodc oun ters.
Sa ins bury’ sha san umbe rofs ma llerl oc als tor es.Sa insb ury ’
so wn sAr gos( sinc e201 6)a ndh asc los ed
ma ny( sma lle r)Ar go ss tore swh e rei tisi nap o siti
o nt oo ff
e rc lick-a nd -co llect fromi n sid eal a rge rSa insb ury ’s
.
Ce rta i
nt a c ti
c a lde c isio nsma keMo rri
s ons( 10pe rc entma rk ets ha re)d ist
inc tf ro mi tsl e adi ngr i
va ls;b ut
aret he ys igni fi
c ante nought oma k ear ealdi f
f erenc e ,g ivent hel a rges upe r
ma rke tc hainsa llof fe rb roa dly
thes amep rod uc t ran ge s?Fort h isr ea son, Mo rrisons ’t arge tc us t
ome r sa ren otg oi ngt obema rke dlyd if
fe rent
fromt hos ewhop i
c kTe sc o,Sa insbur y’s( orAs da) ;pa rto ft hec hoic e,o fc ou r
s e,wi lls imp l
ybel oc ati
on .
Mo rrisons( dis t
in ctiv ely)ma nu factu resas u bstan ti
a lp ropo rti
o no fi tso wnf oo dp ro du c t
s,e ve no wn ingi tso wn
ab att
o irs.Itp ac kag esmo sto fitso wnf reshf o od sa ndd isplay sth emi n-s t
o rea st he ywo uldf e aturei nat raditi
o nal
op ens t r
e etma rk et.Th i sisv eryde li
b era t
ea ndi tref l
ec tsMo rrison s’o r
ig insa sma rkettrad e rs.Ina d d i
tio n, everys tore
loo kst h esa me .Ba na n asu sedtob eh un gu pt ok e ept he mf re sh;n owt h eya rela i
do u t
,b u tn ev ers tac ke d,o no p en
sh elvin g.Ag ain ,u n usu ally,i town sitso wnd e li
ve ryf leetr athert ha nr elyin go ns pec i
a li
s tlo gisti
c sc o mp anies. Ina
Mo rriso ns’sto rey ouwi llse efis
h mo ng ersa ndb utche rsinwh i
teh a t
sa n ds tri
p eda pron s–wh i
c hisp rettyu b i
qu it
o us–
bu tth eywi llb ef ou ndi nt h es ect
io no fth es torewh ichi sd es i
g nedt of e ell ikea no pe ns tre etma rk et. Th efo cusi s
onf oo d;Mo rriso nsi sl e ssi nterestedt h ani tsma inr iv alsinc lothin ga ndo th ern on -foo dp rod ucts .Fo rma nyy ears
therewe ren oo nlines ale sa ndn ol o ya l
tyc ards ,bu triva l
ry( a ndt hep op ularityo fth esea c ti
v it
ies)e ve ntu al
lyf orc ed
Mo rriso nstor ea ct.Ag a inf ollowin gi t
sr iv al
s ,Mo rrison sb ega nt oo p ens ma llerlo calc on ve nien ces to res–a lthou gh,
an dp e rhap sb e cau sei t wa s‘latetot h eg a me ’a ndu na blet oa cqu ireide al anda fforda bles ites ,Mo rriso nsd eci
d ed( in
20 15 )tod i
v est the ses ma ller st
ores .Fu rthe rmo re ,wec ans e eMo rrison s’No rth ernro otsb e ings tron g l
yr eflectedi ni t
s
amb ien cea n dc u lture .No n eo fthes ele ad ingr etailerswo u l
db ed esc ri
b eda s‘ l
o wp rice’,b u tthat do esn o tme ant h ey
don o tc omp e teo np ric e–a ndfea turet h isp r
ic ec omp etiti
o ne xten sivelyi nt h eira dvertisin ga n dp ro mo tion.
Th isdi sc us sionhi ghl ightst ha tf indingapo we rfu la ndd efe ns ibledi s t
inc tivec ompe ti
tiv ep o s
itio ni s
diffic ulta ndr a relys us ta i
na blewi thoutc ha ngea ndr ef i
ne me nt.
Twoo t
h ern o ta blec omp et
itorswh oh a vead istin ctivep ositionb u to nl ys ma llma rk ets ha rea reWa i
tro se
(owne db yJ oh nLe wi s)a ndM&S.The ybot hh av eag rea t
e rf ocuso npr emi um pr o duc tsa ndhi gh erp rice s
,
andc ons eq ue n tl
yha v eadi ffer
e ntma rk eta ppe a l
.
Al d ia ndLi d l–t woGe rma n -own e dn o- f
rillsg roc eryr etailc h ain s–b othh av eab us ine ssmo d elt hat
cha lle nge st ha toft hel ea din gsup e rma rketg rou psi nt heUK, inas imi larwa ytoho wRya na i
ra nde a syJet ha ve
cha lle nge dt heb us ine s so pe rat
ingmode lof thea irlinei nd us tr
ys i
nc et hemi d-198 0s.Al di andLi dl a rer ivals,wi th
rou ghl yt hes a menumbe rofs tor es( 80 0e ac h)i nt heUK,a ndt he ira ppr oa c ha ndb u sine ssmod e lsa res imi lar
.
60 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Bot ha res uc ce ssfu l,g ro wi nga ndpr of i

tabl eb usine sseswi thac ombi n edgr oc eryma rke ts ha reofa r
ound
14p erc ent–8pe rc en tf orAl dia nd6p erc entforLi dl. Th eye ac ho fferamor el i
mi t
e dpr odu c ta nds e
rvic e
pa cka get ha nt he irl a rge rr iva ls–a ndve r
yc ompe titi
v ep ri
ce s–wh ichmi ghtwe llv arybe twe enl oc at
ions
int hes amec ount ry. Ye t,Al dipa yst hehi ghe sth our lywa ger atea mo ngUK s up e rma rke t
s.Th eret endst o
bef e wdi s cou nt -pr i
c eo ffe rsa ta nyt ime ,butt herea res pe cialpr omot i
oni te msf ors alef oral imi te dpe r
iod.
The irs tra tegywor kswe llb u titi sn otama rke t
-domi natinga ppr oa ch ,i
npa rtbe caus ema n yc us tome rswo u ld
struggl et oc ompl etet he ir‘ we eklys hop’i na nAl dioraLi dls t
or e .
Al dia ndLi dls tor e sc anbef oun di ns ev eralEur ope a nc ou nt ries,unl iket he irl arge rUK r iv als.Al di
isa ctua l lyt wogr ou ps , Al diNor da ndAl d iSuda ftert wob rot he rsha dadi sagre e me nti n19 66a nds plit
the irf ami lyb us in es si nt ot wos epa r atet erritorie s.Li dli soneoft wor etailgr ou pswi th int heDi e ter
Sc hwa rzGr u ppe ,Eur ope ’sl a rge str etailer ;theo theri sKa uf la nd,ah ype rma rke tc hainn otd iss i
mi lart o
Wa lma rt.
Inbo thc ase s,t he irs tor es izei sa ls or elativelyl owi nc ompa risont ot heirl argerc ompe ti
to rs .Int ermsof
salesp hilo sophy ,the ya dopt ave rys impl ea ppr oac h–g et thep roduc t andpr icer ight andi t wi lls ell.Br a
nde d
pro duc tsc arrymuc hl essope ratingpr ofits ot houg hnotwho llya ve r
s etos toc kingt heseb ra nd s,Al dia nd
Lid lte ndt os te era wa yf romma n ypopul ari conicbr andsa ndi ns te a
df oc uson‘ br ande quiva len t’p rodu cts–
lesse r-kno wnbr andna me s,b utone st ha tbuye rsthi nkr e plicatet hep rodu ctqua li
tywhi chc on su me rsh ave
comet oe xp e ct.Li dl ’spa ren tb u sine ssa ctua l
lyo wnsanumbe rofo wnl abe lb randma nuf a ctu rers.The se
pro duc tss tatewh ot hema n uf ac t
u reri sa nde xpla int he ya repr oduc ede xc lusive lyf orAl diorLi dl.The
focusoft he se‘ br ande qui va len ts’isonde c entqu alityi nmode stpa c kaging( whi chof tenl ooksr e ma rkab ly
simi lart ot hel eadi ngbr ands )a tlow pr ices .Hi storica l
ly ,bot hAl dia ndLi dls oldpr oduc tsdi rectfrom
cartonsa ndpa lle t
s ,b utt hi ss tra tegyha sdi sa ppea r
e di nf a vourof‘ p r
ope r’di splay s,b a sedi nl argepa r
ton
thep rinc iplet ha t‘ eyel ev e lisb uyl eve l’( espe ciallys uga rypr oduc tsp laceda tth ee yel eve lo fc hildr
e n).
Ta l
ls h elv esa rer a re.
Inc o ntra sttoa round1, 750pr oduc tl i
ne sinAl dia ndLi dl, ala rgeTe scoo rSa ins bu ry’ss t
or ewi llt ypic
a lly
stoc ku pt o4 0, 000l ine s ,ofwhi ch50p e rc entwi l
lb ec l
e arlyi de ntifi
edo wnl ab elitems .The semuc h
large rs upe rma r ke tsa ls oof fe rawi der angeofnon- foodi temswhi cht hen o-fri
llsgr oc er
st en dt oa vo i
d. As
me n tion ed ,b othTe sc oa n dSa in sb ury ’sh aves ma ll
erl oc als t
o reswh ichs el
l as ma llerr ang e,b ut stillwi t
ht he
samemi xo fle a din gbr a ndsa ndownl abe l
.
Pur cha singde ci sionsf ort he seEur ope anr e t
ailersa rege nerallyma dea tthec ou nt r
yl e velb ut wi th i
nac le ar
interna tion als upp lyc ha ins ys tem.A ke ypa rtoft hes trategyi sf orb u yerst owor kc lose l
ywi ths up p
liers,
esp ecia llyonf ooda ndd rinkpr od ucts ;thea imi stor e fi
nea sma n yp rod uc t
sa sp os s
ibl et oma tcht het ast
ea nd
con sume re xpe rienc eo fmo rewe ll
-k no wnbr andn a me s.
Ani mp orta nt di sting u ish ingf eatu rewi t
hAl d iandLi dl istha tth erea realwa y s‘ s
p e cialoffe rs’o fl ow-pric e
ba r
ga ini temswhi c hwi llo nlyb ea va ilablewh i
les toc ksl a s
t–a ndt he seite msc oul db ea l
mos ta nything.I t
ish eret ha tAl dia ndLi dls e llthe irnon- fo odi t
ems .The ya rea lwa ysp l
acedi ns ec t
ionswi t
hami ddlea isle
disse ctingt hem,a n da rei de ntifiedb yt hisla yout.
Wh i
lema nyo ft h ec ha ng esi nt h es e ctorh av eb eendr ivenb yc omp etit
ivepr ess urea mo n ghi ghs t
r eet
retail
e rs–wh oh av et h e i
ro wno nlineo rderin ga ndd e li
v erya rms–t heywi lla l
lb ea wa reo ftheg rowi ngt hreat
froms p ec iali
st o nlin er iva ls. Oc a dod eliversv ari
o usb rand edg ro ceryp rodu ct
sf romi t
so wnwa re ho u sesan da l
so
han dledt heo nlin eb us i
n e ssf o rWa i
tro se( until aut
u mn2 020 );itisn owo wn edb yM&S. Ama z onh a ss t
arte
dt o
takeas e riou si nter esti nt h eg ro ceryb usi ness.
Inr ea lit
y ,e ve ryor ga ni za tioni spr a ctisi
ngamo de l
,e v ent ho ughi tma yn otha vet houghti tthr ou gh,o r
bea blet oa r
tic ula tei t
,i na nyde pth.I tmi ghtb ea rgu edt ha tift hemod e
lc a nnotbea rt
icul ate dorwr i
tte n
do wn ,t he nt heor g ani z ation’ sma nage rsdono tkno wwha tthemo deli spe rhaps ?Wh er
et h isunc onscious
comp e tenc ei st hec a se ,a nys uc cessc oul dwe l
lb es ho rt-liveda si timpl iest hatt he rei sar e lianc eongood
fortuner athe rt ha na na lyt ica lins igh t. Itis,ofc ourse ,imp ortantt or e cogniz eth atgoo di de asa ndap l
a us
ib le
outlinemode la r
er e la t
iv e lye a syt oi ma gi nea ndd efine… t hes ecretliesi nde li
v eringt hemo dela nd
impl e me ntingt hes tra tegi e s.I nmi lita ryt erms ,ta ct
ic sc anbet r i
c k i
e rthant hegr ands trategy–e ve nthoug h
wec le arlyne e db ot h.
 2.
1 THEBUSI
NESSMODEL 61

Theb
usines
smodeli
sexplai
nedi
nt hr
eedi
ff
erent
but
cle
arl
yli
nkedpr
ese
nta
tionsinFigur
es2
.1,
2.2a
nd2
.3
a
ndthekeyeleme
ntsar
ed i
scus
sedbelow.
Thec
halle
ngefore
verycompeti
torist
ocrea
teands
ust
ainaval
uepr
oposi
ti
ont hati
s:
● r
ele
vantf
orc
ust
ome
rsbe
caus
eitof
fer
sas
olut
ion/
res
olut
iont
oape
rce
ive
dpr
obl
emt
heyha
ve,a
nd
● wh
ichc
anbeo
per
ati
ona
liz
eda
ndde
li
ver
edp
rof
it
abl
y,a
nda
lso
● p
rot
ect
eda
gai
nstp
red
ato
ria
lri
val
s.
Thek e ypointshe r
earee ntr
epreneuria
li deasinthec ont
extofac lea
rundersta
ndingofc ust
ome rne eds
andpr obl
emsa ndthedesi
r eforac le
ar‘ blueocean’ra
therthanab l
oodyredone( t
ermin
ologywee xplain
below).Op erat
ionali
zi
nge mbr ac
e speop leandoth e
rresour
c e
s;resi
st
ancecanbee xpect
edi ntheformo f
keyp eoplewhoo pposetheimp liedcha nges,andal a
c kofabili
tyormotiva
tion(orboth)ont h
epa r tof
emp l
oy ee
sge ne r
all
y.
Eachoft hethreepre
sen t
ati
onsa doptsad if
fere
ntperspec
tiveonthebusi
nessmod el
.Thatsai
d,thesea re
allrel
evantlensesandtheya r
ea l
li nt
er-l
inked.Inthetextwer ef
ertovari
ousi
mpor t
antunderpi
nningi deas
thathelpexplai
nt hebus
inessmod el.

Pr
esent
ati
on1:Theval
uepr
opos
iti
on
Thet
hre
efun
dame
nta
lel
eme
ntsoft
hemo
deli
ts
elfa
res
howna
tthet
opofFi
gur
e2.
1ast
hre
eci
rcl
es.

Fi
gur
e2.
1 Thebus
ines
smodelP
res
ent
ati
on1:t
hev
aluepr
opos
it
ion

Whatwe For
pr
ovide.
.. whom. ..
P
roduct
sand Target
s
erv
ices c
ustomers

Val
ue
pr
oposi
ti
on

Oper
ati
ngmodel

Revenuemodel

Produc tsandservi
cesconst
it
utewhattheorg
ani
z a
tionproduceso rma rket
s.Therangecanbebroador
nar
row,foc usedordi
versi
fi
ed.Thechoice
,li
kethesel
e ct
ionoftarg
etc ustomersandcompet
iti
vestr
ate
gies
,
impli
esade c
isi
onconcer
ningwh a
ttodoandwhatnottodo.The r
enee dstobeac l
earst
rat
egi
clogi
cforwh a
t
isi
nthera nge.Ever
yp r
oductandser
vic
eshouldbeabletoma k
eac ontributi
ontothebusi
nes
s;noneofthe
m
shoul
dbei nap osi
ti
onwhe r
etheybri
ngharmtoanyoftheothersbecause,perhaps
,the
ya r
eunder
perf
orming
anddema nd i
ngcashsubsi
dies
.
Cust
omersmakeupmarke
ts–t
heyar
ethewhoint
hemode
l.Agai
nthec
ove
ragec
anbenarr
oworbr
oad.
Thescopeofthebu
sine
sscanbeloc
ali
zed,na
ti
ona
lori
nter
nat
iona
l.Andt
hes
ec and
iff
erbet
wee
nt he
va
rio
usproduc
ts.
62 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Thelinkbet
weenp r
oduct
san dcus
tomersr
epresent
stheo r
ganizat
ion’
sstrat
egi
co rcompet
it
ivepos
it
ion.
I
fiti
sas t
rong–orawi nni
ng–p osi
ti
on,t
henthereisagoodreasonforthi
ss i
tuat
ion.
Wh enwea ddt
h ethi
rdel
eme nt
,theval
uep r
op osi
ti
on,wh i
chwemi ghthaveals
ot e
rmed‘competi
ti
ve
l
ogic
’,t
h e
nweh aveourwhy,ourcompel
li
ngreas
ont obuy.Thesethr
eetogethe
rconst
itut
etheor
gani
zat
iona
l
‘
bigpict
ure’
.Thev al
uepropos
iti
oncanbeb a
sedo np r
ice
;equa l
ly
,itcanb ebasedond i
ff
ere
nce.Cas
e2 .
3
de
scri
besKiko’
sattemptt
ofil
lanident
if
iedgapinthema r
k e
tforcosmeti
cs.

Cas
e2.
3 Ki
koCos
met
ics UK,I
tal
y

Ktot
ikoCos
bus
heUKi
i
nes
met
sP er
i
c
n2015.I
csi
ass
sas
i
t
.F
ss
ubsi
oundedi
trat
diar yoft
n1997,
egyandbus
heI
i
i
tal
twasi
nes
ianf
nt
smodel
r
a s
hi
oduc
we
on
ed
re
ac
ac
poi
hi
hi
e
e
nt
v
v
s
e(
e
.
a
dwi
ndt
t
hei
hami
maget
xofbr
heywantt
andsa tv
oc
er
onv
ydi ff
ey
er
)isbe
entpr i
s
c
t
e

basedonf indi ngt he‘ mi ddl egr ound’bet we enhi gh- end Ki kos pot teda noppor tuni t
yi nt hemi ddl egr ound
brande dc os met i
c sandl owe rpr icebudgeta lt
e r
na tives. and dev el
oped a r ange ofmi d-pric ec osmet i
c sand
Tra ditiona lly,thev alueofac os me ticsbr a ndi sr el
ate d skinc ar epr oduc tswhi c ht heys ellindedi cateds ingl e-
towher ei ti ss ol d;di fferentout l
et sc onv eyapar ti
cular brands hopsaswe llasonl ine–whi chi spar ticul arly
mes sageaboutt hei rqual i
ty–whi chmayorma ynotbe relev antf orl oya lc us t
omer s.T herea r
enof ranc hi ses
av ali
dme ssa ge .Che ape rbra ndsa ret obef oundi nself- orc onc essions tands .T hei rf oc usi sonmake -upand
servec onc essions tandsi nc hemi stsands uper mar kets; not f ragr anc es,al though t her es ee ms no r eas on
theymays omet imesal sof ind t heirwa yi nto pound whyf ra granc eswoul d notber elevant ;theys elle y e
stores . Somet imes t he y ar e manuf actur er br ands ; ma ke -up,l ipstic
k s,na i
lpol ishesa ndr elatedpr oduc ts,
somet imest he yar er etailownbr ands ,s uc hasBoot s andf a cea ndbodyc re ams ,fore x ampl e.Theyc laimt obe
Number7.Cus t omer sa r
eba si
c allyle ftt o de c i
def or i
nnov ative,c utti
ng- e dgeandnotov e rlye xpe nsive;and
thems elv es;s pec ialistpr oduc tadv i
cei sr arelyonof f
er. theydec l
aret heydonoani malt esting.Theyhav ewi de
High- end c os met i
c s ar ef ound ma inlyi n we l
l- rangesofea chpr oduc ta ndof tenmul ti
pl eshades ;t hey
knowndepar tme nts tores( wher et heyha vet hei rown enc our agewoul d-bec ustome rst oe xpe rime nt .Inany
sectionand pos siblydedi cat eds taff)and whi chal s o ones t
or et herec anbea round1, 000di fferentpr oduc ts
featur e( butof tenonadi f
ferentf l
oor )ar angeofhi gh toc ons ider.Thewi dev ariet yof‘ smel ls’mak esi tav er y
qual i
tyf ashi onandac ces sorybr ands–pl us ,ofc our se, sens or yex perienc e.Thedi splay sar es wi tchedar ound
Airpor tDut yF re es tor es.Va ri
ousc ompe ti
ng br ands to pr ov ide v arietyf orr egul a rc us tomer s.Pr ev ious
aref ea tur eda l
ongs ide e ach ot he ra nd t he pr oduc t seas onc olour sar edi scount edands ol dindedi c ated
rangesav ailabl ear el ed byv ariousf ragr anc eswhi c h salesar easwi thint hes tor es .Thef or matwoul d be
ares ome timesl inke dt of ashionhous esa ndc ele bri
ties. de sc ri
be da sbout ique .
Somec us tome rsc hanget he irf ragranc esqui ter eadily TheKi koa ppr oa chwasnov el whe ni twa sintroduc ed
whi l
e ot he rsr ema inl oy alt o one .Her e di splaysa re and i tha sc learly be en s ucc essfuli nt he c ount ries
super iorands taffar ei n at tendanc et o hel p peopl e target edt odat e.Rec ent l
y,t her ewe rea r
ound340s tor es
choos e,pr ov i
de pr oduc ti nf ormat i
on and make- up i
nI ta l
y,200 i nF ranc e,150 i nS pain,ne arl
y50 eac h
advic e,a ndal l
ow peopl et os ampl ev a ri
ouspr oduc ts. i
nt heUK andGer ma ny.Butt he yha ve,a ndper haps
Somef ragr anc esa r
el ink edt or angesofs kin-ca rea nd i
ne vitably,a ttr
a ct
e dc ompe ti
tioni nt he irma rkets pac e.
othermake- up pr oduc ts,butt hisi snota lwa yst he BodyShop a nd L us h woul d be s e en a sc ompet itors
case;andt her angesa va i
lablea renar rowert hanmany andaf ew me -toobus i
ne ss ess uc ha sMode lsOwnand
ofthec heape rbr andal ternat ives . NYXha vea lsoappe a red.I n2018Ki k oa nnounc edt he
Few c os me ti
c sc ompani e sr ely on mas s medi a clos ureof12s t
ore si nt heUK;t heyal sodowns i
z edi n
brandi ng t o pr omot et heirpr oduc t
s ;i ns t
ead t hey theUni tedS t
ates.Buta tt hes amet i
met heywe rer aising
chas eper for manc er ev i
ewsi nf as hionmagaz i
nesand moneyt of undi nnov a t
iona ndgr owt h,wi t
hI ndi a,As ia
takeadv ant ageofs oc ialmedi aoppor tuni t
ies .Mos t and t he Mi ddleE a sta l
ls e ena sha ving hi gh gr owt h
customer sar ec ogni zantt hatt hel ookt heywantt o pot e ntial f
orc osme ti
c s.
 2.
1 THEBUSI
NESSMODEL 63

Ques
tions
1 How s ustai
na bleisthe i
rbus i
ne s
smode l
?
2 How mi ghtt heye xpa nda ndwha tarether el
ev a
nt
ri
sks?
3 How r eali
st
icisgr owt h(i
nv ariouscount ri
es)
,a nd
whe rea ndhow mi ghts cr
utinyint ermsofwa ste
andpol luti
onl i
nk edt odisposa lhaveade tri
me ntal
i
mpa ct
?
4 Givent heya r
epa rtofaf ashione mpire,willany
change sinthepopul a r
it
ya nda ppe aloffast
fashionha veama ter
iali
mpa ct?
5Ist hemar ketf or(similar
)ma lec osme t
icsproduc t
s
agr owthoppor tunityforKiko?Woul dt heyne ed
sepa r
ateretailoutlets?

Wes
hal
lse
ela
teri
nth
eboo
ktha
tthe
rea
ref
ourba
sica
ppr
oac
hest
othep
osi
ti
oni
nge
leme
ntoft
hemo
del
:
● Anar
rowpr
oduc
t(ors
ervi
ce)ra
ngeforabr
oadr
ang
eofc
ust
ome
rs–t
heba
sic
soft
heb
usi
nes
smode
l
f
orSt
arb
uck
sandthel
ow-costa
irl
ine
s.
● Ab roadpr oductr an
geforade finedsegme ntofthema rket–Ha r
rodsprovidesava stchoiceof
i
temsf orthos epe opl
ewhoa rewi ll
ingtopa ypremium p ri
cesandwh oenjoybe i
ngseenou twi t
ha
Harrodsba g.
● An arr
owr angeforat ar
gete
dn iche–ha ndma deMor ganc arsa
ppealtoalimi t
ednu mberofp eople
whowa ntas portscarwit
ha ness e
ntia
llyp r
e-warstyleandwhoa rewill
ingt ojoinawa it
ingli
sto f
some6t o12mont hs(afewy ea
r sbackitwa sfouryears)
.
● Ab roadr a
ngef orawi dema rket–Ama zon.c
omha sa ddedadiverser
a n
geo fp roduct
stoitsorigina
l
booksa ndits el
lstoanyonewhoi sint
erest
edinb uyingo nl
ine.
Gerb er(199 1)e l
ab oratedo nwh ath ebelievesa r
ethek eyp il
larso fv al
ue ;h ec a
llst hes ethepo we rpo ints.
Hee x
p l
a i
n stha tan ya nde ve
ryp rod uctmu stfulf
ilcertai
nc ri
teri
ai fitist os t
a ndan yc han ceoff ind i
nga nd
ret
ainingc ust
ome rs–butt hata dditionalcrit
eriapro vi
detheke ytos uccess.Hea rg ue stha tnob us i
n esscan
hopet os uc ce
e di fitf ail
st ome ettwob a s
ictests.Firs
t,it
spr oductsa nds e r
vic e
smu stbe‘ f
itforp urpose’.
The ymus twor k–r e l
iably–a nddowha ttheyp romisetod o.Se cond,t heymu s
tb ea ffordabletot het arget
custome rs.Ift herei sc ompe tit
ion ,theys houlda ppeartoofferbe t
te rvaluet ha nri
v alpr oductsa nds ervices.
Pricewi l
lo f
tenma tter,bu tothert hingsc onsti
tutevalueforthec ustome r.
Reallys ucce ssf
ulb usinesses,tho ugh,o ff
ermo rethanfu n
ctional
it
ya nda ffordabil
it
y .De si
gna nda est
h et
ics–
hows ome th i
ngl o o
k sa ndfe el
s–c anh avea nimp actonb uyi
ngd ecis
ion s.On eo ftherea son sforAp p l
e’ss ucces
s
ist
h edesigna ndl oo ko fit
sp rodu cts;Stobartt
ruckss t
ando ut
o nUKr o adsb ecau seofthe ird i
sti
n ct
ivec oloursand
cle
a napp earance .Wh eno wn e
rshipo fap r
o duc
t orbrandisme ani
n gf
ul tocu st
ome r
s,t
h ent h ebu si
nessc on c
erned
hassome thingo fgenu i
n eva l
ue. Own ers
h i
po rinvol
v e
me nthasbecomea spirat
ion al
.Ap p le’
sp roductsd on othave
tobet heb estt
e c hni
ca l
ly,be causef orma nyt heyarethe‘onestoh ave’.Mc Do n al
d ’
sbu rge rsma yn ot wini ntast
e
tes
tsa gai
n stsomel ead i
n gr i
vals–i n deed,inthep ast
,b ot
hBu rgerKi nga n dWe ndy’
sh av ed oneb etterinb li
nd
tas
tetests–b utit r
ema inst hep r
e ferr
e dfastfoodd est
i
n at
ionofch oi
cef orma nyp eople. Ev eryonerec ogn i
zesthe
goldena rchesa n dwh att heb r
an ds ta
n dsfor.Th e
reisa nemo t
ionalattachme nttoi t.
Ma nyf ansaroun dth ewo rl
d
wh osup portMa nche s
terUn it
ed–a ndwh oma yn evergettoal i
veUn itedma t
c h–wa n t tob ea ss
ociatedwi ththe
rec
o gnit
iona nds uc
c essattr
ibutedt othec l
uba ndtheb r
and.Thev al
u e
sa ssociatedwi t
hth eb randp rovides i
g ni
fican
t
rei
nforceme nt
tot hisme ssag e;andwh ens u
c hloyalt
ycanb ebuil
tupa ndma i
n t
a i
ne d,t
hent h eb usin
essesc on c
erned
comma ndlo yalty.Re ali
zationa nda pp re
ciati
ono fthesekeyissuesdon o tme ans ome t
hin gc anb ea chievede asi
ly,
ofco ur
se, andt hatiswh yso meb r andsa chi
evea ndretai
nc us
tome rloyaltyan dp opular
ity .
64 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

I
nFigure2.1wes how how b
otht
heoper
ati
ngmodelandt
her
eve
nuemode
lunde
rpi
nthet
hre
eke
y
e
lement
softhebus
ine
s smodel
,andwedi
scu
ssthes
ebe
low.

Pr
esent
ati
on2:Cr
eat
ingval
ue
Thefirstimporta
nta dditi
ontot hisseco
ndp r
esentation(Figur
e2 .2)i
sthe‘li
ttl
epicture’a c
tivi
ties.Simply
,
t
hea c
tiviti
esandd e
liveryeleme ntisanessent
ial
a djunct,eventhoughitmaynot s
tri
ct
l ybepa rtoftheoutl
ine
busi
nessmo d e
lits
elf.Wi t
ho utac l
earst
rategyfori mp l
eme nti
nga nddeli
veri
ngthemo del,theo r
ga ni
zat
ion
wil
lb ec omp r
omisi
n go ne f
fici
enc yande ffe
cti
ve ne s
s.Thisas pe
ctisthehowe lemen t
,a nditin cl
udesthe
st
ruct
ureoft heorganizati
ona ndtheoperati
onsanda cti
v i
tie
scarri
edoutbyp eopl
ewi thi
nt hes t
ructur
e.Cost
manage mentands ynergyarek eyth e
mes .
Un necessaryc ost
sshouldbea vo
ided;equally
, i
tc anb eami st
ake
t
o‘pen ny-pi
nch’ont hingsthatreall
yma tt
ertocus t
ome r
s.Atthes a
met i
me ,i
tcanbehe lpful i
fthea ct
ivi
ti
es
compleme ntandsuppor teachother.Thisaspect
,the n,isthe‘l
itt
lepic
ture
’beh i
ndthe‘ bigpi c
ture’.

Fi
gur
e2.
2 Thebus
ines
smodelPr
esent
ati
on2:c
reat
ingv
alue

Pr
oduc t
s Ide
asfor
and t
hefut
ure
Cus
tome
rs
servi
ces
Act
ivi
ti
es
and
del
iver
y Competi
ti
ve
logi
c
Organi
zat
ional
Thecompe
ll
ing changeabil
i
ty
r
eas
ontobuy

The‘
Li
tt
lepi
ct
ure
’ The‘
Bigpi
ct
ure’ T
he‘
Fut
urepi
ct
ure’

Imp ort
an therea rein t
ernala n de x t
erna
lp artners
h i
ps,n etwo rksa ndrelat
ion ships–s ome timesk nowna s
a
r chit
ecture.Th ewa ysi nwhi c hd iff
e r
entpa r
tsofa no rganizationwo rktogetherc ancreat
e( o rdest
roy )value
a
n ds a
veo rc r
ea t
ec ost
s;c omp leme n t
a r
it
yma t
ters,andc onfl
ic ta n
di n t
ernalco mp etit
ionmu stb eavoided.Th e
r
elati
onshipswi thsupplier
sa ndd istributor
salsoa ff
ectc o
stsan d, wh e
ne f
fect
ive ,a
r ec apab
leo fb uil
dingg enuine
v
a l
u eforcustome rs
. I
na nyi ndustry,wemi ghtexp ectt
of i
nd‘ co nventionalwa ys’th atthi
ngsa red one–wh ena n
o
rga ni
zati
ons uc cee
d si
nt ur n
ings u chc onventi
ono nit
sh eadi nawa yt hatcus tome rsrespondt o ,i
tcanb eb oth
p
o we r
fulandl ucrati
ve.Ikeaa ch ievede xactl
yt hisscenariob y‘ persua di
ng’c ustome r
sthattheys houl
de ngage
i
ns elf
-asse
mb ly,h avi
ngc o ll
ectede v ery
thingtheywo uldn eedp rep a
c kagedfro mo neo fthei
rs to r
es.Th eyalso
e
stabli
shedagl obalsupp l
yn etwo rkt od el
iverreli
a bl
eq uali
tya tl o
wc o
st.Mo reov er,bylimitingt henu mb erof
I
keas t
oresina nyo neco untry
,th eyma dethemad esti
nati
ons torewi ths i
gnifi
can tap pealandp ull.Andth elayout
o
fe achstorerequ i
rescustome rstowa lkp a
steverythingtore a
c ht hech eckout.Simp ly ,
theyared iffer
ent.Wewi l
l
s
eet hevalueo fima gi
na t
ivewa y so fg et
ti
ngp rodu ct
stoc ustome rsinv ario
u sca s
es to r
iest
h r
ou gh outt
h eb ook.
An umb ero fau t
horsa rguet ha tv al
uec reationi s,ine f
fe ct,‘bigger’thanas ingl
eo rgani zati
on;ins t
ead,
i
tre l
iesonan e t
wor kofs ociala ndt echnicalresourceswh ichl inkt heb usinessi nar elevants upp l
yc ha i
n,
e
mbr a
cingde signa ndc re
a ti
on, ma n ufact
uringa ndd eli
very. Ther ea lval
u efori nd ivi
dualcus tome r
sc ouldbe
i
na nyo fthe s
e.Thel i
nka gesa ndi nt er
-rel
atedne ssisbuiltonbot ht angiblea ndi ntangible(e .g.knowl edge)
r
esou r
ce s
;a sthe yc ov
e rsuc he leme nt
sa sorde rfulfi
lme nt,inno va t
iona ndc us tome rsuppor t.Ther e l
evant
f
lowswhi c
hf ormt helinkage sinclud einforma t
iona ndmon ey. Chr i
stensen(1997) a r
guesthat valuene twor ks
s
up portbusinessmod elsandu nde rpininnov a
tion,espe ci
a l
lydi srupt i
veinno vationa ndc hange .
 2.
1 THEBUSI
NESSMODEL 65

Al l
ee( 2003)a ndNo rmana ndRa mir
ez( 1
993 )dr a
wa tt
ent
iontot heconst
ituenth umane l
eme ntofv alue
net
wo rksa ndflagtha te f
fectivenessc omesfromt hei ntangib
lerelati
onshi
psb etwee npeo plea n
dh owt hey
commun ica
te,shar
ea ndwo rkt ogether
.Theye mp hasizet hatforthi
sr ea
sonitc ans ometime sbed iffi
cultto
pin
poin texact
lyhowv alueisc reate
d. Sta
bell
san dFje l
d sta
d( 1998)suggestt
hatthec onst
it
u entme mbe rsofthe
val
u ene t
wo r
kc re
atea nds upp l
yas e rvi
cewh i
chi sattr
a cti
vetoc ust
ome r
s,toget
herwi thacc es
st othatser
vic e
.
Aswea r
g u
el a
ter(wh enwed iscusl
s eanstart-ups),th eattr
acti
venessofthi
ss ervicetoc ust
o mersliesini t
s
abi
lit
yt oh el
pwi t
hp roblemst h
e yhav e.
Ane xampl emi ghtb ecarinsura
nce.Withou tvali
dins ur
an c
eamot oris
t
cannotlegall
ydriveac aronpu blicroads;wit
hou tt
hisac cesstheycannotusethei
rv ehicl
etog etfromAt oBf or
wha t
everr e
asontheyh avetoma kethisjo
urney.Ont hes amet heme ,r
ailt
ransp
o r
tint heUKr el
iesonan et
wo rk
whichb ringstoget
he rthes ep a
ratep rovi
dersoft heinfrastruct
ure(tr
a c
ks,st
ati
on s,etc.
)an dth eactualtr
a i
n s
;
inturn
,t hesetr
ainp r
o vi
d ersr e
lyo nan e
tworkofs upp lier
so fengines,ca
rri
ages,po werorf uel,andf ooda nd
bevera
g es.Theu l
ti
ma tec ust
o me rexpe r
ienc
ede pendso nh o wwe llt
heme mbe r
so fthisnetwo r
kwor kt ogether
.
Wh i
les i
milari
nc on c
e pt
, Ch r
iste
ns enfav
oursas upply -s
ideresourceper
specti
vewh il
eSta bel
lsandFj el
dstad
showas t
rongercustome rfoc us.

Openbus
ines
smodel
s
Che sbrough( 2007)i ntroduc edt het erm ope nbus ine s
smode ls( li
nk edt oi nnov ation)t oh ighli
ghtthat
orga n
izationss houl
dl oo ko utsidet heir‘naturalbou ndary’f orne wi de as.Idea sc anb et ransf erredfromo ne
industrytoa nother
,for examp le.InCa se5.1(Jame sDys on) ,
thepoi nt i
sma detha tDy sonb orrowe da ndadapted
technologyu sedforla r
ge -scalema chinestha tallo
wspa rti
cles epa rat
ionu singc entrifugalf or ceins pi
nni
n g
cylinders.Ha vingsucc essfull
ya ppliedthistransferfors mall-scalep ai
n tspra ying,h ewa sab letou s
eitinthe
designo fhisn e wvacu um c leane r
s;itwa sthisi nventi
vet rans f
ertha tprovide dt hef ounda tionf orapo we r
ful
globalb us i
ness.Att hes amet ime ,ideasc anc omef ro mc oll
abo rat
ingwi t
hs upp li
e rsa ndc ompe t
it
ors–
perhapsmos tlogical
lynon -directc ompe ti
tors,wh icho perateindi ffer
e ntse gme n t
sofa ni nd ustry.
An umbe ro fkeypoi ntersha vebe enidentifi
edi nde velopin go penb us i
ne ssmode ls,inc ludingthec l
ear
definit
iono f‘co-develop me nt’pa rt
ne rshi
po bjectives,class
ificati
onofr esearcha ndde velopme ntcapabil
it
ies
(‘core,c r
iti
c alandc ont extual’)a nd,t herefore,a l
igningt hepa rtners’b usines smode ls( Che sbrougha nd
Sch wartz,2007 ),orthee xampl eo fthen ews paperindus t
rywi thitsfoc usonope nb usine s
smod elsando pen
inno v
ation( Hol me tal .,2013) .Che sbrough( 2007)e xplore sva ri
ouse xemp l
a rb usine s
smod el
sint er
ms
oft hes i
xf unc ti
ons:v aluep r
o pos i
tion( Gene r
alEl ectrica i
r cr
afte ngine s
),t argetma rket( Rya nair
),value
cha i
n( Wa lma r
t),r
eve nueme cha nisms( Xe r
o x),valuene two rk/ecosystem( Rya nair)a ndc ompe tit
ivestr
ategy
(Southwe stAi rli
nes)
,a ndt henpr esentsthefol l
owi ngindi c
a t
ivet ypologyofb usines smode ls:
1u
ndi
ff
ere
nti
ate
d
2s
omedi
ff
ere
nti
ati
on
3s
egme
nte
d
4e
xter
nal
lyawar
e
5i
nte
grat
esi
tsi
nnova
ti
onp
roc
esswi
thi
tsb
usi
nes
smo
del
6ad
apti
vepl
atf
orm,whic
hi n
vol
ves‘e
xper
imenta
tion
’,thr
oughcor
porat
eventur
es,s
pin
-off
s,jo
intvent
ure
s
(
suchasI
ntel
,Micr
osof
tandWa l
mart
)where‘keysuppl
ier
sandcust
omersbecomebusi
nesspart
ner
s,
en
ter
ingi
ntorel
at
ion
shi
psinwh i
chbot
htec
h n
icalandbusi
nessr
is
kma ybeshared
’andinwh i
chb u
sin
ess
model
sar
einteg
rat
edwithbot
hsuppl
ie
rsandtopcusto
me r
s(Chesb
rough
, 2
007,pp.13–
15).

Thef
utur
emodel
Give
ntha twh atworkss u
ccessf
ullytodayc annotb eg ua
rante
edt oworkfor
ever,bus
ine
ssmodel
sand
st
rat
egi
esh a
vel i
fecycle
swh ic
hr e
q uir
etha tor
ganiz
ationsaddre
sswhentheymightne
edtomakecha
nges
.
Theyneedana ppre
ciat
ionofa‘ f
uturepicture
’,concer
ningchangestowhat
,howa ndf
orwhom.Th
isist
he
f
utur
emo delanditisaddedtotherighthands i
deofthissecondpre
sent
at
ion.
66 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Simpl y,thebus ines smode lmu stbe ,a ndr ema in,r el

evant.Whe nt herea rec ri
sesors hoc ks,s ucha s
COVI D- 19,que stionsmus tb ea ske d:ho wdoe sapa r ti
cularbusines sn ee dto( qui c
kly)r eacta nda dapt;wi l
l
thech a
ng eb ete mpo rary,orwi l
lt heoutc omeb eal on ger-ter
m newc ompe tit
iv elandscape ?Th e( 2020 –21)
switch(wi t
hs omec ustome rs)t ohomede l
iveriesf ort heirgroceriess e emsu nl i
kelyt ober eve rsed.Ma ny
organizationswh ichs witche dt he irma nuf acturingpl antstoPPEp rod uctionwi l
lpl ant os witc hba cka s
thePPEor derswi lln otbepe rma n ent
.Dr ive-inc ine ma sandt hea t
re sha v et hepote nti
a ltor e ma ino pen.
Alo ngs
id e,wec ans eeh owc on cerno verc arbo ne mi ssi
o nsandt hee nv ir
o nme n
ta r
ec ausingap erma nent
changei nt hemot orve hic l
ei ndus try( r
efert oCa se2. 4).
Hisl
o pe tal .( 201 4)di s
cus s‘ unl ear
ning’–t hea bi l
ityandwi l
ling nes so fpe oplet oa band ont hingsthat
havewo rke dint hep ast,andt hatt heyha v ec omet ot akef orgrante d.Di edriche tal.(202 1)f la g:then ew
digit
aloppor t
un itiest hata rec ons tan t
lyope ni ngu p,t hev alueofpa r t
ne ringwi tho t
herst os haret hec hange
journeya ndt hes pee dofn e w pr od uctde velopme nt.Wer evi
si
tt hisp ointwhe nwedi scus sr esil
ience( in
Cha pt
er17)a nde xa mi neh owqui c klyscientistswe r
ea bletodevelopa ndt e stthen ewCOVI D- 19v ac
c i
nes.
Itisalsoa ni mp or t
antt he mewhe nwec on sideror ga nizati
onalpur pos ea nddi rect
ion( Cha pt er3 ),scenario
mo dell
ing( Ch apte r4)a n dle a
rn ingb ytr
ia lan de rr
or( Chapter10).
Essentially,ther i
gh tb usines smode lcha nge swi thc ircumstances. The refore ,developinga nda d apti
ngth e
mo delist hek eyt ob u si
n esss uc cess.Ge ttingitr ighti sessenti
allyt hema i
nt es tfortheto pma n age mento f
anyb usine ss
.Wh ent he yge ttheb us i
nessmod e
l wr ong ,profit
ssuffer.Thebus ine s
smod elmus t,then, cl
early
showa ndp rov eh o wa nor ganiz ationisgoi ngt oma kemo ney;andi tmus taddr essanda n swe rth ef oll
owing
questi
ons :
● Wh
ati
sdi
ff
ere
nta
bou
tou
rva
luep
rop
osi
ti
on?
● Wh
oar
eou
rcu
sto
mer
s?
● Wh
atd
ocu
sto
mer
sva
luet
oda
y?
● Wh
atwi
llc
ust
ome
rsv
alu
eto
mor
row?
Theq ue s
ti
onsa skedo fcu s
tome r
ss houldals
obea ddresse
dt oin vest
ors.Thec api
talmark et
sn eedtobe
conv i
ncedth a
tabus inessunde rs
tandsthene e
dsofi n ves
tors.Ifn ot
,theywi l
lnotb uyint otheb us
iness
mo del.
Theseissuesareaddressedi nCase2.4o nelect
ricc ar
s,whe retherearev ar
iousacti
vec omp e
tit
o r
sina
rapidl
ye mergingindustr
y .Itiscomp l
exb eca
use,wh ileopportuniti
esa r
ec omingfrom growingc ust
o mer
dema nd,thereisa ls
os ignific
antpr es
surefrom va r
iousgov ernme ntswh oa reconcern
e dwi t
hve hic
le
emis s
ions.
Ensuri
ngt hefutur
emode lcanalsob edeli
veredwh e
ni tisn eededme ansthattheorga ni
zat
ionn eeds
chan ge
a b
ili
ty,whichinturnwi llbeveryd e
pendentuponi t
ss t
rategicle
adershi
p.

Cas
e2.
4 El
ect
ricCar
s I
nt

I n2020,1i
car
Thes
sa
ef
ndv
igur
a
n250c
nstoge
esdonoti
a
t
r
he
si
r
nt
ha
ncl
hewor
dama
udehy
r
l
dwa
k
br
e
i
ts
se
ha r
dsandma
le
ctric
eof2pe
;el
r
e
c
nyoft
c
e
tr
nt
i
c
.
he
pr
Hy
i
oduc
unda
nmodes
ers
ia
.BMW,Vol
ndKi
tv ol
aa
umer
l
k
lma
el
at
s

i
wagen,T
nuf
vet
ac
ot
t
ur
he
oy
eel
i
ot
e
rpe
c
t
a,Ni

r
tri
cv
ola
ss
an,Renaul
ehic
nddi
l
es
es
,al
elc
t
,
bei
ar
t
s
.
sal
esar einAs i
a.E xpertsa repr edi
ctingt hatt hema rket Rea l
i
sti
call
yi twoul dbedi ffi
cultf orthe mt oignor ethe
willreac h 125 mi l
lion by2030 a st e chnologi caland pressureforc hange.Mus k( and Dy son)pl e
dged t o
otherinnov at
ions,aswe llasgov ernment alpr essures i
nv esthundr edsofmi ll
ionsofdol la
rs.Ye tthesev ari
ous
andi nterventi
ons,dr iv
emar ketgrowt h. compet i
torswi l
lseedi ffer
entoppor tuniti
esforc reat
ing
Compet i
ti
on f or ma rk etl eadershipc ome sf rom valueast hemar ketemer ges.Thi sc aseinvit
esy out o
successfulandwea lthye ntrepreneurss ucha sE lonMus k contemplateoneormor epossibl
ebus inessmodel s.
and(unt il
hewi thdrew) JamesDy son,wi thnobac kground Whilet he c or
e pr oduc twoul da ppeart o be an
i
nmot orv ehic
les,butalsof romt hee stabli
she dgl obalcar elect
riccar,t hec hall
engei squi tec ompl ex.Thec ar
s
 2.
1 THEBUSI
NESSMODEL 67

arebat terypower ed,whi c

hmeanst hec arde signe r
s/ and di es elv ehi c l
es )bec omear ea li
tyand as er ious
manuf ac turer swi llneedt o maket hei rown bat teries cons trai ntt hatdr ivesdemandbyl imi ti
ngc hoi ce?By
ors ec ur eas uppl yc hai n.Gi v ent hatev er y thingr ea l
ly thet i
met hi shappens ,wi llt ec hnol ogyandl ear ni ng
dependsont hebat teriesasapowers our c e,wemi ght hav edr iv endownc os ts?Att hi spoi ntt hebal anc eof
pondert heex tentt owhi cht hisi ss omet hi ngt he yr ea l
ly thei nt er-relat ed dec i
s i
ons( whet hert o‘ go el ec tric’
needt oc ont rol .Thebat t
er i
eshav et obepl ugge di nt o foll
owedbywhi chmodelt opi ck)c hanges ,andt his
anel ec tricitys uppl yt oc har get hem up.Att hemome nt, change wi l
lof ferdi ffer entmar ket i
ng oppor t uni ties
thec har gei st heonl ys our c eofpowe r;r unni ng t he andc hal l
enges .
engi nedi sc har ge st hebat tery ,andt her ei snos yste mf or Tes l
ai soneoft hebe stk nown br a
nds .Bas ed i n
usingt heengi nepowert or ec har ge.Andt he ya renot Califor nia ,bute xpor ting ar ound t hewor l
df r
om t he
hybr id.Whi let echnol ogynow al lowsf oraf ew hundr e d Unite dS ta t
e s,T es l
ai sov e r17y ea rsol da nditha srec ent ly
mi l
esf rom eac hc har ge–andt hi snumberc ont i
nue s poste di tsf i
r stpr ofits.I twa sf ounde di n2003byt wo
toi nc reas e–i ti smuc hl esst ha nt ha tobt ai ne df rom a entrepr e ne ur s:Ma rtinE ber ha rda ndMa rcT arpenni ng.
tankofpet rolordi ese l
.Whe nt hec har gehasex pired Veryqui ck l
yot he rsj oine dt hebus ine ss,inc l
udi ngEl on
thev ehi clehast ohav eac ces st oac har gingpoi nt .You Mus kwho be c amet heCE Oa nd al eading i nv es tor.
wills e ec ha rgingpoi ntsbe i
ngc r
e a t
e dwi del yi npubl ic Mus kwa sbor ni nS out hAf ric abutr eloca tedt ot he
andr et ailc arpar ksandi npet rols t
at i
ons .Thec os tof Unite dS ta t
e sa sas tude nt .Af tergr aduat i
nghes tar teda
ac har gei sr elat i
v elymodes t,butaf as tc har gei smor e we bs oft wa rebus ine sswhi c
hhes ol di n1999( whenhe
expens ive. wa s28y ea r
sol d)t oCompa qf or$340mi l
li
on.Het hen
Pet rols t ationsar e ubi qui tousi n mos tdev eloped star
te da nonl inebankwhi ch( afte rame rge ra ndname
areas .Onc et he l ow f ue ll ightc omeson,a pet rol change)bec amePay Pal,whi chwa sal sos old–t hi st i
me
station i sus ual lynott oo f araway .And r ef uel l
ing toe Bay ,f or$1. 5bi l
lioni n2002.Mus khasana ddi tional
takesj us ta f ew mi nut es,nor mal l
y.Butwhatwi l
l passionf orpas s enge rs pa cet ra v el
;andi nt hisr es pe ct
ultimat elyc ons titut et he par all
eli nf ras tr uc turef or hei sc ompe tingwi thJ effBe zos( Ama zon)a ndRi cha rd
char gi ngabat ter y,whi c ht akesaf ew hour st of ully Brans on( Vi rgin) .
char ge?Peopl ei nt heor yc oul ddoi tathome,s ayi n Teslac urrent lys ellsthr eemodel sofc ars,witht womor e
theirgar ageov erni ght .Butnotev er yonehasagar age. i
na ctiv ede ve l
opme nt. The yma k et hei rownba t
te r
iesa nd
Manypeopl ewi thoutpr ivatedr ivess tree t- pa rkwhe re areinv e sti
ngi not herpr oduc t
sr ela tedt os olarpowe r.The i
r
theyc anf indapl ac e–andi nmanypar tsoft hewor ld, fi
rstE ur ope ans howr oom wasi nL ondoni n2009;t his
l
ar genumber sofpeopl el iv ei nhi gh- ris eapar tment wa squi ckl yf ollowedbyJ apanay ea rl ater
.T eslaa ctively
bloc ks .Somer et ailerss uchasI keapr ov idec har ging partne rswi thT oy ot aa ndMe rc ede s.T e sl
ai sa lsoa cti
v ely
point s–butnotv er ymanyatanyonepl ace.I thas deve l
opi ng‘ dr ive rl
e ssv ehi cl
es’whi chwi llinev i
tabl ymee t
been s ugges ted t hatel ec tricc ar senj oy popul ar i
ty resi
sta nc ef rom c riti
c sc onc erne da bouts af
e ty
.
wher e peopl e’ s empl oy ers pr ov ide c har ging poi nts J
amesDy son–whor einve nt edt hev acuum c leaner–
wher et heyc anl eav et hei rv ehi clec har gingwhi let hey beca me i nte res ted i nt he c hal lenge ofe le ctri
cc ars,
areatwor k.Thi smak ess ens e,buti si tf e as iblet or ely focus ing hi sr esea rch on bat terie s. He c onc luded
ont hisast hemar ketgr ows ? thathec oul dnotpr oduc es omet hingt hatwoul dbe
So who ar et het a rge tc us tomer s?T o dat e,a ge economi c all
yv iablea ndpul l
edout .
and s oc io-ec onomi c bac kgr ound do nots eem t o Globalpr es s ures l i
nked t o ener gy s our ces and
be s igni ficantdec i
di ng f ac tor s.Ec onomi csc annot emis sionsmeanst ha tt hepot e ntialf orel ectricc ar si s
bei gnor ed.Thec ar sar er el at ivelyex pens iv et obuy , huge ,a ndwi l
lc ont inuet ogr ow f ory ear stoc ome ,a s
butt heyar ec heaperbot ht or un andt o mai nt ain. new pet rol anddi ese lc arsa rephas edout .Themar k et
Pas sion f or t he env ir
onment alc aus e, gi v en t he willgr ow dr ama tica l
ly,f asteri ns ome pa rtsoft he
l
ow c ar bon emi ssion f r
om el ect ri
cv ehi cles , wi l
l wor ldt ha not he rs.Al lthema jorv ehi cl
emanuf ac turer s
attrac ts ome buy er s,nat ur ally.Theor iesaboutt he willne edt oe ngagei ns omewayi ft he ya ret os urv i
v e.
diffus ion ofi nnov at i
on ar ec l
ear l
yr elev ant ,butas Thec ha llenge i sal s ol ikelyt oa ttrac tmor eweal thy
themar ketgr ows ,whowi llbet hec riticaladopt ers busine sspeopl e .L ogi ca ndhi st orywoul ds ugge stt ha t
thatmanuf ac tur ershav et oper suade?Atwhatpoi nt theyc annota l
lbe‘ wi nner s’.So who wi llt riumph?
wi l
lpos tulat edl egi s l
at i
on( thatpr ohi bi tsnew pet rol Whyandhow?
68 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Ques
tion ortaket
hepe r
spe
cti
veofoneoft
hec
ompet
it
orswe
hav
edescr
ibe
d.
1 Usingthethemesweha veint
roduc
edinthi
sc as
e,
togetherwit
hanythi
ngelseyoumightbeabl
et o
sourc
e,applythekeybusi
nessmodelval
ue-
creat
ion
questi
onstoelect
ri
ccar
s:

● Whats houldc onsti

tut
e‘theproduct
’?
● Atwhom s houldthecarsbetarget
ed?
● Whatwi llconsti
tuteval
uea ndprovi
dea
compelli
ngr easontobuy ,f
orthesetar
get
cus
tomer s?
● How should/mightt hi
sbusi
nessmode lbe
del
iv
ered( profi
tabl
y)?

Youmightpr
efe
rtotak
eaneutr
alpe
rspec
ti
vea
ndlook
forwhaty
oubeli
evewoul
dpr
ovi
dea‘winni
ngf
ormula
’

New bus
ines
smodel
s
Devel
opingthe
sep oi
n t
sfurt
herandr
etur
ningt
othecent
ralt
hemeth at
ab u
sinessmodelc
lar
ifi
est
hewha tand
ho
wq uesti
onsthatal
lowa nswer
stot
hewhya ndforwhomque st
ions,t
hetemne
r wbus i
nessmodelr
efersto
mark
edlyd i
ff
erentwayso fdoi
ngthi
ngsthati
nsomewa ychangethenatur
eo fanind
ustr
y.
Hamel( 2
000 )ar
guesthatnewbusi
nessmodel
sareeme r
gin
ga l
l t
heti
mea sfres
hopport
unit
ie
sarefound.
Amongth eexampleshec i
tesar
e:
1 Consoli
dati
onintheSME( smallandme dium-siz
ede nterpris
e)sect
oraslarg
eorganizat
ionsgrow
big
gerbys ys
temati
cal
lya bsor
bingas er
iesofs mall(ands ometimesloca
l)busi
nesse
s.Exa mples
inc
ludefuner
alser
vicesintheUK;t hisindust
ryno wc ompr is
esn at
iona
lorgani
zat
ionswhi chown
sev
eral‘s
ubsid
iari
es’whichtradeaslocalb u
sines
se s
, ands malli
ndependent
swh i
chh a
veo fte
n
evol
vedasfamilybusi
n e
sses.Wes eethesamewi tho ptic
ians’p r
act
ices
.
2 Thr
owawayvar
iet
iesofsuchp
rod
uct
saswa
tch
esa
ndc
ame
ras
.Fora
nexa
mpl
e,s
eet
hec
omme
nta
ry
onSwa
tchinSec
tion2.3.
3Indi
vidualc
ustomi
zing.Col
le
ctors
’e di
ti
onsoft
heub
iqui
tousBa r
biedolla
ppealt
ocer
tai
nent
husi
ast
s
andcomma ndap r
emiumprice
. Va
riousonl
ines
it
ess
ucha sSpoti
fy(Case5.3l
ate
r)a
ll
owpeoplet
o
downloadmu s
icofthei
rownchoosingtocompi
leapl
ayl
istofthe
irfav
ourit
es.
Glasse
sDi rect( Cas e2 .
1)isane wb usinessmo de l
.Fr an
c hi
sing( populari
z edbyf astfoodo rganizat
ions
suchasMc Do nald’s)isanoth erexampl eofane wb usinessmode l.Wemi gh talsoincludeh omede l
iveri
es
ofgroceri
e s,wh ichwedi s
c ussede arli
e r
;l e
a s
inge le
c t
rica
lgoodsa ndc arsra t
hert hana ctuall
yb uying
them outr
ight;pa ckagehol ida ys(whe reho l
ida ycompa niesb asica
llys orte verythingf orc ust
ome rs)
;
bundli
ngg a me scons olesandde di
ca t
e dga mes–wi t
hr el
evantpr ici
ngpr acticesthate ncouragepe opleto
buyspe c
ificcons oles;ands haringbi cyclesande l
ect
ricscootersinc i
tyc entres.
I
nreali
ty,the r
eisa nynumbe rofpos si
blemode l
s–s omeofwhi chimpl yclearc hoi
c esandc omp romises
.
Somee xampl esthatwec i
telaterinthec hapterbringout t
hechallengeo f‘
ge t
tingi tri
ght’andt hensustai
ning
thi
sstat
einaunc e r
tain,dynami ca ndc ompe ti
ti
vewo r
ldfacedbyma n
yor ganizationsinwha twec ommo nly
ref
ertoast he‘ newnor ma l
’b usinesse nvir
onme n t
.BodyShop,s t
artedoriginallybyt helateAn it
aRoddi ck
andh erhusband,be cameaf ast-
growt ho rganizati
on;itwa sbothpr ofit
ablea ndan otablec ampaignerfor
envi
ronme ntalc a
use s,value
swhi chde finedit.Ho wever,i
tssuc c
e s
sa tt
ractedc ompe t
itionfrom e s
tabli
shed
busi
nesseslikeBo otsint heUK b uta l
son ews tart
-upb usi
nessesi nb othth eUn i
tedStatesa ndtheUK.
 2.
1 THEBUSI
NESSMODEL 69

Later,a ndino rdert os urvive,BodyShopwa sbough tbyc osme ticsg i

antL’Or éal
,a l
thoughi tha ssince
change do wne r
shipa ga i
n.Ano t
he rpi oneer
ingbus ine s
swhos esuc c
e ssatt
ract
edc ompe ti
torswa stheretaile
r
Mo thercare.In2 01 8thisc o mp an ya nnoun c
e ditwa sh a
vingt oc lo s
eas ignif
icantn umb erofs to
r esina
necessarya ndforce dcons oli
da t
ion.
Summa rizi
ngt hi ss ect
ion,bus ine ssmode lsa rec lear
lyl inkedt obotht hei nnova t
iona nds tr
a t
egic
ma nage mentl i
teratureswi thp romi ne ntscholarsfro m botha c
a demi cfiel
ds–i nc l
udingTe ece(2 010)a nd
Che sbrough( 2007)–c r
os si
ngt hei nterse
c t
ionbe twe enthef ieldswi ththei
rs t
u diesonbus inessmode ls
.
Teece( 201 0),thou gh,not esthel ackofac onc eptualfoun dat
ionf orbusinessmo de l
s,pa r
tic
ularlyint he
economi c
sorma na geme ntlit
e r
a ture, t
henr e
viewse xamp l
esofb usinessmode l
s( e.
g. t
raditi
onalindus t
ries
,
e-busine s
smode ls)a n dc onside rst heirlinkagewi ths t
ra t
egya nds ustai
nablec o mpetit
ivea dvantage ,
barri
e r
st oi mit
a t
iona ndt ec hnologi calinnovation.Bu s i
nessmode lsa reals
oi mpor t
a nttothed esigna nd
execu t
ionofne wv entures(se ee .g.Mor risetal .
,20 05;Ra j
alaa ndWe st
erl
und ,2007 ,thelatte
rfoc using
ona ssetsandc apa bili
tie
s )
.

Bl
ueandr
edoc
eans
trat
egy
Wh e nc omp etitionb ecome si n tensea ndd ri
v esd ownp ri
ce s(and ,the ref ore,p r
ofitma r
g ins
),o r
g aniz at
ions
willi nevitablys eektob ein no va t
ivea ndt we a kthee stabli
shedb usin essmo del
.Ane xamp lewo uldb ethe
att
emp ttoge t cons ume rstopa yf oronl i
nene ws paper
s( discussede arlier), whi chisinnovatorya nda rgu ablya
newb usine s
smod el.Itsucce ede dt oap oint.Some ti
me swh a ti
sne ede di samor eradicala
ppr oa c
ht ob u si
ness
mo d elde velo pme nt.Th et he meo fBl ueOc eanSt r ategy,ac onc eptde v el
ope dbyKi ma ndMa u borgne
(2005) ,isr ele vanth ere.Theba si
cpr esumpt ionh ereist hats omedyna mi ca ndl eadi
ngor ganizatio nsa r
e
succ essf
ulb ec ausethe ydi scov err adicalne w oppor tuniti
esf orc ompe titivea dvantage.The yd onots etout
toc ompe t
edi rec t
lywi ththe irr i
v alsbyof fering‘ s
imi l
a r
’pr oduc t
sa nds ervices–whi chmi ghtwe llr esult
inwh atKi ma ndMa uborgnec alla‘ r
edo ce an’wh eret herei sme tap hor i
ca lbloodfrom c ut-
thro atp ri
ce
compe ti
tion.Ra ther,theyl oo kt oof fertheirc us t
ome rssome thingr e allyne wa nddi f
fere
ntb yc r
ea t
ingf re
sh
opp ortunitiesa ndby , t
he r
efor e,be inge ntrepre neuri
al.
Ent re
pr ene ur sspotn ewo ppor tuniti
esbe foreothe rs,some time sf indi ngt heop portunitybyi n sighta nd
inspirati
on,h a vinga‘ gut-feel’f ors ome thin gne wt hatwi llfindf av ourwi t
hc ustome r
s .The ys pen dt hei
r
liv
e sloo kinga twha ti s
,que stionin gwhyi tisa sitisa ndb eli
e vingt he reisa l
wa ysgoi ngt ob eab ette
r
wa y–a n dt ha ty ouwi l
lfindt ha twa yi fyo ua s
kyo urselfther ightq ue sti
on s–ba seda r
ou nd‘ howc anI
impr oveont his? ’
Youmi ghtq uerywhe t
h ers uc hn e
w oppor tunit
iesa r
en at
urallya nda utoma ti
ca l
lysub je
ctivea ndn otthe
outco meo fsome t
hingmo rel ogic alanda na l
yt ical
.
Ki ma ndMa ubo rgne( 200 5)s ugg es
tt hat,i nfact,entreprene ursa ndor ganizati
onsc ana na l
yz ea ndl ist
thosef actorst ha tma keu pt hec ompe t
iti
veof feri
ngfora nypr oduc tors ervice,whi chcant he nbee x a mined
individua l
lya ndan ewb us i
ne ssmo del/
pro duc toffe
rings oughtb ye xami ni ng:
1 Whi
chfac
tor
smi
ghtus
eful
lyber
ais
eda
bov
ecur
ren
texpe
cta
tio
nle
vel
sbe
caus
ethe
yre
all
yma
tt
ert
o
(
cer
tai
n)c
ust
ome
rs?
2 Whi
chf
act
orsc
ane
asi
lyb
ere
duc
edb
eca
uset
heya
rer
ela
ti
vel
yun
imp
ort
ant
?
3 Whi
chele
me nt
sar
eofnoi
mpor
tan
ceb
uta
ret
her
e‘be
cau
set
heya
lwa
ysha
vebe
ent
her
e’b
utc
oul
d
e
asi
lybeel
imin
ate
d?
4 Whatnewe
lement
scouldbec
rea
tedanda dt
dde h
atwoul
dma
kean
ewa
ndr
eald
iff
ere
ncea
nds
et
t
hisne
wproduc
tapar
tinameani
ngfu
lway?
Quest
ions1a nd4setal
ongs
ideQuest
ions2and3h el
ptoidenti
fyth
o s
efact
orstheor
ga ni
zat
ionshou
ldfocus
ontocreateac ompel
li
ngbusi
nessmodel.Remembers t
rat
egyisaboutchoi
ce s–choosingwh a
ttodoand
cho
os i
ngwh atnottodo–wi t
hthelat
tersomet
imesbeingthemo reimport
antdeci
sion.Qu e
sti
on4andto
ale
s s
erextentQuest
ion1al
sofla
gwh eretheor
ganizat
ionshouldseekt
odive r
gefr
omc ompe t
it
ors
.Yell
ow
Tai
l,aleadi
ngAus t
ral
ianwi
nebrand,f
ore xa
mple,of
fersali
mi t
edrangeofsingl
egrapeb r
andedwine
sand
70 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

hasca
pit
al
izedo
nthesur
gingd
ema
ndf
orwi
nei
nre
cen
tye
ars
.Aga
ins
tthea
bovef
ourc
rit
eri
a,t
hef
oll
owi
ng
answer
swerege
ner
ate
d:
1 Thereisnorequi
rementtobethecheape
stwi neavai
lableasthisaff
ect
sperce
pti
onsofqual
it
y.Sot
he
pr
iceshouldbeaff
ordablea
ndt hewiner
e a
d i
lyavai
lableth
rou ghthele
adin
gs upe
rmark
etsandot
her
re
levantout
let
s.Compa n
ystaf
fmus tbeenthusi
ast
icandc hampi o
ntheproduct
.
2 Customersdonotex
pectahuger
angeo
fdiff
ere
ntgrapesands
oali
mite
drangeof‘f
avo
uri
tes’wil
l
suff
ice
.Simil
arl
y,manycust
omer
sarenotr
eal
lyint
eres
tedint
hep
res
ti
geofthevine
yar
d(butthe
y
areint
ere
ste
dinthetas
te)
.
3 Wineafi
cio
nadotec
hnologyisi
mp or
tan
ttoon l
yaminor
it
yofpe
oplea
ndnott
hemains
tr
eambuye
r,
andre
lat
ivel
yfewconcernt
hemselv
eswithageingp
rop
ert
ies
.Av
ail
abi
li
tya
ndwor
d-of-
moutha
re
moreimport
antt
hanabove-
the-
li
neadvert
is
ing.
4 Eas
ydr
inki
ng,e
asysel
ect
iona
ndas
ens
eoff
una
nda
dve
ntu
rec
anbeut
il
iz
edt
oma
rke
def
fec
tto
pr
omot
eanewb r
and.
Kima ndMa u
b or
g n
e( 2
005)al
sosuggestorg
a n
izat
ionsc
a nmak
eu s
eo fwha
tthe
ycalla‘bu
yerut
il
it
ymap’.
Suchama pwouldlistt
hefac
tor
sthatmightinfl
uenceacust
omer
’schoic
eofso
me t
hing.
Inthec
aseofac
ar,
forex
a mpl
e,thefoll
owingmightb
er e
levant
:
● t
hemode
lra
ngea
vai
labl
e,t
hei
rfe
atur
esa
ndp
erf
orma
nce
● p
ric
es–b
otha
bsol
utea
ndi
nre
lat
iont
ope
rce
ive
dqua
lit
y
● s
ize
,ea
seo
fha
ndl
inga
ndpa
rki
ng,
plu
sint
eri
ors
pac
eands
eat
ingc
omf
ort
● i
magea
ndde
sign
● p
erf
orma
ncea
nde
conomy
● s
afe
tyfea
ture
s
● t
heshowroom a
nds
ale
sex
per
ien
ce
● t
hea
vai
labi
li
tyo
fap
ref
err
edmode
landc
olo
ur
● s
ervi
ci
ngc
ost
s
● t
hea
bil
it
ytor
eta
inva
lue
● e
mis
sion
sanda
nnua
lli
cenc
ecos
ts
● i
nsu
ranc
ecos
ts.
The sef eat
ur escouldber ank edorv al
uedi nr especto ft heirsignifi
c ancef orar el
evantc ustome r
.An y
individualc armi ghtthenbes core da ndc ompa redwi t
hthos emod e l
swh icha res eenasdi rectcomp eti
tor
s.
Thisa spectc ouldhi ghli
ghtoppor t
un iti
esf orma kingitmor ed ist
inctivei nav al
uablewa y–a ndt hus
str
en gtheningi tasac ompe t
it
or.
Att hes amet i
me ,gapsmi ghte me rgei nr espectofc us t
ome rpreferenc esthata renotbe ings a t
isfi
ed.If
theseg apsc ouldbef i
lle
dwi t
h outl osings ome thinge l
set hati simpor tant,thisc ouldbear ealo ppo rt
unit
y.
Wh a tissign i
ficanthereistha
tt hisa pproacht argetsthosei s
su esthatma tt
ert ocu stomers.Bu tthisa pproach
hast obed ete
rmi nedbyqu est
ioni nga ndr esearch,n otassumpt ion.
Inamo r
er ecentbook,Ki ma ndMa uborgne( 2017)re -empha s
izet hev alueo fc ompe t
ingi nu nco ntes
ted
space ,wh eret hereisl i
tt
ledirectc ompe t
iti
ona ndt heopp ortunit
yt of i
ndape rceiv
e dc l
ea radv antage–
witha ndthrou ghad i
sti
ncti
vev a l
uep roposit
ion.Thi s,theya rgue,sho ulda lway sb epreferabletoas earch
forb ettertacticswithwhi cht oout -rivaldirectc ompe t
itors,e veni fthisi sa tthee xpenseo fma r
g i
nsa nd
profitabilit
y.Thi sisape r
suasivea rgume nt–a lt
houghf ors omec ompa niesitisl i
kelytopr oveaf r
uitl
ess
searchb ecauseo fthed i
ffi
cult
iesin volvedinc reati
ngs uchd i
stincti
vene ssanda ls
ot helacko fba r
ri
e rstod et
er
orde flectcompe t
ito
rs.Simply,‘ma rke t-cr
eatingin novat
ion’t og ene r
atehi ghe rva l
uea tlowe rcostha stobe
ani deal–a nds ome t
hingthatc ertainc ompe tit
orsdoma na get oa chieve–b u titcanno tbes ustainedb ya l
l
organ iz
a t
ionsbe cause,aswes awwi thBodyShopa ndMo thercare(me ntione de arli
erinthec hapter),success
att
rac t
sc ompe tit
ion.
 2.
1 THEBUSI
NESSMODEL 71

Ki
man
dMa
ubor
gne(
2017)r
est
atet
hei
rbe
lie
ftha
t:
● Bl
ueOc
eanc
hangeof
tenr
equi
resaf
res
hmi
nds
et.
● An
alyt
ic
alt
ool
sca
nhe
lpc
lar
if
yth
ede
tai
l.
● Peoplemat
ter–ex
ecut
ivesn
eedc
onf
ide
ncea
ndbe
lie
ftoo
wna
nddr
ivet
hel
eve
landpr
oce
sso
f
changebe
ingdemande
d .
Ther elev antmi nds etma ywe llde ma ndne wq ue stion st hatc ha llengel ong- he l
dbe lie fsa boutpr o ductsa nd
prefere nc es–b e liefst ha tnown e edt obea ba ndone d. Whe nwedi scus sthe‘ lea ns t
a rt
- up’a ppr oa che ls e
whe r
e
inthi sc ha pter( br iefly)a ndi nCha pte r1 0( mo ree xten sive l
y), wewi llela bor a t
eont het yp e so fq ue stiont ob e
aske d. La u nchingt hes hi f
tinmi nds e t(a sKi ma ndMa ubor gned escribet hec h al
le nge )i sa ne ffectua lproc e s
s
involvi ngt r i
alsa ndt e sting,whi c hi sa n othe rf eatur eoft hele ans ta
rt- upa ppr o ach.
Ki ma ndMa u bor g ne( 201 7)us et h et erm‘ se t
tle r
s ’tod esc ri
beo rg aniz ation st hato ptt oope ratewi thina
comf ortz oneo fe xistingc ompe t
itionbut pr otec t
ingt he i
rpos i
t ion;‘mi gra tors ’fort ho sewh os eekt oi mpr ov e
thev aluepr opos ition ;a nd‘ pione ers ’fort ho sewhoa c ti
v elys ea rchf orma rke t-crea t
ingi nno vation. Mi gration
isre ali
s ticallyamu sta ndpi one eringa ni dea l.La rgeor ga niza ti
onswi llf ollo wa l
lt hr eea ppr oa che sb eca use
ofthena tureoft h eirpr oduc ta nds e rvicer a nge .Wh enwedi sc us s(lateri nCha p ter9 )t heBos t
onCons ulting
Gr ou p( BCG)ma t
rix–wh ichc a tegor izesp r
o du ctsa s‘ s t
a r
s’, ‘qu estion -ma rk s’
, ‘cashc o ws ’an d‘ d ogs’–we
wi l
ls eeas imila rityi na ppro ac h.
Iti sc le arth a tc on side rablee mp ha siso nf indingne wc us tome rsi sr equ ired.The sema ybep eoplewh o
aren e wt oap artic ularc ompe tit
o r( buta lr
e adyb u ye r
sofr i
valp roduc ts)a swe lla spe o plewh oa ren e wt ot he
produc tits elf
.Weh av ea lreadydi scu sse dt hel o w- co sta ir
line s.Th e irgr o wt hh asc e rtainlyi mpa c tedont he
‘full-
c ost’a ir
li
n e swh oof ferahi ghe rl eve lofs ervic e(a ssomepe opleh avebe enwi ll
in gt os a crifices ervicef or
lowe rp ric es),b utmu choft he irs uc ce ssha sc omef roma ttr
ac tingne wc us tome rswh oh av eopt edt ou set hese
fli
ght swh enot he rwi set he ywoul dh av eu se dadi ffere ntfor moft ra
ve lorn ote venu n de rtake nth ejo ur ney.
Ita llc ome sdo wnt os i
tua tiona la ndc ompe ti
tora wa rene ss;a n diti sa lwa ysi mpo rtantt oc on side rwhe ther
therei sa nyr iskofl osinge xi stingc us tome r swhe nne wc ust ome rsa rebe ings ought .Foc use d‘ up- ma rke t
’
bu r
g err e sta u
ra ntswe r
en everal og icalp r
o d ucte xte nsionf ort h eo uts tan ding lys uc ces sfulMc Do n ald ’
s
bu s
in essmo del,b utt h ei deah asp ro vide dav alua bleo ppo r
tu n i
tyf o rc ha inss ucha sFi veGu y sa ndByr on s
.
The ymi ghtwe lla ttractMc Don a ld’sc us tome rs,o fc ou r
s e
,b utonl ywhe nt heywa ntamor er elax edd i
n ing
expe rien ce .Th emo s
tp o pularc ricke tfo rma tsa ren owt h e5 0o ve r
,t he2 0o v era ndt h e1 00b a l
lg a me s. Te s
t
ma tch esa tt
r a
c tl arg ec ro wd so ns omed a ys,b utt h ef o ur-dayCo u ntyg ame sa rep la ye dwi t
hr e l
a ti
v elyf e w
suppor te rsa ttheg rou nd.Ho we v er,i tismor eac a set ha tthene wf orma tsha vea ttr
a ctedne wc u s
to me rs;t he
‘oldga me ’wa si nt ermi na lde c li
ne .Bumbl ei sada ti
nga ppa nds eco ndo nl yt oTi nde rint h eUn it
e dSt a t
e sin
termsofs ize .It
sf oun de rpr ev iou slywo rke df orTi nd er. Ine i
gh tye ars,it ha sbe comeab illion- dol l
a rb usine ss.
Itha so n eke ydi sting uishin gf e ature :wi t
hhe teros exua lma tc he s,onl yf ema l eus ersoft hes it
ec anma k et he
fir
st con tac twi thp oten tialma lema t
c hes .Asar esu lt
,it ha sbe end escribe da sa‘ fe mi nist d atinga pp’ .Bu mb le
,
ofc our se ,ismo rel ike l
yt oha vee nc our age dpe opl et omo vef rom ar iva l,oru semor et ha none ,tha na t
tra c
t
awh olen e wc lie nte l
e .
Dr awi ngont hei de aoft hema rke ti
n gmi xh avi ngf ou r‘ P’c ons ti
tue nt s( Mc Ca rthy ,196 0) ,wec anr ela t
e
actionsa ndt heque stionst he ya dd ressa sf ollows :

What Pr
oduct
sands
ervi
ces
Why Val
uepr
opos
it
ion
Pr
icepoi
nt(
s)
Wher
e(t
heyar
eat
tr
act
ive) Pl
acesavai
l
abl
e;di
st
ri
but
ion
How Pr
omot i
onalacti
vi
ti
es;how peopl
elear
n
aboutthem andtheiravai
l
abil
i
ty
72 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Recal
li
ngap oi
ntwema deear
lie
r,pe
opleshoul
db eabl
etoanswerth
esequest
ion
squickl
yands uc
cinc
tlyif
ev
eraske
dt oma k
ea nel
evat
orpit
ch.Wec o
nc l
ude,t
hen,t
hatt
heb us
ine
ssmo d
elma t
te
rs–b u
tsot o
od oesth
e
waythebus
inessi
srun.Thedet
ailofi
mplementat
ionan
de xec
uti
onarecri
ti
cal
lyimpor
tan
t–a nditi
sh e
rethat
r
eall
yweswi t
chfro
mt h
eb us
ine
ssmo d
eltothere
venuemodel–bothofwhic
harecri
ti
cala
ndn ee
dtob e‘
right
’.

Pr
esent
ati
on3:Del
iver
ingval
ue
Thefinalpres
enta
ti
on(Figure2.
3)thusaddsintheelement
softherevenu
emo del.Thist
imethetopline
conce
n t
rat
esone xt
erna
lthemes–t heta
rgetmarket
,theval
uep r
oposi
ti
on,rout
estoma rk
et(whic
hmi ght
bec a
lle
d‘ ext
erna
larchi
tec
ture
’a ndin
cludeli
nksa n
da r
range
me nt
swithd i
st
ri
butionpar
tne
rs)
,customer
rel
at
ionshi
psandproduc
tloyal
ti
es.
Themiddlel
ineismorei
nte
rnal
lyfo
cused–keyres
ou r
cesa
ndkeyacti
vi
tie
s.

F
igur
e2.
3 T
hebus
ine
ssmode
lPr
ese
nta
tion3:de
li
ver
ingv
aluet
hrought
her
eve
nuemode
l

Cus t
omer
Rout
e(s
) r
elati
onships
Ta
rget Val
ue
to and
marke
t pr
oposi
ti
on
ma r
ket product
l
oyalt
y

Key
Key ac
tivi
ti
es Re
lev
ant
r
esour
ces a nd part
ner
shi
ps
operat
ions

Revenue
Cos
ts P
rot
s
str
eams

Ther elevantpa r
tnershipshe rea rewi t
hs up pl
iersrathert handi st
ributor
s.Thebot tom linec omp risesthe
fin
a ncia
lu nd er
pinning–r eve nues t
reams ,costsa ndthec onsequen tprofit
s–wh i
chwed iscussh erea sthe
revenuemod el.Essentiall
y ,thetopl i
nedi ct
a t
e srevenues treamsa ndt hemi ddlel i
nede ter
mi nesc osts.
Beforewemov eont ot her e
v enuemod elwemi ghts umma ri
z eoura r
gume ntsa bouttheb u
sines smo del
asf ol
lows .Or ganizat
iona le xecuti
vesmus tbea bletoa rticula
tet hec ompe tit
ivea dvantageo fferedbyt he
comp any’spr oductsands e r
vices.Ge nuinec ompe tit
ivea dv ant
agei mpl ie
st hatthebus inessun derstandsi t
s
custome r
sa ndwha tcons t
itutesv al
uef orthem. I
na ddit
ion ,theymu stappreciat
ewha tisrequiredt opr oduce
andd eli
ver goodqua li
typ roduc t
sa ndserviceso ntime,wi t
ht herelevant cost
sa ndp r
icesimp l
yingp rofitabil
ity
.
Finall
y ,
theywi llhavet hec apacitytoeng agec ustome r
s,sup plie
rsa nde mploye esandt op e
rsua dethemo fthe
inherentvalueint heb usine s
smode l–a nd,addi t
ionall
y, theywi llalwa ysbet hinkinga heada ndre cogn i
zing
that(appropriat
e)c hang ema tt
ers.

The‘
bus
ines
smodelc
anvas
’andt
hel
eans
tar
t-up
Oster
wa lderandPi
gn eur(
201 0
)o ff
ertheirbusinessmo delcanvasasaframeworkf o
rhe l
pingtodevel
opa
newb usines
smodel.Ineff
ect,t
h ei
r‘canvas’i
sa nempt y(andoft
enlar
ge)char
tinvit
inganswe r
stoquest
ions
rel
ati
ngt othebusi
nessproposi
tion,compa nyinfr
astr
uc t
ure,c
ustomersandfi
nance.Potent
ialtr
ade-
off
sc an
befactoredinandtrackedthrough.Itisba s
icall
yde si
gne dt
og at
herdatawhichc anbeus edtoteas
eout
opportunit
ies
.Il
lus
trat
ionsofthebu s
inessmod elcanvascanreadil
ybefoundonline.
 2.
2 THEREVENUEMODELANDBUSI
NESSVALUE 73

I
nmo
rede
tai
l,Os
ter
wal
der
’sa
ppr
oac
hisc
onc
erne
dwi
th:
● i
nfr
ast
ruc
tur
e:a
cti
vit
ies
,re
sou
rce
sandpa
rtne
rs(
int
hec
orp
ora
tene
twor
k)
● ‘
off
eri
ngs
’orthev
alueprop
osit
ion–f
oreac
hp r
oducta
ndservi
ce:whatmake
sea
chonestandout
,
whe
thert
hisi
squa
ntit
at
ive(c
ostandp
ric
erel
ate
d)orqual
it
ati
ve(andl
inke
dtodi
ff
ere
nti
ati
on)
● c
ust
omers:marke
tsegment
sandni
che
s(wher
ethes
earer
ele
vant
);r
out
e st
oma r
ket
;th
ena
tur
eoft
he
s
uppl
ier
-cus
tomerre
lat
ions
hip(
suc
hasfa
ce-
to-
fac
etra
nsa
cti
onsoronl
ineexc
hange
s)
● f
ina
nce
s:t
hee
leme
ntso
fther
eve
nuemo
del
,wh
ichwee
xpa
ndb
elo
w.
Ane xa mp leo ft hec an vasb einga pp li
edi sp rov i
d edi nTa ble2 .
3( later)wh enwel ooka ttheUb erb u si
ne s
s
mo d el.
Theb us i
ne ssmod elc anvasi sa lsor eleva nti nt hec ont exto fthel eans t
a rt-
upwhi chwedi s cussf urtherin
Cha pte r1 0,i nt hes ectiono ne ntrepr eneur shipa ndi ntr apr eneur ship( Ri es,2 011 ).Thet he sishe rei stha t
‘winni ngopp or t
uni ti
es ’a r
eb estfoun dbyf i
r stide nti
fyinge xac t
lythos ep rob l
e mst h ata remos tpe rtinentfor
poten ti
a lc ustome rs,whi c hthe ywi llin evit
a blyp r
ior i
tizea nds e eksolu tionst ot he sepr oblems .Si mpl y,ma ny
newp rod uc tsa nds er
vic esfailora tlea s
tunde r-achievebe cause ,howe ve ra ttracti
vea ndv al
u ablet heya r
ea nd
ares eent obe , the ya r
eno timp or tanto rsign ificante n oug ht owa rrantc u stome rspe ndin g.Thepr oduc tsma y
we llbed e si
rab lea ndfe atur
eo nawi sh-li
stb utthe ys til
ll oseo uttoot he rp rioriti
e s.
Thes ubs eque nta rgume nti stha ti nas e ar chf orn e wi de asando ppor t
u nitieswebe ginb yc lari
fy i
ngt he
prioritypr oblemsa ndi ssuesf orc us tome rsa ndt he nd es i
gni ngap ossibl es olutionorr e solution .Thec anvas
canb ev a luablehe r
ei npul lingt oge the rtho ught sa nds pec if
icissue s.The sei de asa ret hent e s
te dwi thl ow-
investme ntpr o totype s,a ndt het hin kingi sc on st
a ntl
ya ndi terati
ve l
yupd ate da ndr efi
ne d.Le ans t
art-upi s,
therefor e,at rial-a nd-errorb asedl ea rninge x pe rience.
Suc ce ssi she avilyd epend entona skinga ppropr iateque st
ionsa ndr e ma iningope n-mi nde d( rathe rthan
believin gyoua lre adykno w wh att hes olutioni s),a l
thought he r
ewi l
la lwa ysb eane edf ori ma ginationa nd
creativityi nt hepr ocess .
Ea rlieri nt hec hapte rwed i
s cus sedv alu ene t
wor ks. He nriche tal .( 201 2), takingas i
mi larpe rspe ct
ive
toCh riste nsen( 1997 ),a rguet ha tne wpr oduc tde ve lopme nta ndi nnova tions houl di nvolvec o-
op e ra
tion
be t
we ena llt hos e who c ontribut et ot he va lue-cr eation pr oce ss– pr odu ctde si
g ne rs,s u ppliers,
ma nu fac turer s,di stri
b utors, pack agi ngd e sig nersa n dma rk eti
n gexp e rts–a si tisi mpo rtantt oon lyi ncur
thos ec os tst h ata rene cessa r
yf ord eli
v er ingr elevantv a l
ue.I nt od ay’sf a st-mo vi nga ndc omp etit
ive
wor ld,whe rebo thv aluea ndpr ic esr eallydof e ature,t hisma kess e ns e.Ho we v er,th ene e dt oe s t
ablish
suc hdi a logu esa n dsha ringwo uldp erha pss ugge star es ource -
drive npe rs
pe c t
iv ef ors trateg ywh ent he
leana pp roa chha samuc hs tronge rc ustome rpe rspe ctive.Bl end i
ngt het wope rspe ctives,a n dfa c t
oring
inc omp e tit
iona ndc o mpe titora c ti
vi t
ies,ma ybec hallengi ng,b uti ti sa rgua blyne c essary .Wec ant hus
seeho ws trateg yc reationl inksr e sou r
ce s,oppo rtuni t
ie sa ndc o mpe tition–t he me swei ntroduc edi n
Cha p ter1.

2.
2 Ther
evenuemodelandbus
ines
sval
ue

There
venuemod elfocus
esonacti
vit
ie
sa ndwha tt
heb us
ines
sdoesto(a)c
onser
veres
ourc
es,us
ingonl
y
whati
tneedstouse,(b)manag
ei t
sresourcesef
fi
cie
ntl
ya nd(c)pri
ori
ti
zet
hos
ereso
urcest
hatcr
eat
ea n
d
bui
ldva
lueforcus
tome r
s.
Int
hecontexto
fourf r
ameworkfort
heb ook,weareher
ea s
king:
● Whyareourprof
it
satt
hel
eve
lth
eya
re–wha
tist
het
rend–a
rewedoi
ngbe
tt
ero
rwo
rset
hano
ur
l
eadi
ngri
vals
?
● Whe
rea
ret
hepr
ofi
tsgoi
ngwi
thc
urr
ents
tra
tegi
es–upo
rdo
wn?
● Ho
wdowei
mpr
ovet
hen
umbe
rs–wh
atd
oweh
avet
odo?
74 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Bus i
ne ssesu sec asha ndkno wl edget oi nve stinr es ourcesa ndi nsti
ga t
ea nde xecutea ct
ivitiest ha the lp
them wi thwh att heyne edt odo.The ya r
ei mpl eme nti
ngt heirs trat
egie s( andt ac t
ics)withi nt hec o nfi
n es
oftheirb usinessmo de l.Int urn,the ys houldbege ner at
ingmor ec asha nda l
s on ewk nowledgea ndi nsights
astheyl earnh owt odot hingsbe t
tera nda l
s oe xplorewh attheymi ghtd odi fferently.Incomes ho ul de xceed
spendi ng. Wed elibera t
e lyu seth ewo rd‘shou ld’ra t
he rthan‘ mu s t
’b eca useo ft i
me scale
s.Ama z onp ro vi
d es
awo nde rfulexa mp l
eofab us i
ne s
swhi chs pentmor et hani tearne df ors ev er
a lye ars–a ccumu latingt ra
ding
los
s es–unt ilitha dc riticalma ssi nt er
msofs i
zea n dpr oductr an ges.The rewa salwa yslogict oJ effBe z
o s’
businessmo del,b utitr equireds ig nifi
canti nv e
stme n ttob u i
ldt h ei n
f rastructurea ndtheb us ine ss.Fe dEx
(FederalExpr es sde liver ys e
r vice)wa snotdiss i
mil ara tt
heout se t.Inrec ent years, andi nnosma llwa yt han ks
totheKi ndle,Ama zonha sre paidt hei nvestme nta ndbe comeave rypr ofitablea ndpo werfulo rg a nizati
o n.
Wes ha llseeift hes a meho l
dst ruef o rTesla.
Inth i
sc ontext ,tho ug h,wes houldn evero verl
oo kt her eali
tyt h at‘ca shi sk ing’.Unl esstheb u sine ssc an
generates urpl
usc asht oi n ve
s t(fromi tstradinga ct
iv it
ies),itwilln ee dtob o r
rowmo ne ytof u
ndi tsg rowt h–a s
longa sitisinap osit
io nt od ot his.Th ismo ne ywi llne edtob er epa idats o mepo into r
,s i
mply, theb us i
n es
si s
ins
olv ent.
Thes trat
egicl og i
ca ndl ong er-t
e rmv alueo fc er
ta i
nc ours e
sofa ctionwi l
l al
wa ysb eanimp or t
a nt issu e–b ut
sotooa r
es hort-termr etu rnsa ndf inanc i
alco nsidera t
ions .Howe ve rvalua blethede siredacti
onmi gh ta ppe ar
tobe ,i
th ast ob ef i
na n cia l
lyp os s
ible .
Thek eyi ssuewi tha n yd e c
isionc oncern i
ngwha tt odone xti swhe theri twi l
ll eadtoa ni n cre aseo r
deteri
or at
ioni nt hev alueoft heb us inessfori tsowne rs(sha r
eh old ers)
.Thi sa gainc anb elooke da tov erthe
longert ermr athe rtha nt hei mme diatefutu r
e ,asl onga sthosei nv ol
ve da ref ullya wa reands upp ortive.I n
otherwor ds, t
hene tp res entv alueoft her et
urnona n yi nvestment wema k emu stbep osit
ive–a nd, e sse ntia
lly,
mo rep ositi
vet ha no t
he ra l
terna t
ives .Theremi gh tb ea lt
e r
nativ eo pti
o ns /
inv estme ntstoe valu ate.I tmi g ht
some ti
me sbemo rebe ne ficialtot heo r
ganiza ti
ont os e l
lap art,s ayo nebu sine ssuni t(unle
ssi th a sahi dde n
str
ategicwor t
ha nds ign ificantop por tunit
yc os t
),ands pendt hemone yo npe rha psde velopi
ngane wpr oduc t
orbuyi nga na lternativebus ine s
s .
Busine ssesma kemo ne ywhe nt he ysellthingsa tapr ofit
.Inor de rtoha vet hingst osell
,t heyi nc urc osts
andt heyne edt os pendon:
● di
rec
tcos
tst
oac
qui
rer
esou
rce
sandp
aype
opl
e
● i
ndi
rec
tco
stsonma
rke
ti
nga
ndp
romot
ion
● i
nve
stmentt
oma kes
urethebus
ine
ssc
ans
tayr
esour
cedi
nthef
utu
rea
ndt
hatt
her
eisaf
lowofn
ew
i
dea
s,pr
oductsa
ndservi
ces.
The se(even t
u all
y)a llha vet ob erecove r
edf roms alesrevenue s.Re ve nue sa ndcos t
s,theca shimp l
icat
ions
andt hema rgin( profit)fromr evenu ese xcee d
ingt otalcost
sa retheba sicc ompone ntsofther evenuemode l
.
Inot herwor ds ,thee xe cutionoft hebus inessmo delmus tbep rofi
ta ble .
An didea l
lymor ep r
ofitablethan
othera l
ternatives–ot her wiset hesea lter
na ti
veswou ldimpl ymor eva luef ortheb usi
nessa ndi tso wners.
Ther evenu emo deli s,therefore,a boutt hefinanc i
alimp li
cationso fas e rie
soft acti
calde cis
ion s.These
tacti
cald e
c i
sionsa r
eta keni nthec onte xtoft heove r
allst
rategya ndt heb usinessmode l
.Reve nues, ofcourse
,
canb eincrease dwi tha ddi t
iona lma rke t
inga nds e
lli
nga c t
ivit
ies–b ut,na t
ural
ly,theseinc urfr eshcosts
.
The reareof t
e noppor tun i
tiestoc utc os t
s–a ndr eall
yor ganizati
onss houl da l
wa ysb elook i
ngt oma nage
theircostdr i
v erst oge nerates avings. Att hes amet ime,itisi mpor ta nttor ememb erthats omec osts(and
somea cti
viti
e s)s houldn otbes acri
fic eda stheyma kes ignifi
cantc ont r
ib uti
ons.The ya r
ev al
ue dbyk ey
stakeholders.
Table2 .2lo oselyf oll
o wsa ccountin gcon venti
o nstos howt hata c ti
v it
iesg eneratesurplusest hatcanb e
usedi nava rietyofwa ys.Di fferents takeholdergr oupsmi ghtbet hep referredbe nefi
ciary,fore xampl e
.
Thet ab
lef l
ag stha t‘typi cal
’( so-call
e dp rofit
-seeking)bus i
ne s
seswi l lall
oc atetheirsurplusinad if
fere
nt
wa yf ro
m ac ha r
ity,butt hep rinciplei sthes ame .Th er
ewi llalway sb ec ho ices
;bu ttoha v
et hec hoic
e,the
organizati
o nmu stcreateas urplus.
 2.
2 THEREVENUEMODELANDBUSI
NESSVALUE 75

T
abl
e2.
2 How or
gani
zat
ionsear
nands
pendr
evenue
Revenuet
rai
l Pos
sibl
eopt
ions Comment
ary

I
ncomet o Rev
enueand Ther el
evantcost
sstartwi t
hdi r
ectcos t
ss uc
has
busi
ness s
urpl
usaf
ter l
a bourandma terial
s,and,forconv enience,
fr
om rel
evant c
osts wea rea l
soincl
udingov erheads,suchas
tr
ading r
ent s,r
atesandot herindir
ectcosts.In
act
iv
iti
es managementac counts,ofcourse,theyar e
separat
ed.
Poss
ibl
egrant
s Mos
tre
lev
antf
orac
har
it
yors
oci
alent
erpr
is
e
anddonati
ons
Pay
ment
s L
oani nt
erestand,
asappropri
ate,
tax
es
L
eavi
ngfor Sur
plust
o‘s
pend’ I
nves
tmentpot Abus i
nessmightwishtobuildnew plant,buy
di
st
ri
but
ion newe qui
pment
I
tcouldusethesurpl
ust olowerpr i
cesto
benefi
tcus
tome r
s
Theinves
tmentpotmi ghtber et
ainedasc as
h
foramoreoppor t
unet i
me
Shar
ehol
der Ani
mpor
tantdec
isi
onf
orl
argerbus
ines
ses
di
vi
dends
Owner I
nthecaseofasmal
lbusi
nesstheowner(
s)may
drawi
ngs wi
shtocapi
tal
i
zerat
herthanrei
nves
t
Cha
rit
abl
egi
vi
ng Abus i
nessmightt
op-sl
icet
oma keadonation
annuall
yorasaone-off
Thi
swillbethemainspendforachari
tyors
ocial
enter
pri
seofcours
ea ndwil
lre
fle
ctit
spurpose
St
affbonus
es As
pec
ifi
cre
war
dfors
taf
f
F
unding T
hiscoul
drangefr
om optionaladdi
ti
ona
l mar
ke t
ing
c
ampa i
gns ori
nvol
vementi
ns pec
ialpromoti
onsandev
e nts–
whic
hinturnmighthaveac hari
t
abl
ee l
ement
Bus
ines
sc r
oss
- Rel
evantformult
iact
ivi
tyorgani
zat
ions–and
s
ubsi
dies mightbeseenasasub-s
etoftheinves
tmentpot

Theba sica r
gume nt,t her
e f
ore,ist hattherenee dstobebot has t
rat
egiclogica ndaf inanciallogicto
thes t
rat
egicde cis
ionsa nda cti
onst hator gani
zati
onst ake.Newa ct
ivi
tiesshouldhe l
pt oi mpr ov
eb ot
h–
therewi l
la l
wa ysb eado wns i
der iski ftheyhaveap osit
iveimpa ctonj ustoneo ft hetwo ,b utthatma y
notme ant heya r
ea utoma t
ic
a l
lythewr ongthingtodo.Suc hpotent
ialactionsrequireve r
yc a
refulthought
ande valu
ation.Some time sfinancialne edsandpriorit
iesdict
atethechoice;ana l
terna t
ivemi ghtma kemor e
sensestra
tegicall
yb utn otadds uf
ficient f
inanci
alva l
uetotheo rgani
zati
on.Onot h
e roc cas
ion s
,thestrategi
c
imp or
tanceo fcert
a i
na c t
ionsissuc hth atsome t
hingthatwoul db emoreluc ra
ti
vef inancial
lys houldn otbe
prefer
red.Ifanyp ropos alsunderc onsiderati
onha vean egati
veimpa ctuponbot hthes tra
tegiclog i
ca ndthe
finance
s,theys houldb ea voi
d ed.
The sep ointsar
ei ll
ust
rate
di nFigure2.4.Wed on otd evelopthea rgume nt
s
inde p
thh ere,butinst
e adr et
urntot hem whe nwee xamines t
rat
egicchoiceinCh apter8.
76 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Fi
gur
e2.
4 St
rat
egyev
aluat
ionands
trat
egi
cchoi
ce

St
rong
Downs i
der i
sk:
Pote
nti
alimpac t
onbott om Pr
ior
it
y
l
ineandneed choi
ce
f
orcros s
-
subsi
dizati
on
Strat
egicl
ogic
L
inktobusi
nes
smode l Av
era
ge
i
mpactoncurr
entst
rat
egi
es

(
Pos
it
iv
eimpac
t=v
alueenhanc
eme
nt) Downs i
deri
sk:
Opt
iont
oav
oid Dist
rac
ti
onand
los
soffoc
us

We
ak
We
ak Av
erage St
rong
Financ
iallogi
c
L
inktorev
enuemodel
i
mpactonsharehol
derv
alue

Wec oncludethi
ss e
ctionb ystr
essi
ngaga i
ntha ttod a
y’ sb usi
nessenvir
onme n
tisd ynami c,t
urbul
entand
comp et
iti
ve.Weha veseenho wc ust
ome ra
tti
tudestobr andss uc hasAldiandLi dlhavec hangedthestr
uct
ure
ofthegr oceryma r
keta ndf orce
dmor ee st
abli
she dc ompe tit
orstoreact.Orga ni
zati
on ssur v
iveandstay
res
ilie
nt( t
het he
meofCha pter17)byb ecominga ndt hens t
ayingrele
va ntforcustome rs.Thisdemands
changestot hebusines
smod el–wh ichareenginee re
dt hr oughther e
venuemod el.Thepr emi s
eh er
eisto
era
di c
ateanya ct
ivi
tie
swhi chdon otaddvalueforc ustome rsa ndtoinves
twh a
tc a
nbes a vedintothi
ngst
hat
doa ddvalue.Examplesofho wt hi
sob j
ect
ivemi ghtbea c hieveda re
:
● pr
omotiona
lspe
ndingo npopula
rproduc
tsandbrands
● s
tre
ngtheni
ngthos
ed i
str
ibut
ionchann
elstha
tcusto
me r
sarepr
efe
rri
ng
● de
velopi
nganyident
ifi
edbutmissi
ngcapabi
li
tie
scaref
ull
yandwith
inre
ason
● s
pecul
ati
veinno
vationint
omo rera
dica
lideas
.

2.
3 Mor
eexampl
esofbus
ines
smodel
s

Thi
ssect
ionf
eat
ure
san umberofexa
mple
sfr
omd
iff
ere
ntsec
tor
stohel
pexpl
ainthenot
ionofre
lev
antval
ue
cr
eat
ion–whatc
onst
it
utesva
lue,f
orwhoman
dwhy
,sucht
hatt
heybuyt
hepro
du c
tsandser
vic
esinques
ti
on?

Fas
tfas
hionbus
ines
smodel
s
Fas
tfashi
o nimp l
ies‘tr
endy
,fashionabl
eandn ottooexpens
iveton o
tb edi
sposabl
e’.Itre
quir
esc ons
tan
t
cha
ngeso fde s
ignandas pee
dys upplychai
nt hatca
nr e
actt
ot he
sefreshdemands.Typic
all
ydesignswill
beexperi
me ntal
,withmode s
torderqua nt
it
iesandf r
eshcal
lswh ene
verapa r
ti
cu l
ardesi
gnispr ovi
ngto
bepopular
.Twol e
a di
nghighstr
e etnamesinf astf
ashi
onareZa r
aa ndH&M.Buta l
sopopulararetwo
onl
ine-
onlyb usi
nesses–AsosandBoo hoo–wh i
charedis
cuss
edinCa se2.
5.
 2.
3 MOREEXAMPLESOFBUS
INES
SMODEL
S 77

Cas
e2.
5 As
osandBoohoo UK

A
othe
s
re
rr
os and Boohoo a
t
e
a
ta
i
li
i
ng,
l
e r
butt
sar ede
he
c
ya
lini
r
r
egr
er

ng.T
el
owi
he
at ive newc
ngqui
irbus i
c
ne
kl
s
ya
ome
tat
smode
r
i
st o UK
mewhe
lis‘ ri
ght
n ons
As
T hena
c
osa
re
l
e
s
os
meAs
n’;t
ell
s( r
oswa
hebus
e l
a
i
t
ne
e
sc
s
d)c
si
re

os
at

me
edf
snote
tic
r

s
om t
xc
.I
lus
t
hewor
i
st
v
a
el
r
yc
ge t
ds‘
l
ot
edi
Ass
hi
magei
e
ngand
e n

s
fort he t i
me ’a nd ( hi stor i
c al
l
y )i snon- tradi ti
onal .Bot h casual wea r whi chi s‘indi vidual andf un’ , but t
hec ompany
bus ine sse sa rei nt hef as hioni ndus try;t he ya ree nt i
re ly also dec l
a resc onc ern wi the mpl oy eewe l
fa r
ea ndt he
onl ine ,wi th no hi gh s tree ts tor es.T heyf e aturewe l
l- globa lenv ir
onme nt .T arge tc us tome rsa rey oungadul ts.
knownbr andsi nt he irpr oduc tpor tfolios ,aswel lasma ny Salesa rewor l
dwi def rom f ul fil
mentc e ntresint heUK,
own- l
a be li temsa ndt he ypr ov idear out et oma rke tf or theUni t
edS tate sa ndE ur ope.T hec ompanywa sopened
smal lermanuf ac tur ers( andbr ands )whowoul ds tr
uggl e i
nL ondonandi tsUKwa rehous ei sinS outhYor k s
hir e.
toc ompet eon t he irown.T he rear es ca l
eec onomi es By2020–whe nt hebus i
ne sswa s20y e arsold–gl obal
from s izel i
nk ed t oc ent ral
ized wa re hous i
ng,l ogis ti
c s revenueappr oac hed£4bi ll
ion,wi thbr andsf rom s ome
anddi stribut iona swel la si nfor ma ti
onmanagementa nd 850ma nuf actur ers.As osboa st ed2. 7bi lli
onv i
sitorst oi ts
shar e df inanc i
als ystems .Thi sas pe cti swher et hef oc us platfor ma nda round24mi l
li
ona ctivec ustome rsinmor e
oft hebus ine ssl ies;br andi ng,de si
gna ndma nuf act ure than200c ount ri
es .T he r
ei sc ons ider ablebenef itf r
om
ne e d notbe i n-hous e .T he s
ef unc t i
onsc an ea sil
ybe sha ringa crosss oc i
a lme dia .I n2019As osha da lt
ered
de ce nt ralize dt os ma lle rs pecialists.Bot hbus iness eswe re i
tsr eturnspol icybe ca us e‘ t oo manyc ustome rswe r e
star tedby( andc ont inuet ober unby )ent r
epr ene ur swi th ma ni pula t
ingt hee as yr etur nspol i
c y’.
relev antr etailex per i
e nc ea ndwhowe rea blet os ec ur e Ine arly2021As osboughtv ariousbr andsf rom t he
adequa tes tart
-upf i
na nce.Bot hhav es e cure ds ubs tant ial admi nistr
a torsofAr c adi a; i
nr eality,the sewe r
et hebr ands
ex trai nv e stmentonc et he yhadpr ove nt heirmode l. tha tBoohooha dnota l
r ea dybought . Theywer eT ops hop,
ToputAs osandBoohooi nt oc ont ex t:unt ilrec ent ly Topman,Mi ssS elfri
dgea ndHI IT.L i
k eBoohoo,As oswas
fas hiongoodswe ret ypi call
yboughtf rom ( i
)pr emi um buy ingt hebr and,t hec us tomerda taba se,thec ompany
br andbus iness eswhohadi ndependentbout i
que sa nd we bs itea nda c ce s
st ot her ele vants uppl yc hains ;the r e
conc es sionsi n de pa rt me nts tor e s–wi t
hs omedi rec t wa snoi nt entionofr eope ni nga nyhi ghs t
reets tore s.The
salesonl ine–and( ii
)f r
om ‘ hi ghs tr eets t alwar ts ’s uc h pricepa idwa s£330mi lli
on–£265mi l
lionf ort hebr ands
asM&SandNex t,al s owi ths omeonl ines ales ,aswe l
l ands uppor tse rvi
c esa ndaf urt he r£65mi l
li
onf orex i
st
ing
as( i
ii)r et ailgr oupsc ompr i
s ing i ndependentbr ands stoc ka ndpr oduc tsa lrea dyi nt hes uppl ypi pe li
ne.
(Ar cadi a)and ( i
v )r et ail
er sofl owe r-pr i
ceal t
er nat ives , Boohoowa ss tarte dbyMa hmudKa ma nia ndCar ol
suc hasPr imar k,whi c hopt snott oof feronl ines ales , Ka ne i n Ma nc he steri n 2006.I tsma rketv a lue now
andMa tal an,whi chdoes .T ot akes al esawayf rom a l
l of exc ee dst ha tofAs osa ndt henumberofpr oduc t
si t
thes e,ast heex clusiv elyonl i
ner etailer shav es uc c ee ded offe rse xce eds40, 000.T het wobus i
ne ssesa res imilar
i
n doi ng,t hey had t o dealwi t ht he c hal l
e ngesof butdi fferent.T het arge tma rke tist hes a me ,na me ly16-
cus tomer s notbe ing a blet ot ry on goodsbef or e to40- year-olds–butar et heyt hes amepeopl ei nt hi s
pur c has e and t he numberofr etur nsf ora r ef und. agegr oupt ha tAs osa ppea l
st o?Asape rcentageoft he
(I
n2022Boohoos tar tedt oc har gef orr ef unds .)Inno total,mor eofAs os’sr ev enuei sgener at edov ersea s,but
smal lpar t,thes uc ces shasbeent hroughi niti
alc ar ef ul bot hbus ine ssesa rei nt ernat ionali ns cope .Boohoohas
tar get ingt oy oungerpeopl e,mai nl yf emal es ,whoar e abs or bedP rettyL i
ttleT hinga ndNa st
yGa lass ubs idiar y
dr awn byf astf ashi on and r egul arpur c
has esofnew bus ine sses,a ndof fe rst heKa renMi llen,Coa st,Oas is
produc ts ,mai nly, butc er tainlynotex clus ively,forl eisur e. andWa rehous ebr a ndswhi chi thasa l
s obought . Eac hof
Theyi nt endt obe,andar e,‘f as ttomar ket ’wi thnew thes ebr andshasi tsowndedi ca tedc us tomerbas eand
produc tsandnew des igns .Ast hec as ei nChapt e r4( on we bs ite.Cus tome rex pe c tationsf ort hepr oduc tqua li
t y
Hi ghSt reetRet ai li
ng) shows ,a l
l oft he sef ourr eta iltype s oft he semor eupma rk eta ndpr emi um pr i
cebr andswi l
l
hav es uf fer edi nr ec enty ear s
,andpar ticular lydur i
ngt he i
ne v i
t ablybehi gha nddi ffe rentf rom t hee xpe c tati
ons
2020–21 COVI D- 19- dr i
v en loc kdown – at imewhe n of l owe r pr ice own- labeli tems . Boohoo a cquired
theonl iner eta il
er sr emai nedf ul l
y‘ openf orbus i
nes s’. variousot herbr andsi near ly2021.The242- year -old
Thel oc kdownmayhav ebeenawonder f
uloppor tuni ty De be nha mswa sf i
r st,a tapr i
c eof£55mi l
li
on.Asa
fort hem,buti twa sc ertainlynott heonl yr eas ont hey cons equenc e,124depar t ments toreswoul dbec l
os ed
hav ebeens uc ces sful. down.T hi soppor t
uni s tica c qui siti
onwa ss oonf ollowed
78 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

byBur ton,Dor ot hyPer kinsandWal lisfrom theAr cadia 2 How muc hdopar
ticul
arbr andsmak eyouat arget
por tfoliofora‘ di scount ’pri
ceof£25mi l
li
on. cust
omer ?Whatconsti
tutesvalueforyou?
Boohoo pr oduc esov erhalfi tsown- l
abelpr oduc t
s 3Isreputati
onafac
toriny ourde ci
si
on?Ifso,how?
i
nt heUK –i nL ondon,Manc hesterand pa rti
cularl
y 4 Arethereanyr
eas
onswhyy ouprefera‘proper
Leices ter.Some oft he r el
ev antf actorieshav e been st
ore’i
nt hehi
ghstr
e e
ta nds hunonlineretai
l
?
acc us edofnotal wa y
spay i
ngUK mi nimum wa ges.A
typic als tr
ategyi st o buyandt r
ialbet wee n300and
500ofanew des i
gn,r epeatingt heor derifi
ti ssell
ing
wel l.F astt ur
nar oundi sr equiredf rom ma nufacturers
.
Boohoopr omisesnex tdaydel i
v eryforanyor de rsofa n
i
n- stoc kitem ifi splacedbef or emi dnight .
Bef orethev arious‘bi gbrandac qui si
ti
ons’,in2019
As osandBoohoohe ld4pe rc e
ntoft heUK f ashion
mar ketr oughlyi na60: 40r ati
o.

Ques
tions
1 Doyouseey
our
selfas(
arey
ou,i
nfac
t)a
nAs
osor
Boohooc
ust
omer?Why?Whynot?

Swat
chwat
ches
Swa tchwa t c
he swou lda l
s obec l
assifi
e da sf astf ashion.The yha veadi s
tincti
vepr opos i
ti
onf ort heir
industrya ndt he yha vebe enins tr
ume ntalinma intainingt hepopul ari
tyo ftheSwi sswa tchindustry.Swi ss
wa tchesh av ea lwa ysp resen t
eda nima geo fq ua l
ity;f orma ny,ma n yy ea r
sthemo v eme ntsthatarea tthe
he a
rtofq ua l
itybr ande dwa tc
he sha veb eenma nufac turedinSwi t
zerland.Thebr andowne rsaddt hec ase,
face,na mea nds tr
ap.The sequa lit
ymo v eme nt
sa reme chanica
l–s ome time srequiringwi nding,buto ft
e n
be i
nga ut oma tic( sel
f-wi nding) .The ya rea lwaysa na l
ogue–t het imei sa l
wa yss hownwi thhands( but
some time si nvolvinga dditiona lfashionf eatures).Ma nyl essexpensivewa tchesa r
ea vailable.Th es
et el
lthe
time( thema infu ncti
onofawa t
ch!)a ndt heyma ye venl ookl i
keamor ee xpensiveor i
gina l.Theyarer arely
servicedorr epaired.The s ea r
el ikelytoha veaq uartzmo veme nt(andr equireba tt
eries);althoughma nya re
alsoa nalog ue,the yc a
ns ome time sb ed igit
al.Qu art
zmove mentsa retypic all
yl es
se xpe nsiveandmi ghtbe
ma nufactu red‘a nywh ere’.
Swa tchwa tche shaveaSwi ssqua rtzmo veme nt–a lt
houg hs omepa rt
smi ghtwe llbes ourcedint heFa r
Ea st–a ndt hef acesa rec olourfula nddi s
tinct
iv e.Thed esi
gnsmi ghtbeunu sualormor et r
aditi
on alan d
ma nya rec han gedq uit
ef req uen t
ly.Th est r
ap sareo ft
e np last
ic,butno tal
wa ys.Thewa tc
h esc anbev eryslim
(whi c
hma kest hem mor ee xpe nsive)or‘ no r
ma l’s i
ze .The reisana ssumpt i
ont hattheywi llnotber epair
e d
ifsome thingha ppe ns–a lthoughb atteri
e sca nber e placed.Swa tchwa t
c hesa renotc he apa ndtheyh avea
disti
nc t
ivei dent i
tya ndpl acei nt hema rket,some whe rebe tween‘ cheapwa t
ches’a nd‘ expe nsi
veb rande d
wa tches’.Th eyc anb ef ou ndi nd epartme nts t
or e
s,a lthoug htheya remo s
tp romine ntins mall
,d edicat
e d
bou t
ique sins ho ppingma llsandi ndut yf r
ees hopsa ta irports
.

Ret
ailbus
ines
smodel
s
I
cel
and
I
cel
andisafoodret
ai
lert
hatcompl
ementsthemajorhighstr
eetnamesasmuc hascompet
ingdir
ectl
ywith
t
hem.Withanic
heapproa
ch,ite
njo
ysarounda3pe rcentmarketsha
re.Themajo
rs upe
rmarke
tsse
llfr
ozen
f
oodbutdedi
cat
ejust
oneortwoais
lest
othesepr
od uc
ts.Ic
elandspec
ial
izesi
nalargera
ngeoffr
ozenfood
s,
 2.
3 MOREEXAMPLESOFBUS
INES
SMODEL
S 79

inc
ludi
ngreadyme al
sandbulkb uys.Rel
ati
vel
ylow pri
cefroze
nfoodi stheIcel
andp rod
uc t
.Theb u
s i
ness
off
ers‘v
alueformoney’a tve
ryc ompet
it
ivepr
ices–wh ich
,unusua
lly,areroundedoffrathertha
ne ndi
ng
inx9pence.Inno
vati
ve,itisa
lwayswo r
kingwithit
ssuppli
erstopr
od ucenewp roducts–o v
e r200ay ea
r.
Ice
landal
soinvest
sinsta
ffrel
ati
onstoensur
eshoppingcanbeanenjoyable,i
fcold,exper
ience.

Pounds
hops
Poundlandi sperh
apst hebe stk nownb utisj uston eofan umb ero f‘valuere t
ail
ers’o rd i
scounts t
oreswh i
ch
re
presentar eta
ilsectorthath asgrownd rama t
icall
yi nrecenty ear
s,althoug h(aswes e einCh a pt
er4 )so me
pounds t
oresa r
en owb egi
nn i
n gtoc losed own .Alsoi nCh a
pter4wes eeh ow M&Sb egana sama rkets t
all
wheree v
ery t
hingwasp ri
ceda t apenn y–t h
ei nt
e nt
ionwi t
hma n ystore
si nthissectoristoc har
geal o wp ri
cef o
r
ever
ything,wi t
h‘everythi
ng ’focusingo nv ari
ou sh ouseho
ldan db at
hroo mp roducts,althoughn ote xclusi
vely.
Asp roductrangesh avebeene xpande dtod iff
erentia
teinac o mp e
tit
ives e
c t
o r
,someh ighe
rp ri
c eitemsh ave
beenincluded.Anythingmig hta ppearinthesestoresb eca
usetheb usine
s smo delisb a
s edo nsourcing‘a nyt
h i
ng
anywhe r
e’wh ichcanb esol
dp rof
it
ab l
yf orad i
sc o
un tpri
ce.Surplussto
ckf romo therretaile
rswh oa reintrouble,
pl
usimp ortedg oods,arealllik e
lytoa ppear
.Th er angec hangesinl i
newi tha vaila
b i
lityandt heu nc er
taint
y
concer
n i
ngwh atmights ud
d enlya ppearisa t
tracti
vet osomec u st
ome r
s.Th ec ert
aintyi stheprice,wh i
chwi ll
al
wa ysbelo w,evenifitismo ret hanap ound ,wh i
c hputsgreatpressur
eo ns ourcin
ga ndthes upplyc hain.The
marginsong oodssourcedov erseas
, f
o rexamp le
, ar
ea ff
ectedbyc urr
encymo veme nt
s ,
wh ic
hme an sBrex i
t i
nthe
UKh a sbeenac ri
ti
cali s
sue.Th eremi ghtbea ne xpectat
ionthats uc
hs t
o re
swo uldh a
v ead own -ma rketprofi
le,
butthecarefulchoi
ceo fhighs tre
etloc a
ti
o nsh e
lpsa ll
evia
tethi
s .Thatsaid,t
h esediscoun tst
oresaremo reli
k el
y
t
oa ppearat t
he‘poorerend’o ftheh i
g hstre
etwh er
er ent
sarelowe r
.Asi sthec asewithc harit
ysho ps,thereisno
si
ngletargetma r
ket
;thef or
ma tatt
ractsawi dera ngeofc u
stome r
sloo k
ingf oras urpri
sea ndab argain.

Bui
ld-
a-Bear
Th efoun derofBui ld-a-Be a
r,Ma xi
n eCla r
ke ,devel
op e
dane wr et
a ilformatwhe ns her e
a li
zedt ha ti
fr e
tail
ing
isfun,p eopleb u ymo re;shea lsor eal
izedh o w muc hc hil
dre ne njo yedc r
aft
sa ndma ki ngt hing s
,a nda l
so
howa t
tach edt heybe c
a met os t
uf f
eda nima ls
,e spec
iallytedd yb ea rs.Shes awa no pportunityt ob ringthese
together.Sh ebe l
ievedh erkeyc ust
ome rsf orwha tsheha di nmi nd,c hil
dren,woul dj udgeh e rlesso nthe
fin
a nci
al performa nc eandmo reo nwh a
t t
hei n-s
toreexpe r
ien c
eme a nt t
othem. Poten ti
alin vestorswo uldthink
diff
e r
ently,ofc ourse,sot hebusinesswo ul
da ls
on eedtob er une fficientl
y.Thef i
rs tBui ld-A- Be arWo rkshop
wa so p
e nedinStLo u i
s,Mi ssouriint helate1 990s;thei d
eawa stha tchil
drenwo u ldb uildt heiro wns ofttoy
.
Fore acho neo fthemi two u
ldb eau n iq
u eex peri
ence.Th eywo uldb ea bletoselectab ears ki
nf roman u mber
ofdi f
ferentone sa vail
ablea ndth enhe lpo peratethema chi
net h ats tuf
feditandg av eitf orma nds ubstance
.
Th eywoul da lsos electahe artt hatwo uldb ep oppedi nsidea ndav oi
ce.The ywou lda l
soh elptos ealthe
fin
ishedt oya ndg ivei tan ame ,wh ichwo uldb ep r
intedo nat aga nda t
tached.Ast heb usi
n essg rew,mo re
andmo rea nima lswe r
ema dea vail
able.Atf ir
s t
,parentssaidi twoul dnotwor k,bu tc hil
d rena ske dwh erethe
wo rkshopwa sa ndwh enc ouldthe yg o.After1 5y ea
rs,therewe reo v er400Bu ild
-A- Bea rWo rkshopsa round
thewor ld,rou ghly60pe rc ent
int heUni tedSt at
esa n
d4 0pe rcento v erse
as.The r
ei sami xo fc omp a
ny -
own ed
andf ranchiseds t
ores.Byno wt herea reov er700mi l
lionb ea r
sa ndot heranimals‘ al
ive ’some wh e
rei nthe
wo rld
.Th eb u sinesswo uldnoth aves ucceededwi thouts ol
ida ndr e li
a bl
eretai
lsys tems–t hatMa xi
neCl a
rke
wa salreadyf ami li
arwi th–a nds trongr el
ationshipswithh ers up p
lie rs,e
special
lyth o sewh osu pplythes kins
.

Ser
vic
ebus
ines
smodel
s
Uber
TheUb erbra
ndr epr
ese
ntsthe‘gigeconomy’a ndith a
sa chievedglobalpro
mi nenceinar e
lati
velys hor
t
per
iodofti
meb y,inef
fect
,usingte
chnologyt or
einve
ntani ndustr
y.Peopleal
wa ysneedtaxi
sb utt
he yma y
notal
waysbehappywi t
hthosetaxi
stha
ta r
ea vai
lab
le.Ma y
bet hecarsareoldordirt
y;maybetheyd on’tf
e e
l
saf
e,es
pecia
ll
yifthedri
versseemtobetakingaroundaboutroute;maybethepric
e ssee
mt oohigh.Ub e
rwa s
80 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

fi
rsts t
artedi nSa nFr an ci
s coin2 010 ,wi thNe wYo rkfol lowi ngi n2 011 ,an dPa ri
sa ndLo ndo njoiningi n
201 2.Buti tno wha sagl o balreac ha nde mb racesI nd i
a, Chi naa ndSout hAf ri
caa swe l
la st heUni t
edSt ates
andEur ope. I
tha sdive rsif
iedi ntob oatsa ndhe li
copt ersfora dditi
o nal reve nuege ne ration; Ub era l
sopr ovides
del
iv erys er
vi c
e s
.
I nst
e adoft he‘ t
radi t
iona l’wa yso ffindi ngat a xi( sucha ss t
re ett axir anksorl i
stedt e
le ph onen umbe r
s
or,inso mec i
ties,‘flaggingonedo wn ’int hes treet),theUbe rbus i
ne s smo delre l
ie sona na ppwhi chpe ople
willd own loado n toth eirs ma r
tphon ea ndt h enen li
s tasa nUb ers ubs cribe r
.On cer eg is
te r
e d,a l
lcustome rs
reallyne edtodoi so pe nthea pptoa le r
tUbe rthatyoune edat axi;thel oc ation( anda ssume dp ic
k-upp oin t
)
isautoma t
icall
yc onfirme d. Ofc our s
e ,thisba s
icmod elca nber efine d.Thec omp ut e
rmod e lisp rogramme d
toide ntif
yt hen e arestf r
e edr i
ve r–wh owi lle f
fec ti
velybes emi -inde pe nde nta ndc ontrac tedt oUb eran d
recordeda s‘ ond uty’. Nomone yi se xcha ng edbe twe ent hedr i
vera ndt hec lient;thisi sa llha ndl e
db yo nline
tr
ans act
ions .Ther eali
tyt hatUbe rn eedst obel icens eda sapr ovide re nsur essomec on tr
olo ve rstandards.
Cu s
to mersc anc hoo se(a ndregister)thet yp eofca rtheyp refer–s aya‘ blackc ab ’,ase dano ra nSUV–wh ich
comea t dif
ferentp ri
c ep oints.Pri
c esva ryb yth etimeo fda y,c urr
ent de ma n da ndth en umb ero fd ri
v er
scu rr
ently
ond u t
y.On c etheyi np utth ei
rd esiredd estination,cu stome rsa reto l
dt hewa it
ingt imea n dt hep ri
ce.Th eyc an
the
na ccepto rdec li
ne–o rrefine.Wh end e ma nds urg es,thec omp uters y st
ema lertso ffd utyr eg ist
eredd ri
vers
whok no wt hatp riceswi llb ea t‘s urgel evels’a ndt heyma yo ptt og oo nd uty.No rma lo ff-p eakp r
icesa re
perceivedt ob el owe rt hanc omp etingr an kp r
ices.Th erea r
es pec ialr atesf oru n acco mp an iedc hild
re nan d
reg
is t
eredp ensione r
s,af ormo fpriced iscr
imi n at
ionwh ichi se asyfort hemo d eltoa dmi nister(re f
e rtoTable2 .
3 )
.
Ca r
sa r
et racke da ta l
lt ime sus ingGPS.Cus tome rsa repr ovi de dwi ththena mea ndpi c
tureoft he
dri
v erwhoi sc omi ngf ort he m –a g ainthe yc anreje ctift heyha vea nyc onc ernsa nda s
kf ora na lte
rna ti
ve.
Driv er
sl argelywo rkwh e nth eywa nttowo rk;the yc anr eceivec e rtainbo nusp a yme ntsf rom Ube rift hey
wor kwh end ema ndi sl ow. It r
ema i
n sap oi nto fde b at
ewh etherthe ya retrulys elf-empl oy edore mp loyee s
.
Leg all
y,a tl east
,t he70, 000UK dr iversa rec lassifieda se mpl oye eswi t
hmi nimum wa gee ntit
leme nts

T
abl
e2.
3 El
ement
soft
hebus
ines
smodelc
anv
asappl
i
edt
oUber
I
nfr
ast
ruc
tur
e TheUberapp
Loc
ati
ons
Carsa
nddriv
ers
Ac
ti
vi
ti
es Productdevel
opme nt
Ma rket
ingandf i
ndi
ngcust
omer
s
Vetti
nga ndhi
ringdri
ver
s
Ma nagingdri
verpayment
s

Va
luepr
opos
it
ion Li
mitedwai t
ingti
me
Compe ti
ti
vepric
e s
Cashles
srides
Rel
ati
vec ust
ome rsaf
ety
Keyr
esour
ces Thepl
atf
orm
Thecar
sanddr
iv
ers

Cus
tomers
egment
s Peopl
ewithoutt
ransport
Peopl
elooki
ngto‘dri
veins t
yl
e’
Peopl
elooki
ngforlow pri
ces

Re
venuema
nage
ment Sur
gepr i
ci
ng
Dri
verpaymentsonlywhenonaj
ob
Dri
versmaint
ainthei
rowncar
s
Cus
tomerr
elat
ions Soc
ialmediaf
eeds
Onl
inerat
ings
 2.
3 MOREEXAMPLESOFBUS
INES
SMODEL
S 81

(f
orthehourstheydri
ve),t
og et
he rwit
hhol i
dayands i
ckpaya l
lowa ncesandap ensi
on.Theyremainfre
et o
choosewhe ntheywork;t
he yarenotp aidwh entheya r
ewa i
ti
ngf orfares.Therel
evantle
galrul
ingals
op ut
pres
sureonot herbusi
ness
e sinthegi ge conomy ,i
ncludi
ngthosei nthene xtexample.I
n2 022,ques
ti
ons
wereraise
da boutt
hee t
hicsandl egal
ityo fpolit
ica
llobbying(inEur ope)byUbe r.
Ofc ourse,t
he‘devi
lisinthed etai
l’andt hemo delmustworkr eli
ablya n
dc ons
ist
entl
y.Tabl
e2 .
3shows
hows omeo ft heel
ementso ftheb usi
ne ssmo delcanvasmightb eus edtos ummariz
et heUberoffer
ing.
Thetableisnotoff
eredasfull
yc omp r
e hensi
ve.

Del
iver
oo
De li
v ero o( l
ikeJ ustEa tandUb erEa ts)isa n othe re xamp lewh ereI Tha sb ee nu sedt oc re
atec usto
me rvalu e.
Th iss ectorb ene fitede normo uslydur i
ngt heCOVI D- 19l oc kdo wns ,whe nma nyp eoplereli
e do ntakea
wa ys.
De li
v ero owa se stabli
shedi nt heUK b yt woUSe n tr
e pren eursi n2 0 13.I th ase xpa ndedq uicklytocov e
r
200c it
ie sinEur ope ,theUni tedAr abEmi rates, Hon gKo nga ndSi ng apor e
. Simpl ya na pport hewe bsi
tec an
beus edt oor de rf oodd eli
veries(bre a
k fast,lunc ha nddi nne r)f rom a‘ fav ourit
e ’restaurantfromawi dera nge
onof fer.Cha inr estaurantsincludingByr on,Ca rlucc io
’s ,Wa gama maa ndZi z zi
’sa llpa r
ti
cipa t
e.Cu st
ome r
s
orde rfromt heme nu;s elf
-empl oyeddr ive rsa rea lerteda ndt he yt henc o
llecta ndd eli
verthef ood.Cus t
ome r
s
payf ort heirf oo dpl usaf eef orthede l
iv ery;t her estau rantsp a yac ommi ssiont oDe li
veroo.Thi sbusine s
s
mo d elt apsi n t
ot h eincreasi
n gp refer
e nc eo fma n yp eo p l
ea ndf ami li
e stomi n imizet het i
met heysp end
prepa ri
n gme a lsa thomebu twhoe i t
herd onotwa ntt oe a tou tora r
enotr ealisti
callyi napos iti
ontod os o.
De l
ive r
o o,b en efit
ingfromt hep ione eringwo rko fUb er,p rovide sane x amp leo fh owd is
rup t
iveinnovation
cans pa wnav a rietyofr el
a t
edopp or t
uni tiesforo therb us ines ses.Hi st
oric al
lyoneoft heprobl emswi t
hs ome
fastfoo dhomede liverie
swa si nthepa c ka ging. The‘ con taine r
s’we reof tennot veryr obust
;s ome t
imest hey
leake d( typicallyf at
)a ndthef oodd idno tstaya swa rma sitmi gh tintrans i
t.The r
eha vebeeni mproveme nt
s
byi ndi vidua lbus inessessucha sDo mi no’ sPi zz a,b utt hee me rgen ceofb usines s
e slikeDe liverooandJ us t
Eat,wi ths eriousgr owt hpotential
,a tt
rac tedt hei nt er
e sto fs pecialistp a
c kagingb usinesseswhoha veseto ut
tod es i
gns pecia lc art
onsa ndc ontainersf ord iff
e rentt ype so ff a
s tfood. Wh atmi ghtb eidealforapi zzami g ht
notwo rkp articula rl
ywe l
lwi thame alfro mWa ga ma ma .

Nando’
s
Onerestaura
n tchai
nwi t
hav e
ryd is
ti
ncti
ve–a ndv erysuccessful–businessmo de
lisNa ndo’
s.Nand o’ssel
ls
chi
cken,ma ri
na t
edinaperi-per
isauce,toa( l
a r
gely)rel
ative
lyyou ngclientele,of
tenfamili
es.Thebu si
nessis
bui
ltar
ou ndcu st
omerandemp loyeesat
isf
action.Thea t
mo sphereisfr
iendlya ndmu si
cplaysinthebackground.
Cust
ome rcho i
ceiswideandna rr
owa tonea ndthesa metime.Chi cke
nc anb eo r
d e
redasbu r
gers,
pieces,wings
orwho l
eo rh alfch
icke
ns;a ndthereisar angeofbot ha ccompa ni
me ntsands picyandn on-spi
cy(b utta
sty)
sau
cesfroma roundthewo rl
d.Thec h
ickenc anb ef r
ied,gri
lledorba rbeque d
.Th er
ea reo v
er2 0
0Na ndo’s
inth
eUK–b utthi
sisagl obalchainthatb e
g a
ni nSo uthAfricain19 87.Cu stomersorderandp ayf ort
heir
foo
da tas ervingcount
erb utitistabl
e-served.Itarri
vesquick l
y–b utthereisnop ressur
et oeatan dleave
qui
ckly.Custome r
smightbelargelyfr
omyo ungerageg r
o ups,
b utthe
ya reno tst
rati
fi
edina n
yme aningfulway.
Cele
brit
iesandhi gh-
ear
nersa r
ejustasenthusias
ticaboutNa ndo’sasarep eoplelooki
ngfora naff
ordableme a
l.

Lei
sur
ebus
ines
smodel
s
LondonZoo
Inthec a
seofLondonZoo(feat
uredi
nthen e
x tchapte
r),wec a
nseeevidenceofdif
fi
cul
tdeci
sionsconcerni
ng
‘product
s’andcust
omers.Withoutatl
eastsomer etail
ingact
ivi
ti
es,Lond onZoowou l
dbeoutofb us
in e
ss.
Ap ar
toftheZool
ogic
alSo c
ietyofLondon,thez ooh a
sak eysci
enti
ficpu r
pos
erelat
edtoconser
vationand
thepreser
vati
onofenda
ng e
redspeci
es.Howe ve
r ,
thosea ni
malst
hatareparti
cul
arl
yattr
act
ivetomos tp
a yi
ng
visit
orsareof
tennott
hemos tendange
red.Mor eover,ther
eisadutytoe ducat
easalargepropor
ti
o nofthe
82 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

vis
itorsarec hi
ldren.Ma n
yna t
iona
lanimalcollec
tionsaroundthewor l
da r
emuc hmo reheavilysubsi
dize
d,
butinr ecentye a
rsLon donZooh asno
tb ee
na llowe dtobecomeg r
ant
-depen
dent.I
th ash adtoe s
tabl
is
ha
rev
e nue-generati
ngb usi
nessmodelwit
houtlosings i
ghtofitsorigi
nsandfundamentalpurpose–wi th
inthe
constrai
ntofi tslocat
ioninaRo ya
lParkwhi c
hs eriousl
ya f
fectsanypossi
bil
it
yo fexpa n
sion.LondonZoo
has,ther
e f
ore ,
ha dtobuil
damode lwhichbalancesc on
servat
ion, e
ducat
ionandente
rtainme nt
.

Ci
rqueduSol
eil
Theb igt opt r
a ve l
lin gcircus esoft het ypepi one eredb ys ho wpe o plesuc ha st hel e gend aryPTBa rnu m–a nd
wh i
chf ea ture da n ima l
s, t
yp ica l
lylion s
, ti
ge rsan de lep han ts,a l
on g si
dea c rob at
sa ndt h eu bi
q u
ito usc l
o wn s–
sti
llexis t,b utt he yc annot comma ndt hea udienc est heyonc ed id.Andt he rea ref ewe ro fthem. Thema inone s
incl
udet heRi n glingBr othe rsa ndtheRus siana ndChi nes eSt a tec i
rcus es.Ove rtime ,l ei
sures pe ndingh as
incr
e ase da ndc ompe ti
tionf ort he‘ entertai
nme nts pe nd’ha sa lsoi ncre ased–b uta tthes amet imec on sume r
tast
esh av ec ha nge d.Spe cta cularspe ci
a li
sta ct
sf e aturinga nima lsbe camep opu lari nLa sVe g
a sma nyy e a r
s
ago,a lthoughwhe nawhi tet igerma ule don eoft h epa rt
ne rsi nt heSi egfr ieda ndRo ySho wi n2 0 03,s er
ious
questionswe rer aiseda boutt hem.The rewe re,ofc our se,a l
re adyma nya ni ma ll ov erswhowe r
ec r
iticso f
showss uc ha st hi sone .Me anwhi l
e,s omec l
aimt ha tthec ircusi ndustryh adb ee n‘ reinvented’wi than e w
busine ssmo de la ndwi t
ho u tn eedinga nima ls.
Du bbe d‘ theNe wAme ricanCi rcus’ ,CirqueduSol e i
lwa ss t
a rt
edi nCa nadai n198 4,thei nve nti
ono fa
sma l
l groupofs tre etperforme rs.Byt hee ndoft hec entury, the yha de ntertaine ds ome30mi lli
onp eop lewi th
ar a
n geofi nnov ativ eandda r i
ngp rod uc t
ions ho wswhi chc ombi ne dc ir
c usa c
tswi thp erf
ormi nga rt
s.The y
typicallyf eatur ej ugg lers,tra mpo l
inists,trape zea r t
istsa ndc lowns–whowor kt og etherrath ert hanh a ve
indi
v idu alf e atures pots.Thes howsa reope ratica swe l
la sa croba ti
c,t he ya rec hor eographed ,the ys tr
e tch
theta l
e nt soft hepe r
forme r s,theya rev i
sua l
lyi mp r
e ssivea ndt he ya llh aveac leart he meo rs tory.Mu s ic
,
opera,da n cea nda crobaticsa rec ombi ne dintoahol ist
ics ho w. Thes ho wsa red if
fe r
e nta ndinno va ti
ve–a nd
rela
tive lyh igh lyp rice
dwi thf ew pricec onc ession sf orc hi ldren–a nds oCi rqued uSol eilen thusiastsa re
lik
elyt oa ttendr egu larl
y,i fth eyc a
nge ttowh eret hes howsa re.
Or i
gi na lly,thef ocuswa sonat rad i
tional mo vea ble‘ bigt op’ ,but ver yq uicklyCi rqueduSol eilmov edi nto
dedica t
e dr e side ntt heat
re s,es pecial
lyi nLa sVe gas ,anda lsoi n t
rod uce ds omes ho wst ha two r
ke di ne xisting
venue ss u cha st h eRo yalAl b ertHa llinLo n d
on ,wh ic ht he yv isitreg ularly.La sVe gass eeme da no bviou s
earl
yt a rge t
; no wt he r
ea rea lwa yssev erallon grun nin gs howso no fferindi f
fe rent La sVe gashot els,includi ng
somebui lta roundmus ic,na me l
y‘Li ve’( Th eBe a tles)a ndVi vaEl vis.Wa ltDi sne yWo rl
dRe s ortisa no ther
home ;t ha ts aid, sho wsc anbes eenallthet imei nv a ri
ousc ount rie s.CirqueduSol eilisc learl
yas ucc essstor y
,
butn ote v ery onea greesth eyh aveac t
ua ll
y‘ reinven tedt h ec ircu sind ustry’.I tof f
e rsa nop portun i
tyt os eea t
wo rkt hef ou rBl ueOc eana ctiontheme so felimina t
e, red uce ,ra i
s ean dc reatei nt hes earchfo ran ewv a lue
propo sitiona ndadi sti
nc t
iv ec ompe titi
vee dge .
ELI
MINATE:Starper
former
s;animalshows
REDUCE:Funa ndhumour;thri
ll
sandda nge
r
RAISE
:Uniquev e
nues
CREATE:Themes;re
finedenvi
ronment

Thi
sre
v ampedvaluepro
posit
ionallowedCi r
queduSole
iltobroadenit
sappealtot
hea
tre
goersand
ot
heradult
sseek
ingsophis
ti
catedentertai
nment,r
ath
erthanthetradi
ti
onalc
ircusa
udie
ncesoffami
li
es.
Asaconseque
nce,itwasablet
os ubstanti
all
yrais
eti
cke
tpric
es.

Os
ter
wal
derandPi
gneur(
2010)

Theoper
a
Glo
ball
y,ope
racanonl
ysurvi
vei
fiti
ssubs
idi
zed,
sotheb
u s
ines
smode
lmustemb
r a
c et
his.
Th esubs
idyca
n
befr
omg ov
ernment–intheUKtheArt
sCounci
lacc
ountsfors
ome30pe
rc e
ntofthebudgetatTheRoyal
Oper
aHo us
e–o rcor
pora
teandp
riva
tedonor
s.
 2.
3 MOREEXAMPLESOFBUS
INES
SMODEL
S 83

Cus tome rsha vet y picall

yb eenwi l
lingt opa yv e ryhighpr icesf orthebe s ts ea t
sa sl on ga st hequ a li
ty
ofthepe rforma nc eme ritsit.An dma nyope r a
-g oe r
sa redi sc
e rning.Bu thighpr ice sine vitabl yl i
mi tt he
appe al.Inpa rt,op erai se xpe nsiveb e ca usei tde ma nd sal argen umbe rofs in gersa ndmus icians .I tis
poss i
blet oa tt
ra cta ud ienc e
si npa rticula rcitiesb utnots ma l
ler
,re gionalthea tres–a ndthe rea rev eryf ew
extende dr un s
.I nt heUK,‘ ordina ry’s ea tpricesf orTheRo yalOpe raHous eCo ventGa r denr i
set oove r
£16 0–a l
th ought hec he apestr est
r ictedvi ews e atsc ansome t
ime sbebough tf or£3 .TheMe tropo litani n
Ne wYor kha st oppr iceso fo ve rUS$30 0.Butop e raho usesha vet ob ema inta inedt hr ou ghou tt hey ear
andor chestrasr etaine d.The ya ren otgo ingt obef ullofc us
tome rse veryni gh to fthey e ar;th ema rke tis
tool i
mi tedf ort ha t
.
Ope rah asl onge njoye da ne li
tis tima ge;ope ra -
go ersa reso-calleda fi
ciona dos .An dye tther ealityha s
change di nr ece ntye ars.Theope ra‘ p roduc t’no we xtendswe llb eyon dthewo rld’sl eadin go pe rah ous es
.
Thec hangebe ga nwhe nNe ssunDo r mawa su seda st heth ememu sicf orthe1 99 0f o otballWo rldCu pa nd,
ont heb ac koft his,t hec on certby‘ TheThr eeTe nors’wa sbroadc asttot hewor ldont e l
e vision,a ndt he
accompa nyingCD b ec amet hebe st- selli
n gc lassicala l
b um ofa lltime .Ticketsf ort oday’ sl eadin gt eno rs
,
sucha sRobe rtoAl agn a,An dreaBo c ellia ndRol andoVi l
lazon,wi l
l quicklys e
llo ut .Re cent l
y ,mor epopul is
t
singerslikeLe sleyGa rret
t,Rus sellWa tson,Al f
ieBoea ndKa therineJ enkinsha vebr oughtope ra t
ica r i
a sto
ane ver-wide ra udie nce .
I
not herwor ds ,theope r
a‘ pro duc t’no we nca psulat
e sCD a ndp opulart ele vi
s iona swe lla sa c t
ual
performa nce sforagr o winga ndc ha ng ingma rket.Thel eadings i
ng ersh aveb eenv eryc ar efully‘ pa cka ged’
andma rketedtogi vet hemawi dera ppe a l.Inaddi t
ion ,showi ngli
v eope raperforma nc e
si nc i
ne ma sthroug hout
thec ountry–a tp r
ic esn otmuc hh igh e rth annor ma lcinemat ickets–h asma deope rahous est ooe xpe nsive
sucht hatpe oplec hoos en ottogob e caus eoft heo ve r
allcos t
.Theb usinessmode lh asc er
ta inlyc ha ng edb ut
ther
ea r
es til
lc ha l
lenge s.

TheAndr
éRi
euOr
ches
tra
Simi lart ot heo pe r
a ,c l
a s
s i
calmus ich asb e enma demor epop ula rbys uc hinte r
ve ntion sa st hel auncho f
theCl assicFM r adios ta t
ion,wh icht ypi callyfeatures‘bit
e-sized’p ie c
e sofmus i
cr athert hef ul lwo rks .In
partlink e dt ot hi s,fil
m mus i
cha sbe enr e
c ognizeda sc l
assic
a lmus i
c ,andt hisha se ffectivelyi nc r
ease dt he
ma rke ta ppe ala ndr ea ch.Ag a i
n ,lik etheo pera(an db al
let)
,c lassicalo rc hestr
a s(an dc onc erth a l
ls)relyo n
spons o r
shi pa nds ubs i
di es.Byc ha ngi n
gt hepe rcept
iont hatcla s
s icalmu sicc anbef une ntertainme nt–a nd
notjus tf ort hee lit
ea n da fici
ona dos–And réRi euh asc r
eatedamul t
i-mi ll
iondol larb usine sswhi chreq uires
noe xt ern als upp ort.Heha sd esigne dapr o ductthatha sawi dea ppe al;hec all
sh isor che stra‘ Th eJoha nn
Straus sOr che stra ’
,butt heypl ayamu chwi de rrepert
oire.
Hi sc onc e rtsc ertainlyf eatur et radi t
iona lclassicalp i
ec es,buth ea l
soi nc lude sl ightc lassi
c sa nd
orche stration so fpo pul ars ongsa nds howt une s(ma nyofwhi c hh ea rr
a ngesh ims elf).Si nge rsa ndda nc e r
s
accompa nyt hemus icians .Hiso rc hes t
rac ompr ises55pl ayers.Het argetsc ustome rsofa llage swh os i
mpl y
enjoymus ica ndmu sic altheatrebutwhope rhapsdon otenj oyt he‘ gi gs’whe r
emus ici spl ayedl ou dly
andt hea udi enc ei smor el i
kelyt os tandt hantos it.Hec a
nf illa rena sa swe l
la sot he rc onc e r
tve n ue s
;
his8 5( ors o)a nnua lc onc ertsa ttractac ombi neda udienceofs ome70 0,000p eople.Hi ss howsa rea lso
stre
a me dt oc ine ma s,a ndh eha ss oldmor emi l
li
onsofCDs .I tisf un,l i
ve l
ye nte rt
ainme nte xe cutedv ery
we l
l.Th emus iciansa rea llexp ertp laye r
s;t hes howsa rec ol
ou r ful.Ri euc ond uctsf romt hef r ontbuta lso
(fors omepi e ce s)pl aysl eadvi ol i
n.The r
ei saf ami l
yf eeltot hec onc erts,reinforcedbyt hef a milyf eelo f
theor c he st
ra ,wh ichc ont ainss ome13c o uplesa mongi t
s5 5p laye rs.Pe oplewhoa ttenda ree ncou rag ed
tofe elc omf or tab leinc asualdr e ss–u nlikec er
tainc l
assicala ndop erape rforma nc eswhe r ef orma ldr ess
isder ige ur.Bye xe rcisingto t
a lc ont r
o lofbo t
ht hemu si
ca ndt hec onc ert
st hems e l
v es, An dréRi e
ui sa n
unus ua lc ombi na t
ionofal eadingc ompos er/ar
range rsucha sAndr ew Ll oydWe bbe ra nda ni mpre sario
sucha sCa me ronMa ckinto s
h.
Ifwea gainus etheBl ueOc e anc r i
teria,wec ans eeho wRi euha se l
imi nateda nys tarsolo istso rconduc tor s,
reduc edt heor che strato5 5pl aye rs,c r
e at
e da udiencep art
ici
pa tiona ndr a i
seda udi ences iz es(a ndr e
v enu e)
bypl a yingi nl argea rena s
.
84 CHAPTER2 THEBUS
INESSMODELANDTHEREVENUEMODEL

Manc
hes
terUni
ted
Ma nchesterUnit
ed–l ikeBarcelonaandRe alMa dr
idan dcertai
no t
herleadi
ngEu rop
ea nc l
ubs–h asbecomefar
mo r
et hanas ucce
ssful f
ootba
llclub.I
th a
sa nesti
ma t
edv alueofsome£ 3b i
ll
ion.Iti
sac ol
lec
ti
ono fdiver
sif
ied
butrelatedacti
vi
ti
est hatcanbea ss
o c
iate
dwi thad i
sti
nc t
iveb r
and–ab ra
ndwh ichsignifi
essuccess,s
uchthat
ass
o cia
tionwi t
hitautoma t
ica
llyimp l
iesbeingpartofsome thi
ngthatissucces
sful.
Ma nchest
erUni t
edma ynot
beu niqueinwh atitdoe s
,butitsti
llat
tract
sfansa ndloya l
tyaroundthewo rl
d.TheMa nche
sterUn i
tedbrand
re
flectshighq ual
it
yb ot
ho nan doffthep it
ch–a ndc on seque
n t
lycustomersexpecttoh avetop aypremium
pri
ce stob uythi
sassoc i
ati
on.The‘ cor
ema rket’mightb ethe70,000plusfanswh oturnu patOl dTraff
ordfor
Premi e
rLe aguema t
che s,b
uttherearema nymo repeoplea l
lroundthewo rl
dwhoa reinterest
edinh avi
ngsome
partofthissucces
sstory.Somef anstr
av e
llongdist
a n
cest oatt
endtheh omema t
c hes
;s upporti
np art
softheFar
Eastisfan a
tic
al.I
nPo rt
erte
rmino l
ogy,Ma nchest
erUni tedisveryclearl
ydif
ferent
iat
e d–a ndveryp r
ofit
abl
e.

Soc
ialbus
ines
smodel
s
Soc i
alv enturesh a
v es oc i
a lobject
ives,suc ha spo vertyr e
duc t
ion( Se el o
sa ndMa ir,2007) .Byc i
ti
n gBo dy
Shope ar
lie rinthec hapt er,wed rewa tt
e ntiont ot hef actthats omeb usinessesa ndb usi
ne ssmo d el
sa re
valued ri
v eni nthewa yt he yb ui
ldv alueforc us t
ome rs.Ont heo neh a nd,weh a v
et hev al
u es(andb eli
e fs
)
thatdrivet hede si
gnoft hep roductsa ndt hewa ytheb usinessc onduc tsit
s el
f;ont heo ther,weh av ewh a
t
iti
st hatc onsti
tutesv aluef orthec ustome r.Weme nti
one lse
wh e
rei nt heboo kt hattheset wod ef
initi
on sor
int
e r
pretationso f‘value ’a renotexa ctl
ythes ame ,butthe r
eisar elationshipb etwe enthe m. Th eargume n t
s
aree xpande dinCha pter3wh enwed iscusspur pose.He rethef e
a turedc aseonSe l
c ohighlightsthedr iving
socialpurpos eofs omebus inesse
sa ndf l
agst ha tthe y
,liketheo pera ,ma ywe llne e
ds ubs idi
e s.
Thev alueshe ldbyt heb usi
ne sso wn ersa nde xecut
ivesma yt he mselvesc ons t
itutev al
uef ors ome
custome rs.Butot he rcus tome rsma ynotc on cernt hems elve
swi tht hev alueshe ldb yt heb us i
nesso wn ers
;
theyma ys implyliket hep roductors e r
vic ef orwha titgivesthem.Somec ustome rsar eattract
edt oBo dy
Shoppr odu ct
sb ec
a uset heyus en at
u r
a lingredi entsandf ocuso nbe inge nvironme ntall
yf riendly;othersb uy
themf ormor efunc t
iona la ndpragma ticrea sons .The yjustli
ket hem!
Fors uchb usi
n e
s sesth ere v
enuemo deln eed stob ee x
p andedtoe mb raceth esoc i
alvaluee leme ntalongside
the‘numbe rs’andt hef i
na nc i
alprofit
ab i
li
ty .

Di
vineChoc
olat
e
Thema i
nc hocolat
eb randsi ntheUKa nde lse
whe remi ghtbeCa dbury’san dNe s
tl
é,b utth
erea r
ec l
earnic
h e
opportuni
tiesaswe ll.Di vineChoc o l
ateisma r
keteda s‘heav enlyc hocolatewi thahe ar
t’.Itis
,though,a
Fai
r t
radeso c
ialenterpr
ise ,oneo fan umb erinthisindus t
ry.Th eb usinesswa ss etupi n1 997byaf armer’s
co-operat
iveinGh ana,andt hefarmersretaina45p ercentshare.Thel eado wn erisaDu tchFairt
radeent
erpri
se,
buttheb u
s i
nessisba se
di nt heUKwh eretherearearoun d2 0emp l
o yees
.Ma n uf
act
u reisclosetowh er
ethe
cocoab eansaregr o
wn .TheEur opeanturnoveriss ome£10mi lli
onp erye ar,b utt
heUK c hocolat
ema rket
alo
nei ssome£4. 6billi
o naye ar
.Bu tDivineCho colat
eisa vail
ab lei
nl eadings uperma rket
s,incl
udingTesco,
Wa it
roseandAs d
a,andi tp rovidesown- l
ab e
lp r
odu c
tstoSt arbucks.Th ec oco abeangr owersa r
eg uar
ante
ed
afairpric
ef orthei
rb eans,a ndtheyr ec
e i
vea nnualdividends;asac onseque nce,custome r
swi l
lg e
neral
lyb e
askedtop ayapr emiumpr ice.Divin
eChoc olat
eise x
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Comi
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Th eBBCi ntheUKt yp ic al
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