1. HOW DO BUSINESSES
MAKE MONEY?
24 types of business models and 7 ways in
which businesses differentiate themselves
Business Models
Differentation
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STRATEGY
A short course on Business Strategy
and Business Models
Balaji
Viswanathan 1
Brought to you by : www.zingfin.com

2. PART 1: BUSINESS PART 2: BUSINESS MODELS
DIFFERENTIATION
Businesses need to differentiate Businesses models describe how
from their competitors to sustain an organization creates value,
in their industry. how it is delivered, and how
that value is captured.
There are 7 different ways to
differentiate from your There are 24 main types of
competitors. business models that the
majority of organizations in the
world use.
Course Organization 22

3. ----------------------------------------- ------
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SECTION I: HOW DO BUSINESSES
DIFFERENTIATE
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3
Unless you differentiate, you become a commodity. Once you
become a commodity, your profits fall through the floor. Every
business tries to avoid this condition.
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4. HOW THE WORLD LEADERS WORK
7 Ways to Differentiate from your Competitors 4

5. DIFFRENTIATION 1: QUALITY
Companies like Apple, Tiffany, Prada, and Steinway Pianos
differentiate themselves in producing the best quality product
you could buy. There is a segment of customers that are
willing to pay a premium for quality.
To build a company on this differentiation, you should
structure your company processes around product innovation
and testing. Quality control is paramount for those who want
to be differentiating based on this.
5

6. DIFFRENTIATION 2: DELIVERY
In many industries, timely delivery of products and services is
the key differentiator. Fedex and UPS (the world leaders in
logistics) are the obvious examples. Here you build your
strengths on extreme engineering the whole chain.
There is a lot of Operations Research involved in getting the
service delivered in the shortest time possible.
Fast food chains such as McDonalds & Subway also belong to
this category of differentiation.
6

7. DIFFERENTIATION 3: SERVICE
How often have you felt angry by the service delivered by a
company? Many companies treat their customers poorly, and
this leaves the door open for new companies to enter.
Zappos and Rackspace are great examples of companies that
build their offering around stellar customer service.
To excel in this, you must develop a natural affection for your
customers and encourage your employees to go the extra mile.
7

8. DIFFERENTIATION 4: FLEXIBILITY
Flexibility here refers to the product offerings and choices.
Two of the best examples for this are: IKEA and Macy’s. The
idea is that they never turn away any customer and have
something for everyone. They have 1000s of product types
(called SKUs). This is also how many restaurants and full
service airlines operate.
Two of the disadvantages are that customers can get confused
by your offerings and your operations can get really complex.
You need very good inventory management to use this
differentiation.
8

9. DIFFERENTIATION 5: SUSTAINABILITY
This is currently a new trend. Companies such as Whole Foods
and Tesla Motors are trying to differentiate based on the
sustainable practices they use.
You could highlight your energy generation practices, waste
processing, or other efficient usages that lead to a better world.
9

10. DIFFERENTIATION 6: QUICK
REACTION TO MARKET
In some industries, such as technology and fashion, companies
can differentiate based on how quickly they react to recent
trends. One of the best examples of this is Zara. Zara is a
fashion seller who is extremely good at adapting the designs of
popular fashion designers and quickly bringing them to the
market.
To succeed using this differentiation, you need to keep a
constant ear on the market and build a very good production
pipeline to build new things quickly.
10

11. DIFFERENTIATION 7: COST
Cost here doesn’t mean price. Thus, someone selling at the
lowest price need not be the best example for this. To qualify
for this, a company has to reduce its production costs to the
lowest in their industry.
The best examples for this category are Wal-Mart, Southwest
Airlines, and Amazon.com. They have worked on optimizing
the whole supply chain to reduce every penny of wastage.
Succeeding in this differentiation requires the hardest skills in
operations.
11

12. 7 Ways to Differentiate
Flexibility
Quality
Time
Customer Delivery
Service
Cost
Sustainability
Summary: How businesses 12
differentiate

13. ----------------------------------------- ------
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SECTION II: TYPES OF MODERN
BUSINESS MODELS
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13
How do businesses create, deliver, and capture the value they
provides to their customers.
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14. One of the oldest and direct business models.
Here a business creates a plain-vanilla product
or service of value and gets it to the
customers through a distributor or through
direct means (in the case of services).
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Among the oldest models that is used by
most businesses in the world.
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Manufacturer Model 14

15. Sell a wide range of goods
targeted at the mass market.
Pricing is one of the key issues in
this model.
Whether online or brick &
Amazon mortar, the key is to manage a
very efficient supply chain, and
have real estate (real or
virtual) with a very high foot
traffic.
Merchant Model 15

16. Gillette sells its sticks cheap, but charges
heavy on the blades. Printer companies sell
the printers at low-profits and sell ink
cartridges at a high premium.
To pull this off, you must tie the value-add
services tightly with your core product. If
competitors can produce blades for your
razors, your model will fail.
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Sell the core product cheap, but charge
premium on supplies
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Razor Blades/Cartridge Model 16

17. Companies such as Forrester,
Nielsen, Reuters, Bloomberg,
financial research firms, and search
engines belong to the model.
Their strength lies in accumulating
vast amounts of data, presented in
an easily accessible form.
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Selling Market Research, Data and Analysis
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Data & Analysis Model 17

18. Think Ferrari, Gucci, Armani, and Rolex.
To make a mark, the company has to be
extremely careful about the brand and avoid
the temptation to go to mass market.
Some, like Apple, can attempt to be both
mass and premium, although pulling this off
over the long term is difficult.
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Selling Premium Goods to a Niche Audience
Exclusion is the key, along with high product quality.
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Premium business model 18

19. ----------------
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Essential ingredients are trust and quality
control.
Market requires more tools to certify and verify an entity. VeriSign, ETS
(makers of GRE), and hundreds more new companies are getting into it.
Certification and Verification 19

20. In this model, the business connects buyers
and sellers in usually an auction-like model
and takes a commission on the sales.
Stock The key is to have sizable scale of both
suppliers and customers.
Exchanges
This is one of the hottest business models
now, although it is also hard to survive due
to winner-take-all dynamics.
Broker & Marketplace Model 20

21. ----------------------------------------------------
Companies such as Kickstarter, 99 designs, Yelp, Get Satisfaction, Quora, and
Wikipedia rely on the wisdom of the crowds to provide a service.
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Crowd Sourcing Model 21

22. Google Apps, Dropbox, Salesforce.com, and
37 Signals are revolutionizing how products
are delivered to the customer.
In the Cloud Services model, the customers
require very little capital expenditures &
upfront costs, but rather engage in a pay-as-
you-go option.
The key is to manage customer churn.
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Provide instant delivery of software services
over the cloud
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Cloud Services Model 22

23. Rent or lease your physical or virtual space.
This includes real estate companies, hotels,
and online directories/classified companies
such as Craigslist & Monster.com.
The Lessor builds valuable real estate and
guarantees a certain level of traffic that can be
used by the lessee.
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Rent a high value property
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Renting/Leasing Model 23

24. This is the most dominant model on the
Internet and a variant of the Listing model.
Most newspapers and Internet companies
make money through selling a space in their
“real estate”.
One difference from the listing model is that
the consumers for these companies come for
a different purpose (social networking,
reading news, etc…) and are often made to
view advertisement from sponsors.
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Rent a high traffic place for advertising
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Advertising Model 24

25. In a Franchise model, a company
tries to replicate its business model
by bringing in external entities.
The Franchisor manages the brand,
advertising, and technology, while
the franchisee manages the
operations, labor, and the real
estate. Both the entities share
revenue from the operation.
Some of the biggest fast food chains
in the world use this model. It is hot
trend in India right now.
Franchisee Model 25

26. ------
Every business should identify how it differentiates from others
in the competition. Without differentiation, there is no way to
------ survive.
There are 7 primary ways to differentiate from your competitors.
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Business Models help understand how a business delivers value
to its customers.
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There are dozens of business models, and it is important to focus
on your core strengths.
Summary and Key Takeaways 26

27. THANK YOU !
FOR YOUR ATTENTION
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