Contents of this Template

1
Profit Patterns Business Model Strategy

James Reeve PhD Deloitte Touche Professor of
Enterprise Information Management University of
Tennessee Jreeve_at_utk.edu
2
Profit-Centric Business Design

• In the classic product-centric age, key question
  was
• How can I gain market share, increase unit
  volume, and gain scale economies?
• In the profit-centric age, the questions are
• Where will I be allowed to make a profit in this
  industry?
• How should I design my business model so that it
  will be profitable?

3
De Facto Standard Profit Model

• Increasing returns to scale
• The more players entering into the system, the
  more valuable the system becomes
• The system then becomes the standard
• Example

Profit Margin
Market Share
4
Blockbuster Profit Model

• Key economic activity is project-based
• Large RD, high launch cost, finite product
  cycles
• Development costs are high, product revenues are
  highly variable
• Examples

/Project
Revenue
Cost
Project Type
5
Product Pyramid Profit Model

• High-priced, low volume products at the apex
• Low-priced, high volume products at the base to
  deter competitor entry, thereby protecting the
  profit margins at the top
• Example

Price
Volume
6
Multi-component Profit Model

• Multiple components within a system
• Each component has different profit
  characteristics
• Less-profit base business builds foundation for
  higher- profit components in the profit zone
• Example

Base Business
Other Components
7
Profit Multiplier Model

• Reaps gains from the same product, character,
  trademark, or service, over and over again
• A powerful profit engine for businesses that have
  strong consumer brands
• Brands are valuable, but also fragile
• Example

Other Forms
Key Asset
8
Switchboard Profit Model

• Multiple sellers communicating with multiple
  buyers
• a high-value intermediary as the communication
  pathways (the switchboard)
• The switchboard reduces the costs to both buyers
  and sellers
• Example

Buyers
Sellers
9
Channel Multiplication

• Multiplication of customer types
• Technological change
• Channel poorly matched to customers
• Disruptive to established channel players
• Examples

book store
grocery
Roast Coffee
cafe
cart
c-store
Roast Coffee
grocery
10
Channel Concentration
To a few major sites

• Small locations have high overhead
• Economies of scale
• Commodity type products
• Examples

Many small locations
11
Disintermediation

• Remove steps in distribution system
• No loss of value to customer
• Technology impact
• Examples

supplier
customer
supplier
channel
channel
customer
12
Reintermediation

• Create a new value added step in the system
• Meets unmet needs in disintermediated solution
• Technology
• Examples

supplier
customer
New value added step
supplier
customer
13
Product to Customer Knowledge

• Move from product transactions to customer
  knowledge.
• Knowledge types price sensitivity, preferences,
  buying behavior
• Examples

Product
14
Organization Impacts
Talent

• Skill shift
• Hierarchy to Network
• Moving from strength to strength
• Knowledge aggregation and dissemination

Assets
Customer Product
NT
Explorer
Windows
DOS
15
Virtual Enterprise

• Deintegration
• Outsource non-core competencies
• Cisco
• ASPs
• Publishing

CORE
16
Customer Solutions Profit Model

• Invest to know the customer, create a solution
  and develop the relationship
• Front-end-loading investment, losses in early
  stage and turns sharply positive afterwards
• Example

Customers process after solution
Customers process before solution