CHAPTER 5, LESSON 1: NEW PRODUCT STRATEGY

What Is a Business Model?

 Refers to the mode by which the product concept seeks to make money so that it can
have a sustainable operation
 Should therefore involve a way of making money that best fits the nature of the product
idea

Some Alternative Forms of Business Model

• Advertising
One gets to consume the product with no cash outlay and with the costs of providing the
product being covered for by a number of third party advertisers.
• Sponsorship
Alternately, instead of constantly finding a number of small advertisers to support ad-
based businesses, one may opt to focus on a few big sponsors instead.
• Donations
This is often the business model of choice for non-profit organizations but also the model
that fuels a number of online and mobile products such as games and productivity apps.
• Rent or Lease
For expensive assets, such as machinery or vehicles, they sometimes become more
attractive for the market to consider through renting rather than outright ownership.
• Subscription
Certain products and services lend well to a subscription model, wherein, rather than
consumers buying the product at stores, a subscription business sends the products regularly to
their door in exchange for a fixed monthly fee.

Critical Part of Business Modeling

• Balancing act between the target number of consumers
• The profit margin goal per unit sold
• The acceptability of the resulting price

Important Elements That Make up a Business Plan

• Statement of Opportunity
This refers to the identified market opportunity that the proposed business seeks to
address, which may be in the form of an untapped market, growing demand for an existing
product category, or even a potential market for an untried product offering.
 • Environmental Analysis
Key issues and trends in the environment, both macro and micro, should be noted when
assessing the business proposal.
• Market Estimates and Market Segments
This refers to the estimated size of the total potential market along with descriptions of
the different possible market segments and their estimated sizes.
• Competitive Analysis
This pertains to a roundup of the existing competition along with existing substitutes
and potential substitutes together with their strengths and weaknesses.
• Business Strategy
This refers to the details of the proposed business including the product concept, the
logistics required for its mobilization, the organization structure needed, and the methods for
product distribution among other things.
• Risk Analysis
Informally speaking, this is a list of things that could go wrong along with a
corresponding list of safeguards and contingency actions to address these.
• Financial Forecasts
This refers to the estimates of financing required for initial capitalization, asset
acquisition, working capital, overhead, and inventory.

Generic Competitive Strategies

• Least Cost
This strategy involves producing goods or services at the least possible cost, and then
passing these to consumers through low-priced, affordable products. This strategy requires an
obsessive attention to operational efficiency— finding the cheapest ways to produce a product or
service, investing in the most economical production methods and technologies, and constantly
doing research on even more economical ways of offering the products in order to sustain this
low-cost leadership for the long run.
• Differentiation
This strategy involves a lot of brand-building, with an effort to get the market to
associate the brand with particular benefits that, hopefully, will be distinctly associated with the
brand.
• Niche
A niche strategist is one that focuses on the needs of a very specific target market, usually
a market that is small enough or specialized enough that it requires particular expertise.