Business Model Report and Critique: ABC - Case Study Example

Business Model Report and Critique: ABC Name: Course: Institution: Date: Business Model Report and Critique: ABC Executive Summary ABC’s new venture business model centers on a mobile application that enables consumers to select and purchase beverages from resellers by using their mobile devices. Using their existing resources, this model also enables resellers to manage their daily operations by incorporating platforms that allow resellers to not only sell their products online but also to monitor product prices and possible markets. This new venture intends to provide consumers with a convenient, cost-effective and time-saving approach to purchase liquor and other beverages since it allows consumers to make purchases at the comfort of their homes just by clicking on their mobile devices. Moreover, it provides consumers with variety. Through the “Blip app” consumers can select and purchase a variety of beverages from a pool of resellers without having to move from store to store in search for what they want. Additionally, from this business venture ABC can generate significant revenue through by charging fixed administration fee, charging percentage fee for every consumer transaction and by selling advertising space on its website and consumer data to companies for the purpose of target advertising. 1.0 Introduction This report seeks to critically examine and critique a new venture business model of ABC, an existing organization that offers enterprise based information technology, media and data consultancy services. Currently, ABC is seeking to venture into providing third party services for the smart phone and tablet user market. The company wants to develop a mobile application that makes it possible for consumers to select and purchase beverages from a pool of resellers just by clicking on their mobile devices. ABC’s new venture business model will incorporate a managed virtual retail space where consumers can select a shopping cart for both alcoholic and non-alcoholic beverages using mobile a mobile app called “Blip app”. Afterwards, they can instantly “Blip pay” for the transaction into resellers “Blip account” and then get a “Blip QR” quick response which verifies their order either for home delivery or pick up at the nearest local bottle shop. This venture hopes to enable both resellers and consumers to save time, money and other resources associated with managing a retail stores or purchasing products at a retail store. This report seeks to critically examine the viability of this new venture business model. Firstly, it will explore the various components of ABC’s new venture business model and their application. Subsequently, this report will critically analyze the strengths and weaknesses of this model. 2.0 New Venture Business Model According to Barringer & Ireland (2010), a business model is essentially an organization’s blue-print that illustrates how it intends to create value, utilise its resources, structures its relationship and interact with customers in order to generate profits. Typically, business models incorporate several components. In reference to Morris, Schindehutte & Allen (MSA) (2005) business model framework, ABC’s business model for its new venture consists of six key components. The first component touches on the target consumers or whom the new venture will create value for (Morris et al, 2005). ABC’s new business venture mainly targets liquor retailers, independent resellers and general consumers. Majorly, this venture embodies a business to business (B2B) model where the main targets market other existing businesses that sell liquor and other beverages (Reed, Story & Saker, 2004). The second component touches on how the organization intends to create value to consumers through the venture (Morris et al, 2005). Through its new venture, ABC intends to provide consumers with a convenient, cost-effective and time-saving approach to purchase liquor and other beverages. By developing a mobile application that allows consumers to purchase beverages at the comfort of their homes just by clicking on their mobile devices, ABC will enable consumers to save time, money and other resources associated with going to retail stores to purchase beverages. This new venture will also provide consumers with variety. Through the “Blip app” consumers can select and purchase a variety of beverages from a pool of resellers without having to move from store to store in search for what they want. Moreover, this venture will provide value to liquor retailers and other independent resellers. Using “Blip pay” resellers will be able to process transactions instantaneously in real-time. Additionally, the new venture will enable resellers to manage their daily operations easily, monitor product prices and possible markets. It will also help them to interact and manage relationships with their customers. The third component in ABC’s new venture business model touches on the organization’s internal sources of competitive advantage (Morris et al, 2005). According to Morris (2005), a firm’s internal sources of competitive advantage can be categorised into seven key categories namely; special capabilities in operations or production, supply chain management, financial management, network management, financial management, technology development and innovation. In the case of ABC new venture, its internal sources of competitive advantage emanate from technology development and innovation particularly when it comes to apps and online systems. Santos-Vijande & Álvarez-González (2007) argue that technological innovations play an important role in enhancing companies’ competitive edge especially in this age characterized by rapid pace of market evolution. Hence, companies with effective technological innovation management capacities tend to become market leaders (Dodgson et al., 2008). Besides its capabilities in technology development and innovation, ABC’s new venture also draws its competitive advantage from its relationships with suppliers and banks. These relationships act as good sources of information, advice and trade credit (Woodside, Golfetto& Gibbert, 2008). In addition to this, the existing customer bases of retailers will provide the company a strong pool of customers. The fourth component in ABC’s new venture business model revolves around factors pertaining to the organization’s competitive strategy or how the organization intends to position and differentiates itself (Morris et al, 2005). According to Morris et al (2005) there are five key areas of differentiation namely; customer relationship, low costs, innovation leadership, product quality and features. In this case, ABC intends to position itself as an exceptional service provider that provides customers with fast, convenient and reliable shopping experience. The fifth component touches on economic factors or how the company intends to make money. The company intends to earn its revenue by charging retailers a fixed administration fee. It will also earn its revenue by charging a small percentage fee for every consumer transaction. Furthermore, the venture will generate revenue by selling advertising space on its website and consumer data to companies for the purpose of target advertising (Morris et al, 2005). Lastly, the sixth component touches on the core goals, scope and ambition of the venture. New venture can be categorised into four main groups namely; subsistence, income, speculative and growth models.ABC’s new venture will be based on income model. In essence, the venture will focus on generating a continuous revenue stream (Morris et al, 2005). Core Components Foundational Level Target Customers Liquor retailers Independent resellers Individual consumers. Value Creation Convenient, cost-effective and time-saving shopping experience A variety of products Real-time/instant processing of transactions Efficient customer care services Monitoring of product prices and possible markets Internal sources of competitive advantage Technology development and innovation Relationship with suppliers Relationship with banks Existing customer bases of retailers Competitive strategy Exceptional service provider (provides customers with fast, convenient and reliable shopping experience) Revenue streams Fixed administration fee Percentage fee for every consumer transaction Website space fee for advertising Sale of consumer data Core objectives and goals Income model; generating a continuous revenue stream Figure 1: Morris, Schindehutte & Allen (MSA) (2005) business model framework. 3.0 Critical Analysis 3.1 Key strengths Kim and Mauborgne’s (1999) value innovation model provides a suitable framework for assessing some of the key strengths associated with ABC’s new venture business model. This model is suitable for defining and evaluating the exact value proposition that a new venture intends to offer to customers. According to Kim and Mauborgne (1999), in most cases product offerings by companies are standardized and can incorporate certain aggrandizements and benefits that do not require customers to incur any additional costs due to the higher price charged for the product when such benefits are included. They argue that, by following this trend, most businesses tend to ignore some key aspects of value that customers really want thus there are still unmet customer needs. In order for new ventures to provide value innovation to their customers Kim and Mauborgne suggest that companies should examine what value in their service offering should be added, increased or decreased on order to meet the demands of customers (Kim & Mauborgne, 1999). In reference to Kim and Mauborgne’s (1999) value innovation model, it is evident that ABC’s new venture business model provides a number of added value propositions that are bound to meet the unmet needs of consumers. Firstly, this business venture eliminates costs associated aggrandizements and benefits such as retail space and aesthetics. Instead, it offers a virtual retail platform where consumers can purchase beverages at the comfort of their homes just by clicking on their mobile devices. This virtual space provides consumers with a convenient, cost-effective and time-saving approach to purchase liquor and other beverages. Consequently, both the organization and consumers save time, money and other resources associated with managing a retail store or purchasing products at a retail store. Secondly, ABC’s new venture business model eliminates costs associated with aggrandizements and benefits such as face to face interactions with customers, receipts and data management. Alternatively, it provides resellers with added value such as automated customer service applications, real-time transaction processing, immeasurable data handling capacity and real-time communication networks. The F-TERMS framework developed by Robert Dew is also another suitable model that can be used to assess the value innovation of ABC’s new venture business model. This model incorporates the acronym F-TERMS which stand for ‘features’, ‘time’, ‘emotion’,’ risk’, ‘money’ and ‘situation.’ It postulates that, when customers buy a product or subscribe to a service, they knowingly and unknowingly attain a variety of peripheral benefits and costs which revolve around the F-TERMS. The features element touches on the core features of service that differ from those offered by competitors. In the case of ABC’s new venture, its core feature includes a mobile application that makes it possible for consumers to select and purchase beverages from a pool of reseller. In relation to the time element, ABC’s new venture enables users to save time by allowing them to purchase beverages at the comfort of their homes just by clicking on their mobile devices rather than driving to the retail store. The emotional benefits associated with this new venture may include relaxation and ease since it provides consumers with a convenient, cost-effective and time-saving shopping experience. One of the key risks associated with using this service revolves around the loss of privacy since consumer data pertaining to their shopping trends will be sold to advertisers. It terms of the money element, this business helps consumers to save costs associated with commuting to a retail store to purchase liquor and other beverages. Nonetheless, there is possibility that consumers could incur additional costs associated with delivery. Lastly, the situation element touches on the circumstances of the transaction which facilitate or hinder the probability of purchase. In the case of ABC’s new venture, the fact this business model hinges on the use of a mobile application that can be used on mobile phones, smart phones or a tablets, facilitates the probability of purchase. This is mainly because currently, many people own mobile devices this in turn makes this service accessible (Kim & Mauborgne, 1999). Element Value Added/ Reduced Feature Ease in purchasing liquor and other beverages Variety; selection of products from a pool of retailers Time Time saved, no need for movement Emotion Relaxation Ease Risk Loss of privacy Money Costs associated with movement reduced Delivery costs can be incurred Situation Use of mobile application facilitates accessibility of service and ease of purchase Figure 2: F-TERMS Analysis 3.2 Major Weaknesses/ Threats ABC’s new venture business model provides a wide range of value and benefits to the organization, resellers and individual customers. However, there are certain limitations or weaknesses associated with this business model that may threaten its competitive edge in the market. These limitations may be attributed to environmental factors and market forces. Michael Porter’s “five forces analysis” model provides a suitable framework that can be used to evaluate some of the environmental factors and market forces that can affect the viability this business model. Basically, Porter’s (1980) five forces model postulates that there are five key forces that can affect the competitive position of a business in the market. These forces include; customer bargaining power, threat of new entrants, threat of substitute products, bargaining power of suppliers and competition within the industry. This report will focus on two forces in Porter’s model that are most relevant to ABC’s new venture business model (Porter, 1980). Foremost, the bargaining power of suppliers is one of the forces that may significantly impact on the competitive position of ABC’s new venture in the market. Since this business model heavily relies or target third parties such as retailers and independent resellers, there is likelihood that these parties may have a high bargaining power. It may be possible that, in order to expropriate a larger share of revenue retailers may increase the prices of products especially if they have monopoly (Porter, 1980; Waddell, Devine Jones & George, 2007). Secondly, threat of substitute products is also another force that can impact on the competitive position of the new venture. The industry that this new business venture operates in is infiltrated with numerous Wi-Fi apps, mobile applications, blogging and online video platforms that can provide vast business opportunities with low-cost barriers to entry (Hisrich et al., 2010). Moreover, companies are continuously developing new technologies that provide them with competitive advantage. Consequently, there is likelihood that due to the low-cost barriers of entry, other new entrants may ape or even advance ABC’s business model. This could in turn increase the competition within the industry and minimise the organization’s competitive edge in the market (Porter, 1980). Conclusion Generally, this report has critically examined and analyzed ABC’s new venture business model which centers on a mobile application that enables consumers to select and purchase beverages from resellers by using their mobile devices. The findings of this report show that, ABC’s new venture business model provides a wide range of value and benefits to the organization, resellers and individual customers. Generally, this venture provides consumers with a convenient, cost-effective and time-saving shopping experience. However, market forces such as bargaining power of suppliers and the threat of new entrants could adversely impact on the competitive position of this venture. References Dodgson, M., Gann, D. & Salter, A. (2008). The management of technological innovation: Strategy and practice. Oxford: Oxford University Press Hisrich, R.D., Peters, M.P. & Shepherd, D.A. (2010). Entrepreneurship. 8th Ed.New York: McGraw-Hill Higher Education, Kim, W.C. & Mauborgne, R., (1999). Value Innovation: The strategic logic of high growth, In Harvard Business Review of Breakthrough Thinking, Boston: Harvard Business School Press. Morris, M., Schindehutte, M. & Allen, J. (2005). “The entrepreneur’s business model: toward a unified perspective”. Journal of Business Research, 58, 726– 735. Porter, M.E. (1980). Competitive Strategy. New York: Free Press. Reed, G., Story, V. & Saker, J. (2004). 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