Lesson 7 of 8 · All lessons in this module
- What a business model describes: customers and offering
- Channels: how the offering reaches customers
- Pricing: power, premiums and price discrimination
- Bundles, razors, freemium and subscriptions
- Value proposition, value chain and profitability
- Conventional business models and their variations
- Integrated case: two firms, same industry, different risks
- Business model innovation, network effects and platforms
Lesson 7 of 8 · 15 min
Integrated case: two firms, same industry, different risks
Two companies selling the same product can have opposite business models, and the way to compare them is to name each model, then ask how its cost structure, suppliers and pricing power respond to the same shocks.
In short
- First place each firm in the conventional grid: what it makes or sells (products), to whom, through which channel, and how it is paid.
- Flexibility comes from the cost structure: costs that vary with volume (leased equipment, per-unit contracts) cope with a demand swing better than fixed skilled labour.
- Supplier risk is highest where critical inputs are single-sourced, proprietary or hard to substitute.
- Input-cost shocks hit hardest where margins are thin and the firm is a price taker; a firm with pricing power can raise prices or absorb the cost.
- Size, price and cost per unit usually line up with strategy: a price taker is high-volume and low-cost per unit, a differentiated firm low-volume and high-price.
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