the right business model and pricing structure...and leverage your business’ strengths...

THE RIGHT STRATEGY | Chapter 12: The Right Business Model and Pricing Structure 253

C h a p t e r

The Right Business Model and Pricing Structure

You have created an incredible foundation consisting of a personalized Purpose, Vision, and Core Values for your business. Your leadership strengths and your right-fit people—customers, employees, and strategic partners—are identified. Now, the Right Foundation, the Right Leadership and the Right People deserve the Right Strategy, and that starts with understanding the best business models and pricing strategies for your unique enterprise and products.

A business model explains how a business makes money; in essence, how it produces and distributes its product (supply chain), how it grows strategically, how much it charges, and most importantly, how it continues to provide maximum value to keep its right-fit customers loyal, happy, and wanting more. The more you understand the behavior (the why) of your best customers and leverage your business’ strengths accordingly, the better opportunity you have of choosing the best business model.

The pricing model for all of your services and products also needs to be carefully calculated and occasionally adjusted to give you and your customers the right balance of value, profitability, and retention. By analyzing and understanding your real cost, value proposition, goals, competition, and supply/demand equilibrium, you can achieve a pricing strategy that delivers on your promises to your organization, customers, and employees.

The opportunities for growth, stability, and increased impact are there for you to embrace. Your job is to fully understand your customers’ needs, and use your pricing and business models in new and better ways to retain their business and earn strong profits.

12

SLAP! Success Element 4

In This Chapter• Business Models• Right Pricing Formula

– Calculate True Cost– Quantity Value

Proposition – Align Goals and Vision– Analyze Competition– Understand Supply

and Demand

The Right Strategy

BE GOOD DOING GOOD!DOING@254

Business Models Some of the most common business models are as follows:

• Benefit Corporation• Blockchain • Brick and Click

• Brick and Mortar

• Business to Business (B2B)

• Business to Consumer (B2C)

• Business to Government (B2G)

• Customer to Customer (C2C)

• E-Commerce (internet-based sales)

• Franchise

• Middleman (broker, distributor)

• Multi-level Marketing (MLM)

• Subscription Based

• Value Added Reseller (VAR)

Most businesses can effectively utilize several of these business models at one time depending on their product line, customer base, level of marketing and operational sophistication, and available resources. However, just like anything else that requires time, energy, and financial resources, the more models that a business engages in, the more opportunity there is for fragmentation and confusion. At the end of the day, it is better to have one or two successful models than three or five mediocre ones. The trick is to develop one model extremely well and then add others strategically. Let’s define each of these business models in more detail.

A Benefit Corporation or B Corp exists to create a positive impact on society in addition to generating a profit. B Corps are required to share their social, environmental, and financial performance with transparent published annual benefit reports.

With this model, companies integrate sustainability practices into their corporate strategy and preserve triple bottom line accountability when and if the organization is sold or acquired. An existing company can become a Benefit Corporation by following steps to amend their governing documents. To be considered a certified B Corp, a company must be certified by a non-profit governing body (B Lab) and meet certain social and environmental performance


requirements that measure their impact in labor, community, leadership, environment, and delivery of the product or service.

Examples include Ben & Jerry’s, Etsy, Couchsurfing International, and New Belgium Brewing.

The Blockchain business model, or digital ledger technology, provides the underlying structure for Bitcoin and other cryptocurrencies. This structure does not require intermediaries to perform transactions but is peer-to-peer and open sourced. It is organized and functions as a decentralized system where every actor in the chain can verify, edit, record, and update data and transactions in one place that makes fraud virtually impossible.

As a transparent way to handle any information without relying on a central single trusted ledger, such as a bank, financial institution or government entity, Blockchain networks have a wide variety of applications where security, transparency, and speed are important, such as finance, logistics, insurance, and real estate.

Because the use of a blockchain typically removes an intermediary, transaction costs and settlement time can be significantly reduced, efficiency increased, and certain risk mitigated.

Coinbase, ConsenSys, and Hive Blockchain Technologies are all companies founded on the Blockchain model.

A Brick and Click business model is when a chain of stores allows the customer to order products online and pick up their order at a local store or have it delivered. This model offers the convenience of ordering online and getting the desired product quickly without the wait of handling and shipping. Barnes &

Noble, Domino’s, and Safeway are leaders in this business model.

BUSINESS MODEL EXAMPLES

Benefit Corporation

BlockchainBlockchain

Brick and ClickBrick and Click


A Brick and Mortar business model sells directly to their customers face-to-face from a retail, office, industrial, or restaurant space. Brick and Mortar businesses may have more overhead and a smaller reach than web-based businesses. But they offer the potential advantage of creating an environment where loyal long-term relationships can be fostered if they focus on excellent customer service, outstanding products, and building loyalty. However, if a Brick and Mortar business provides mediocre products with pitiful customer service and poorly trained employees (which is unfortunately common), then the advantage is gone. Why pay the additional cost of a retail space with signage and parking when you drop the ball with the customer? The key is to always leverage your investment and stand out with your customers, especially when you are paying a premium for visibility and customer convenience.

Some of my top Brick and Mortar clients include BC Dance, Jade

Star Acupuncture, and Geeks 2 You. Starbucks, Ritz-Carlton Hotels,

and Nordstrom are examples of large companies who have a reputation of providing excellent training, consistent quality products, and outstanding customer service.

A Business to Business company provides goods to other businesses. This type of model is used by professional services such as CPA’s, commercial builders, and all types of manufacturers. A typical supply chain for a B2B manufacturer involves the company buying materials and components from vendors for use in its manufacturing processes, and then selling its finished product to other businesses. A manufacturer who sells through other channels such as distributors, agents, or retail operations requires less investment in infrastructure and counts on other organizations for their expertise. On the other hand, a manufacturer who sells directly to end user clients has the most control of the supply chain but also requires significant investment and expertise in all phases of marketing and distribution.


Brick and MortarBrick and Mortar

Business to BusinessBusiness to Business


Examples of my B2B clients include CEDR HR Solutions, Adam

Colwell’s WriteWorks, and Affinity for Design, an advertising agency specializing in website and print design. Global brands include companies such as Canon, Intel, and Michelin.

A Business to Consumer business model targets select groups of the general population who are the end user or consumer of its products or services. Originally referred to as business activities that focus on retail transactions via internal and website sales (e-commerce), B2C now means any business conducted between a business and an individual.

Global B2C brands include Apple, Patagonia Inc. (an American clothing company which focuses mainly on high-end outdoor clothing and gear), and Seventh Generation (a company selling environmental cleaning products distributed through retailers like Whole Foods and Sprouts). Examples of B2C models from my local clients in Tucson include Arizona Tile and Grout Care

and Jade Star Acupuncture.

A Business to Government business model sells products and services to various government levels including federal, state, and local municipalities. A B2G network provides a platform for businesses to bid on government opportunities, RFP’s (request for proposals), and pre-negotiated contracts for set prices. In many cases, and in an attempt to reduce costs, the lowest price bid usually wins the contract, which doesn’t always allow for the best quality or value-added organization to perform the job. Locally, Ironwood Tree Experience (ITE), has integrated a B2G component to their primarily B2B and B2C business by winning federal contracts and grants to provide outdoor education on government lands.

Other local examples of B2G business models include Tucson

Asphalt and Senior Home Care of Tucson, whereas multinational corporations include Rolls Royce, General Electric, and Motorola.


Business to Government

Business to Consumer

Business to Government

Business to Consumer


A Franchise business model exists when a franchisor grants their already-proven services or products, marketing plan, brand, supply chain, HR practices, and operating processes to a buyer (franchisee) over a specific period of time for a pre-arranged fee structure. The franchisee pays all of the cost and expenses to launch their enterprise, allowing the franchisor to avoid a huge expansion investment and minimize their risks and liabilities. The UPS Store, Supercuts, and Day’s Inn Hotels

are popular choices.

A Customer to Customer business model generally involves customers selling homemade or used goods to each other through a classified or auction system. Customer to Customer marketing has soared in popularity with internet companies such as eBay, Etsy, Craigslist, and Facebook because of the cost effectiveness, ease of use, and lack of a middleman.

E-Commerce is a model that has forever changed the face of everyday businesses and online markets. Now every business must promote itself with an effective website, and many businesses can also sell their products directly to consumers and other businesses via a storefront website. Almost every business can benefit from adding an E-Commerce platform to their existing model. This convergence of models is now the standard of conducting business and has increased the popularity of E-Commerce business models including advertising sites, affiliate marketing, subscription sites, and white labeling (a service or product that is made by one company and then rebranded by another company to make it appear as it is their own.) Amazon, Google, and TripAdvisor

are examples of leading companies whose primary business models rest on the public’s use of the Internet.

Middlemen are the intermediaries, distributors, agents, and brokers for all types of transactions between parties. They use their relationships, marketing efforts, technological advances,


FranchiseFranchise

Customer to CustomerCustomer to Customer

E-CommerceE-Commerce


supply expertise, and industry savvy to broker or sell products with a mark-up or for a fee or commission. By adding value in the supply chain with these factors, middlemen are useful but must be aware when they are made obsolete by innovation or new models. Real estate agents, matching home buyers with sellers, are examples of expert middleman. Another type are wholesalers who resale goods to retailers or other commercial users. HomeSmart, McLane Company, and AMCON Distributing

Company are examples of American middlemen companies.

A Multi-level Marketing business model is primarily a strategy where a business chooses to sell their products through non-employee individuals who buy the product themselves and sell directly to consumers (and family and friends) while also recruiting these customers to join their “downline team” as salespeople and distributors. These models usually consist of a low barrier to entry, sell a consumable product, and result in multiple levels of compensation, which can give the appearance (and sometimes actually contribute) to an illegal and unsustainable pyramid scheme.

Avon, Amway, and Shaklee are examples of long-lasting, legal, and sustainable MLM’s with hundreds of thousands of customers and distributors and billions of dollars in revenue.

Subscription-Based business models charge their customers a subscription price (annually, monthly, or periodically) to use their goods. This model, pioneered by magazines and newspapers, is now common with many businesses and websites who are looking to replace a one-time-purchase model with a more attractive pricing structure as well as provide the ability to more accurately forecast revenue and increase cash flow.

A freemium model, popular with some E-Commerce websites, provides access to some content for free but charges for premium or advanced features or information.


MiddlemenMiddlemen

Multi-level MarketingMulti-level Marketing

Subscription-BasedSubscription-Based


In his book, The Automatic Customer: Creating a Subscription

Business In Any Industry, John Warrillow identifies nine subscription business models that can be used by any business. My organization (Paul C Bellows), LA Fitness, and Netflix are examples of companies using subscription-based models to provide value-added services to more people with an affordable fee structure.

Value Added Reseller is a model where a business adds value to a product or service originally made by another company and resells it to an end user as part of a more complete solution. These modifications or enhancements are mostly industry specific in nature and require a collaborative network of manufacturers and marketers.

The VAR model is common in the computer and electronics industry where hardware and software are bundled and enhanced by a reseller. The Fortune 500 company Insight Enterprises, for example, integrates and designs information technology solutions from more than 5,000 technology manufacturers and resells it to businesses and governments around the globe. The convenience of a one-stop IT shop gives them a competitive advantage.

Some examples of profitable VAR companies include Geeks 2

You, CDW, Cisco, and Insight Enterprises.


Value Added ResellerValue Added Reseller


Pick the combination of your current business models and calculate

the actual sales and percentage of your overall sales from each

model. Then consider the combination of models you want to have in

the future.

ExerciseRevenue for

Business Models

BAM! The time is now to start working on that new business model you are eager to try. Do the research, talk to a trusted advisor, and test it out on a small market segment or focus group.

% Business$ Revenue

Now Future Now Future

Business to Business (B2B)

Business to Consumer (B2C)

Business to Government (B2G)

Brick and Mortar

Brick and Click

Customer to Customer (C2C)

Franchise

E-Commerce (internet-based sales)

Middleman (broker, distributor)

Subscription Based

Multi-level Marketing (MLM)

Value Added Reseller (VAR)

Blockchain

Total $ $ % %

Bene�t Corporation

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