Cost Structure and

Revenue Stream
Yohanes Jimmy

Business Model:
Cost Structure and Revenue Stream

Cost and Revenue

Cost Revenue

describes the most significant cash generated from each

cost incurred to operate a Customer Segment for
business model enjoying offering value

1
Type of Revenue Stream
Type Description Example
Asset sale Revenue from selling ownership
rights to a physical product
Usage fee Fee from the use of a particular Hotel, cellular, delivery
service (charge per unit) service
Subscription fees Fee from selling continuous access to Gym, golf club member-
a service (during a certain period) ship
Lending / Renting fee from temporarily granting Vehicle, property,
/ Leasing someone the exclusive right to use equipment
an asset for a fixed period
Licensing fee from giving permission to use Fee to use software,
protected intellectual property patent-protected product
Brokerage fees fee from intermediation services Property agent, credit
performed on behalf of two or more card providers, stock
parties trader
Advertising fees for advertising a particular Media, event organizer,
product, service, or brand game

Pricing Mechanism
Fixed Menu Pricing:
Predefined prices are based on static variables

Type Description Example

List price Fixed prices for individual products,
services, or other Value Propositions
Product Price changes based on the number of Purchase additional sports
feature features purchased TV channels will bring
dependent down cost per channel
Customer Price depends on the type and Windows is sold with
segment characteristic of a Customer Segment different price for student,
dependent business, and consumer
Volume Price as a function of the quantity Buy 1 discount 10%, buy 2
dependent purchased discount 20%

Pricing Mechanism
Dynamic Pricing:
Prices change based on market conditions

Type Description Example

Negotiation Price negotiated between two or more
(bargaining) partners depending on negotiation
power and/or negotiation skills
Yield Price depends on inventory and time of hotel rooms, airline
management purchase seats
Real-time- Price is established dynamically based Stock, commodity
market on supply and demand price
Auctions Price determined by outcome of
competitive bidding

2
Business Model
and
Business Strategy

Business Model
 Business model (BM) is the logic of how firms create,
deliver, and appropriate (capture) value

Value VP
Value
creation delivery

Value capture

 Developing a successful business model (no matter

how novel) is insufficient in and of itself to assure
competitive advantage

Competitive Advantage
 Competitive advantage (CA) is typically defined as
superior financial performance
◦ CA does not talk about how much profit can you get
◦ CA means how much profit can you get more than rival (a
particular rival, or all rivals in the industry)
◦ CA  excess return, above normal profit, etc.

 Example:
◦ Toyota has ROA (return on assets) = 20%, GM’s ROA =
15%, and average ROA of automotive industry = 18%
◦ Toyota has competitive advantage of 5% over GM
◦ Toyota has competitive advantage of 2% in its industry

3
Build and Sustain CA
• Competitive Strategy, or Beat the rivals, or
• Business-level Strategy winning competition

An integrated
Competitive
and coordinated Uniqueness
Advantage
set of activities

Industrial Organization (IO) Resource-Based View (RBV)

• Uniqueness = distinct and
valuable position in the
market
• External factor oriented
• Market, or industry
attractiveness
• Uniqueness = distinctive or
core competence to serve
customer
• Internal factor oriented
• Skills or abilities we have

Business- and Corporate-Level Strategy

Corporate-Level Strategy:
Corporate • Portfolio management: which
business should be in and out
• Parenting: how to add more value
to the business units (help to win
the competition)

Business-Level Strategy:
Business Business • Competition: how to beat the
Unit Unit rivals (winning the competition)

Marketing Marketing Function-Level Strategy:

• Support the implementation of
Operation Operation business-level strategy at the most
effective and efficient manner
….. …..

Distinctive Competence
 Firm-specific strengths that allow a company to
differentiate itself with rivals
 Aka core competence
 Example:
◦ Ability to deliver and spread product into rural areas (Indomart)
◦ Ability to build high quality and cheaper car (Toyota)
◦ Ability to build small machine vehicle / equipment (Honda)
◦ Ability to recognize the customer needs based on their
characteristics (Amazon)
◦ Ability to animate animal character (Walt Disney)
◦ Ability to continually introduce chemical-based innovation material
or product (3M)
◦ Ability to provide low price consumer goods (Walmart)
◦ Ability to provide fashionable and individualized clothing (Zara)
◦ Ability to provide low fare and convenient flight service (Southwest)
◦ Ability to provide contemporary and cheaper furniture (IKEA)

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Unique Resources
 RBV argues that having unique resources can lead a firm
to achieve competitive advantage
 Unique resources meet VRIO criteria

Valuable? Rare? Costly to Organized Competitive Profit

Imitate? by superior Implication Implication
capabilities?

NO Disadvantage Below normal

YES NO Parity Normal
YES YES NO Temporary Above and
Advantage short run
YES YES YES NO Temporary+ Above+ and
Advantage short run
YES YES YES YES Sustained Above and long
Advantage run

Business Strategy
 An integrated and coordinated set of activities the
firm uses to gain a competitive advantage by
exploiting core competencies in specific product
markets

 In general there are three approach to win to gain a

competitive advantage (win the competition)
◦ Cost leadership strategy
◦ Differentiation strategy
◦ Focus strategy

 They are known as Generic Business Strategy

Business Model and Strategy

What missing in Business Model?

Startup • Detail of how to win the competition
• Can not explain firm performance beyond
profitability (survival, growth, etc.)
Business
Model
What missing in Business Strategy?
• Interaction among value creation, value delivery,
Business and value capture (big picture to make money)
Strategy • Typically do not talk about the value delivery
(unless the value delivery itself becomes a firm
uniqueness)
Competitive
Advantage Both talk about
• Offering value and target market
• Relation between resources or process and firm
Growth profitability

5
 Business Model and Strategy
 A firm often has business model, but it may be no
strategy

 A business model is more generic than a business

strategy
◦ While business model is a logical story about making money,
business strategy is a more detail plan to win the competition.
◦ While parts of business model is more stable (no need to
change), parts of business strategy are most often improved or
modified

 Coupling strategy and business model analysis is needed

to protect competitive advantage resulting from new
business model design (Teece, 2010)

Illustration: Business Model and Strategy

Assume How do you

you are exploit your skill
a chef to make money?

Business
Model
(make money)
restaurant catering on demand chef

Business • Cost leadership • Cost leadership • Cost leadership

• Differentiation • Differentiation • Differentiation
Strategy • Focus • Focus • Focus
(more profit
than rivals)