Chapter 1:

1. Business Model:

“It is a set of activities and frame work for acquiring wealth.”

It is a set of activities which addresses three questions:

1. Which activities are important?

2. How those activities should be done?
3. When is the right time to engage in those activities?
a. WHICH
b. HOW
c. WHEN

Right combo of activities, done in the right way at the right time results in to get or earn more than
others.

For Example:

In real estate When is more important to purchase or sell the land.

2. Determinants of Profitability:

Determinants are those factors or elements/components by which organizations become profitable.

This suggests that there is something about some industries that allows the industries to be more
profitable on average than the other firms in industry.

There are two determinants:

a. Industry Factors
b. Firm Specific Factors

Details are given below:

Industry factors:

It makes the firms within industry more profitable an average than the firm in other industries.

There are three further forces of industry factors:

a. Competitive Forces
b. Co-operative Forces
c. Macro Forces
a. Competitive Forces:
1. Competitive Forces Exerted by Rivalry.
2. Competitive Forces Exerted by Suppliers
 3. Competitive Forces Exerted by Customers
4. Competitive Forces Exerted by Potential new entrants
5. Competitive Forces Exerted by Complementary Products
6. Competitive Forces Exerted by Substitute products

Rivalry:

Rivals are the competitors who sell almost same products as yours. If rivalry is high, it will lead towards
low prices and high quality.

High Rivalry= Low prices, High Quantity

High Rivalry = High Competition

For Example: Pepsi and Coke

Suppliers:

If the suppliers have the bargaining power, they can lower the quality or may higher the prices.

High prices = Low Quality

For Example: Aramco oil refinery (Saudi Arabia) has the highest bargaining power over the industry and
charge high prices wirh low quality.

Customers:

IF the forces exerted by customers are high they can leads to lower the price with high quality

Low Prices= High Quality

For Example: Emirates Airline, Mineral water

Potential new Entrants:

If there is high potential of new entrants then organizations change or higher the prices and offer
inferior quality or low quality

High Prices= Low Quality

Complementary products:

Complementary products are those that facilitate the core products.

The firms whose products are complimentary, and the forces are very high and they have high
bargaining power over industry, they used to charge high prices with lower quality or lower prices with
higher quality.

High Prices = Low Quality

Low Prices = High quality

For Example: Cell Phone and charger or casing, Toyota 1 year maintenance, 1 year oil change facility

Substitute Products:

Substitute products are different products but serve for the same purpose or need.

The firm I an industry that have viable substitute products, they forced to keep their prices down and
offer higher quality products it may derived the customers to the substitute products.

Low Prices = High Quality

For Example: Tea and coffee, Metro and Cab, Vacuum Cleaner and Broom.

b. Cooperative forces:

Supplies are not always adversely excercising whatever bargaining power they may have to extract
high priced from the forms and forced them to low quality inputs rather than the rivalries, they may
co-operate with each other.

For Example: Careem and Uber, Jazz and Warid, Sony and Ericsson

Another example: BMW 5 series = German

Rover 2.4 Size = British

Rover offered the same luxury in $30,000 in contrast to $50,000 of BMW

-BMW sued Rover for the design cheating

-Rover last, bank corrupt, joined hands with BMW as a joint Venture.

C. Macro Forces:

The competitive environment in any region or country also influence by its,

1. Culture
2. Govt. Policies
3. Fiscal Policies
4. Monetary policies
5. Judicial System
6. Leal system
7. Technological changes

For Example: Revolution and de-revolution increase or decrease barriers to entry and therefore firms
can make profit, by issuing limited number of Taxi licenses, there will be more entry barriers to other
individuals.
For Example: Government limits the quantity of live stock to be imported or exported. That’s how they
meet the prices contrast.

Firm Specific Factors:

There are three determinants:

1. Position of a Firm
2. Activities of a Firm
3. Resources of a firm

1. Position of a Firm:

It means that where does theat particulat brand lies in the minds of the customers (Brand Equity)

It is the perception of the customers related to the particular firm or brand.

It further splits into five.

a. Customer Value
b. Market segment to which it affects
c. Sources of revenue
d. Firm relative positioning with
1. Customers
2. Supplies
3. New entrants
4. Substitutes
5. Complementators
e. The prices that it charges to its customers.