1.
CustomerSolutionsProfit
Investtoknowthe customer,createasolution, anddeveloparelationship. Thiscauseslossesearlyin therelationship,and thereaftersignificant profits.
Time
2.ProductPyramidProfit
Inaproductpyramid profitmodel,meeting customerpreferences ofstyle,colour,price, etc,isofutmost importance. Variationsin customerincomeand preferencesmakeit possibletobuilda productpyramid.
Price
Volume Strategicroleofcreatinga firewallatthebottom
3.MulticomponentProfit
Disproportionat eshareofprofits
Base Business
Therearemultiple componentswithinasystem. Multiplecomponentprofit modelsapplytoindustriesas diverseasbeverages(profitis infountain&vending), hotels(baseislowmarginbut corporateconventionsetcare profitable),bookstoresetc.
OtherComponents
4.SwitchboardProfit
Buyers Sellers
Somemarketsare characterizedby multiplesellers communicating withmultiple buyers,withhigh costsincurredby both.
Creationofahighvalue intermediarythatconcentrates pathwaysthroughasinglechannel
Theswitchboardreduces thecoststobothbuyers andsellers
5.TimeProfit
Manytimesinbusiness thereisafirstmover advantagethatallows theinnovatorto generateexcessreturns beforeimitatorsbeginto erodemargins.Profit derivesfromuniqueness, translatingintoprice premiumsuntilimitation erasesthem.
Cost Price Time Akeyissueisnottimeto marketbutthetimelead fromthenextcompetitoras profitswillbeupfronted
6.BlockbusterProfit
Revenue
Cost
Incertainindustrieslike pharmaceuticals,music,film making,publishingetc,the keyeconomicactivityis projectbased.Thecostper typeofprojectmayvaryby 5x,andtherevenues generatedby50x.
ProjectType
Revenuerealisationissopowerful thatitpaysthedevelopmentcosts manytimesover
7.ProfitMultiplierModel
OtherForms
Profitmultipliermodel reapsgainsfromthe sameproduct,character, trademarkorservice, overandoveragain.The bestexampleisDisney.
KeyAsset NooneinDisneyworks harderthanthe charactersthemselves Therisksoftakingthebrandtoareas whereitdoesnothaveauthoritywith thecustomermustbeavoided
8.EntrepreneurialProfit
Ascompaniesgrow, diseconomiesofscale effect:overheadgrows, unnecessaryexpensesgrow, decisionmakingslows, customersbecomeremote. Tocounteracttheseforces, somecompaniesorganise themselvesintosmaller profitcentrestomaximise accountabilityandmaintain closenesstothecustomer.
Base Business
SpinOuts
Potential management ownership
9.SpecializationProfit
Inmanyindustries, specialistsareseveral timesmoreprofitable thanthegeneralists. Theyhavehigher quality,lowercost, strongerreputationand shortersellingcycles. Thismodelisnot limitedtoproductsbut wholebusinessunits.
Generalist
Specialist Killercategories meetingneedsof particulargroups
10.InstalledBaseProfit
Alsoknownasrazorsand razorbladesmodel
Inmanyinstalledbase businesses,theprofit orinitialproductsales areslim,butthe marginsonfollowon productsareextremely attractive.
Keypointistobuildthe largest installedbaseto enablehighlyattractive followonrevenues
Hardware/Base Product
Consumables/ FollowonProduct
11.DeFactoStandardProfit
Themoststriking characteristicofadefacto businessisincreasing returnstoscale.Thevalue chainfromsuppliersto usersaredrawnintothe gravitationalorbitofthe standardholder.Themore users,themorevaluable thenetworkbecomes.
MarketShare
Theloserswill experience diminishingmargins overtime
12.BrandProfit
Overaperiodofyears,abrand buildingcompanyexpends significantmarketing investmentinordertobuild awareness,recognition,trust andcredibility. Theseintangibleexperiences arereinforcedbythe customers experiencewiththe service/product.
Market Price
Brand Price
13.SpecialtyProductProfit Revenue%ofS
100%
decreasesover time
S S
C C
T5
Whenafirmintroducesanew product,itenjoysapremiumon thatproduct. Specialtyproductsenjoya greaterportionoftheprofits untilcompetitorsbegintheir imitations. ThePLCcanvaryfrom815 years
Keytaskisastuteselectionof R&Dprojectstogenerate tomorrowsprofit
(TheS denotesSpecialization,theC denotescommodity).
14.LocalLeadershipProfit
Formanybusinesses,the economiesofthecompany arealmostentirelylocal. Examplesincludehome healthcarecompanies, grocerystores,andmany branchesofretailing.
LocalMarketShare Localleadershiptothe pointofdominancenot nationalscale NB:Profitabilitysupports growthnotvisaversa.Dont growbroke
Marketshareis irrelevant 2> 100
15.TransactionScaleProfit
Revenue
Cost
Certainindustriesare transactionbased,asthe sizeofthetransaction goesup,thecostto performordelivera transactiondoesnotrise asquicklyastherevenue received.
Investincompanies withlargestdeal potential
SizeofTransaction Examplesareinvestment banking,realestate,legal, commercialbankingetc
16.ValueChainPositionProfit
InmanyIndustries,profitconcentratesitselfincertain partsofvaluechainandisabsentinothers.InPC computing,theprofitisconcentratedin microprocessorsandsoftware.Inchemicals,itisin manufacturing,notdistribution.Intheautoindustry,it isindownstreamactivitiessuchasfinancialservices andextendedwarranties,notassemblyordistribution.
Maximiseyour positioninthe cycle'sgrip
17.CycleProfit
Price
Cost
Utilization Industriessuchas chemicals,steel, industrialequipmentare examples.
Manyindustriesare characterisedbydistinct cyclicalbehavior.The profitabilityofthefirmis afunctionofthecycle. Tellmethecapacity utilization,andIwillbe abletotellyouwhatthe profitabilityis.
Keyelementistounderstandbinding tothecycle.Toyotastrivestolowerits breakevenprofit.ma
18.AfterSaleProfit
Insome industries,suchas manufacturing andairlines,itis notthesaleofthe productorservice thatgenerates theprofit,butthe aftersale financingor serviceofthe product.
Base Product
Followon Products/Services
Doesnotneedan installedbaseto achievethismodel
19.NewProductProfit
Productcyclemay varyby57years
Time Desktopsaremature&profitless Laptopsarestillprofitable Serversareimmenselyprofitable
Newproductprofitsarea functionofnewnessand growth.New,highmargin productsareintroduced, andgrowrapidly.Asthey mature,profitsfall.Other industriessubjecttothis modelarecars,copiers, industrialequipment
Mustshiftinvestmenttocreate undisputedleadershipinnext generationproducts,closelymatching customersmostimportantcurrent priorities
20.RelativeMarketShareProfit
Inmanycompaniesand industrieswithhigh marketsharestendto bemoreprofitable becauselarge companieshavepricing advantagesandcost economiesdueto greatermanufacturing experienceandvolume purchasingability.
RelativeMarketShare RMSsharereferstoa companyssharein relationtocompetitors
21.ExperienceCurveProfit
Asafirmbecomemore experiencedat manufacturingaproductor deliveringaservice,itsprice pertransactiondecreases.A specialistfirmthathas experienceindeliverywillbe moreprofitablethanafirm withoutthatexperience.
CumulativeExperience BCGispredicatedon thistheory
22.LowCostBusinessDesign Profit
Firmscantrumpcumulative experiencewithalowcost businessdesign,whichmakes theincumbentscumulative experienceirrelevant. Southwestdidinairlines,Dell diditincomputing.High experiencewithwrong businessmodeldoesntget youveryfar.
Cumulativeexperiencetoachievelowest costisalwaysvulnerabletoalowcost positionthroughdesign
Conventional Business Design Sailingships example
LowCost Business Design
