MHR 322 Exam 2 Quizlet

humane society silicon valley pricing

$25/ $40 for cats/ dogs Goal to increase adoptions and decrease returns What did they do? Moved both to $110 for cats and dogs Results -- more adoptions and a 50% decrease in returns -- drive up quality

What is a business model?

-"A framework by which you extract from your customers some portion of the value your product creates for them" -"The rationale of how an organization creates, delivers, and captures value"

Pricing Methods: Value-based pricing

-A lot of people like this one -Based on the value of the customer benefit -Customer will likely get the largest share of the benefit -Not to be confused with lowest price in market

Pricing Methods: Demand-based pricing

-Based on the level of customer demand for the product -Product prices are high when demand is high and low when demand is weak Ex. airline tickets

Key takeaways about business models

-Being able to quickly articulate your business model is very helpful when pitching -Many valid variations of business models exists -Successful entrepreneurs often innovate on the business model -Uber -Stickfix, Harry's shaving -Airbnb

what are the benefits to using the business model canvas?

-Consistent logic -Less likely to miss a key gap -Easily changes when new learning demands a pivot -Used to generate financial model -Easy to use framework means more time to get out of the office and talk with customers -Has become a bit of an 'industry standard' so makes for efficient communication

What are the 9 basic building blocks of the business model generation

-Customer segment : people/ organizations for which you are creating value -Value proposition : bundles of products and services that create value -Channels : deliver value -Customer relationships : outline type of relationship -Revenue streams : how and through which pricing mechanisms is capturing value -Key resources : infrastructure/ assets -Key activities : which things you need -Key partners : who can help you leverage business model -Cost structure

Why should you be careful with pricing for early testers and "lighthouse" customers?

-Early testers collaborate with you to improve product -Lighthouse influence the purchasing decisions of others

Price for a novel product

-For a novel product, price is "unknown" and price discovery is an important priority for the startup team -Costs are likely to be unknown -Startups should build business model so the company will be profitable in relation to existing competitors, when competitors show up

price for a existing product

-For an existing product, price is known and startups should price in relation to existing competitors -Value proposition is important in establishing price

Key questions to ask during the customer acquisition process

-How customers will determine they have a need and/ or opportunity to move away from their status quo? -How customer will find out about your product? -How customers will analyze your product? -How customers will acquire your product? -How customers will pay for your product? - How long will all of this take?

Cost based pricing: Bear Spray example

-If cost is $10 and you mark it up 50% it will be rented for $15/ rental (assuming 1 time rental) -If you can rent it out 5 times then the cost would be $2 ($10/5) and the same 50% markit up 50 % will have you at $3/ rental

What is the downside to using the business model canvas?

-Just filling it is the starting point no the destination -Need to test and validate assumptions: just because it is on the canvas doesn't make it a fact -Need to generate a bottom up and credible financial model

Flaws of cost based pricing

-Likely leaving money on the table for high value products (main reason DBE recommends against it) -Difficulty of determining an effective markup %; price may be too high, resulting in lost sales, or pice may be too low, resulting in lost profit

New Product Pricing Strategies

-Price skimming: charging the highest possible price for a product during the intro stage of its life cycle (ex.Apple ) -Penetration pricing: setting a low price for a new product to quickly build market share and discourage competitors

What are the other additional roles of the DMU?

-Primary and secondary influencers = What customers see and follow -Person with the veto power = any time a standard exists -Purchasing Department = how much money they saved

Business models matter: Ann Miura-Ko

-Seed stage for a company is the business model not the business plan -Business models enable you to understand what your assumptions are -Going through each component of business model -Assumptions around entire business model -- how do the customers view you

BMC vs. DBE

-The Business model canvas is a snapshot that changes over time as you learn -DBE is a process that you can follow to learn and refine your BMC

Pricing methods: Cost based pricing

-The seller determines the total cost of producing one unit of the producing one unit of the product then adds an amount to cover additional costs and profit (markup) -Markup may be calculated as a % of total costs -If costs contain both variable and fixed expenses it is common to see price breaks for different quantities

Key components in the customer acquisition process

-Who are the key players from DMU that will be involved? -What is their influence on the process? -What is their budget authority (amount and type?) -How long will it take to complete each component you identify? -What are the inputs and outputs of this step?

What are the steps to discover price

-Work with persona: Study purchase process (budget authority), Examine alternatives (especially status quo) -Look at competitors -Differentiated pricing when possible -Try to keep special and early pricing secret -"It is easier to drop the price than raise the price" :Can often raise price when increasing the value proposition, Switching costs can facilitate ability to raise price -Do not build a business around an artificially high price

what are the 5 ways to win referrals from influencers

1.) Build referral relationships 2.) Gather a group of VIPs 3.) Target professional reviews-- need to know who your customer is reading 4.) get online referrals--ask 5.) Arm influencers with selling tools-- make it easy for influencers to refer others

What are the 3 forms that a business model can take?

1.) Narrative 2.) Financial Articulation (spreadsheet) 3.) Graphical (e.g. Business Model Canvas

5 types of pricing strategies

1.) New Product Pricing 2.) Differential Pricing 3.) Psychological pricing 4.) Product-Line Pricing 5.) Promotional Pricing

What are the 5 types of customer waves?

1.)Technological enthusiast -- first to buy a product and willing to pay higher 2.)Early adopters -- price inelastic but feel like they got a special deal 3.)The early majority (pragmatists) 4.)Late majority (conservatives) 5.)laggards/ skeptics -- come in the latest

The ration of LTV to COCA should be

3: 1

Pricing Methods: Competition- based pricing

Based on meeting the challenge of competitor's prices in markets where products are quite similar or price is an important customer consideration

Test your marketing strategy

Based on your idea you could: -Set up a website/ page -Buy ads (FB, paid search) -Set up a kickstarter campaign -Track analytics -Test different messages -Estimate customer acquisition cost -Test viral aspect if necessary Low cost test/ look for coupons

Think about a McDonald's Happy Meal. Which of the following customer type is the best description of an older sibling?

Champion

Think about a large insurance company, such as American Family (or State Farm, or Zurich, etc.). Where on the business model (or lean) canvas does internet advertising belong?

Channels

Differential pricing

Charging different prices to different buyer for the same quality and quantity of product -The market must consist of multiple segments with different price sensitivities -Negotiated pricing: established a final price through bargaining -Secondary-marketing pricing: setting one for the primary target market and a different price for another market -Periodic discounting: temporary reduction of prices on a patterned or systematic basis -Random discounting: temporary reduction of prices on a unsystematic basis

When advertising isn't enough-- Connie Chan

China has taken on different business models Advertising = eyeball economy Defense: consumption behavior change -Demand for more personalization -Ad fatigue What could business models look like? -Merge advertising and transaction into your model -- all ads become transactions -Revenue diversification What is china doing? -Mobile only -- mobile payments -- seamless digital society -Ebooks: can by the chapter or every 100 characters, can tip the offer -- self published books - only pay to unlock the ending --Social gamification -- sorting -- social element

What is key to understanding the lifetime value of a customer?

Customer acquisition process

Which part of the Business Model Canvas describes the types of relationships a company establishes with specific customer segments?

Customer relationships

Which part of the Business Model Canvas describes the different groups of people or organizations an enterprise aims to reach and serve?

Customer segments

What did Geoffrey Moore's "crossing the chasm" framework discover?

Different types of customers will pay different prices

What is the customer made up of?

End User Decision Making unit -Champion -primary economic buyer -influencers, veto power

Product line pricing

Established and adjusting the prices of multiple products within a product line --Captive pricing Pricing the initial product in a product line low, but pricing related supply items at a higher profit level --Premium pricing Classic (good/better/ best) model --Price lining Selling goods only at certain predetermined prices that reflect definite price breaks ( memorial union beer)

Mapping the process to acquire a paying customer usually requires all of the following steps EXCEPT:

Estimating the per unit cost of acquiring a new customer

Calculating total addressable market for follow-on markets is essential relatively early in the venturing process because you need to be prepared to pivot if your beachhead market does not develop as expected.

False

Giving away your product or service for free can be a viable business model as long as you sort out how to monetize it later.

False

Once you have identified your beachhead market, you should identify 10-12 adjacent markets and calculate TAM for each.

False

The business model you select and implement for your venture will have a significant impact on both whether you need to raise external capital as well as how you raise external capital.

False

The persona for your product is also the primary economic buyer: T/F

False

When you are trying to sell a new product or service, you usually only have to convince one key person to make the sale.

False

When you are trying to sell a new product or service, you usually only have to convince one key person to make the sale: T/F

False

To develop an effective map for the process of acquiring a paying customer, it is important to:

Figure out whether the various decision-making units have the budgeting authority to make purchases Figure out exactly who will make the final purchasing decision Figure out whether the target customer fits your persona or not Figure out how much it will cost, in total, to acquire a customer --figure correct answer--

Free pricing models

Freemium: product or service delivered for free, price charged for enhanced features Shareware: price = 0 under certain conditions, price >0 under other conditions Adware: product is free, pricing paid by third part (advertiser) Typically used for products with a very low marginal cost (software)

Which business model is the most common for service firms because it rewards short-term activity rather than scaling up?

Hourly Rates

Which part of the Business Model Canvas describes the most important things a company must do to make its business model work?

Key resources Products and services Channels Key activities

Pricing key takeaways

Lots of different pricing strategies/ methods Need to customize the answer to fit your specific situation (not a simple econ textbook answer) In a startup this is yet another attribute that you can test via experiment

Which business model relies on the customer providing their credit card or billing information in advance and then being charged for small purchases, usually of digital goods with no physical value?

Microtransactions

Should costs be a factor in deciding price

No

Psychological pricing

Odd-number pricing: setting pricing using odd numbers that are slightly below whole dollar amounts (9.99 instead of 10 ) Multiple unit pricing Setting a single price for 2 or more units Reference pricing Pricing a product at a moderate level and positioning it next to a more expensive model or brand Bundle pricing Packaging two or more complementary products and selling them for a single price Everyday low prices (EDLPs) Setting a low price for products on a consistent basis Customary pricing Pricing on the basis of tradition

Use of Price

Price = information -Price allocates goods and services among those who are willing and able to buy them -Price allocates financial resources (sales revenue) song producers according to how well they satisfy customers' needs -Price provided competitors with information about potential profitability -Price can be perceived as a signal of quality

Promotional pricing

Price leaders Products priced below the usual markup, near cost, or below cost Special -event pricing Advertised sales or price cutting linked to a holiday, season, or event Comparison discounting Setting a price at a specific level and comparing it with a higher price

In the decision-making unit, the most important role determining whether your product sells is:

Primary economic buyer

What should be the main factor for deciding price?

Set your price based on the the value the customer gets from your product, rather than on your costs-- quantified value proposition

Pricing Methods: Price differentiation

Setting different prices in segmented markets based on segment characteristics (e.g. time of purchase, type of customer, or distribution channel )

Interview with Daymond John

Starting a FUBU -- hats Sell hats Reached out to a musical artists to wear hat --- expanded from there Clothing line in music videos How to convince them Focused on local celebrities in the community -Influencers -Local entrepreneurs/ influencers

Which of the following is NOT one of the 9 building blocks of the Business Model Canvas?

Technology

What is the meaning of price?

The amount of money a seller is willing to accept in exchange for a product at a given time and under certain circumstances

Break even analysis

The calculation is easy but the challenge is determining the right numbers to use --Which expenses are fixed and which are variable --What is the right amount In a startup knowing your B.E. helps provide some confidence in your business being profitable in the future This is also used for marketing promotional items. Eg. brand manager agrees to run a $20,000 ad in the sunday paper, need to figure out the incremental sales to hit break even

In her talk on why business models matter, Ann Miura-ko of Floodgate Ventures says that the business model helps show whether:

The combination of elements leads to "dollars in" being greater than "dollars out" or not.

In "A Broken Place," the article about Better Place and entrepreneur Shai Agassi, the business model began to fall apart when:

The company's Board of Directors ran into problems managing Agassi. Agassi began spending money on non-essential things like a visitor center The company did not get an opportunity to buy General Motors after GM went bankrupt. The actual car produced by the company was lower-end than planned, with less travel range, and a higher price. -- Figure correct answer--

The primary economic buyer is:

The decision maker who will sign off on spending money

In her talk on why business models matter, Ann Miura-ko of Floodgate Ventures says that she likes to see a business model for a new venture because it shows:

The key assumptions and hypotheses about why the venture could succeed.

In the decision making unit, a champion is

The person who wants the customer to purchase the product

In the decision-making unit, an influencer is:

The person with depth of experience whose opinion can affect the rest of the decision making unit

Which of the following is the best definition of a business model?

The rationale of how an organization creates, delivers, and captures value.

All of the following are key factors when designing a business model EXCEPT:

The strategy or core you will implement

total revenue

The total amount received from sales of a product

A business model is a framework by which you capture value from customers based on the product or service you sell.

True

Calculating the total addressable market size for follow-on markets helps you stay aware of the long-term potential of your business

True

In Connie Chan's talk, "When Advertising Isn't Enough", she states that one of the key differences is that the large US consumer internet companies typically have only one main revenue stream while those in China have multiple large revenue streams.

True

Mapping the process to acquire a paying customer can help you identify hidden obstacles that inhibit your ability to sell your product.

True

Mapping the process to acquire a paying customer can help you identify hidden obstacles that inhibit your ability to sell your product: T/F

True

One of the most important reasons to map out the process to acquire a paying customer is to understand the length of the sales cycle.

True

One of the most important reasons to map out the process to acquire a paying customer is to understand the length of the sales cycle. T/F

True

The best way to figure out the decision-making unit is to talk to your potential customers.

True

Which business model charges customer for the products or services actually used or consumed?

Usage-based

How should you acquire a paying customer and identify key price points?

Use DMU and the process and understand the prices of the customer's alternative

Crawl Walk Run Strategy

Work with customers using an inefficient sales strategy before you can pursue a standardized sales process

Fixed cost

a cost incurred no matter how many units of a product are produced or sold

Variable Cost

cost that depends on the number of units produced

What is the focus of the short term sales process?

create demand for your product and to fulfill orders for the product

What is the primary goal of a startup?

discover how customers can be systematically acquired -How it works -what it costs -how long it takes

Break even quantity formula

fixed cost/ (revenue per unit- variable cost per unit)

What can be a huge value indicator for business model?

innovation

Below break even

losing money

What is the focus of medium term sales process?

order fulfillment as word of mouth and distribution channels take on some of the demand creation burden

Is LTV about profit or revenue?

profit

LTV

profit that a new customer will provide on average, discounted to reflect the high cost of acquiring capital that a startup faces

above break even

profitable

breakeven quantity

the number of units that must be sold for the total revenue (from all units sold) to equal the total cost (of all units sold)

total cost

the sum of fixed and variable costs attributed to a product

T/f: It is always easier to drop the price than to raise the price

true

t/f: Can be very difficult to change an established business model for existing customers ( means opportunity for entrepreneurs)

true

What's an example of a unique business model

uber

Business model canvas by osterwalder

• Focus on key components of Bus. Model • Hypothesis driven • Easily changeable (Post-it Notes) • Can color code different customer segments