Types of Business Models - Example

Part Introduction The business idea in this case is to launch a new Fairtrade company that would sell fresh organic orange juice to a selected targeted market. This market mainly comprises of the young and energetic people who are involved in sport as well as other old people who are conscious about their health and wellness issues. The essay is designed in such a way that the first part will analyse the competitiveness of the new business idea. This part will discuss in detail the product, potential customers, competitors as well as potential revenue and cost likely to be incurred. Porter’s Competitive advantage The company will trade as “Organic Orange Juice Ltd” (OOJ) and the product will be offered through company owned retail stores. In order to gain competitive advantage in the long run, the company will utilize Porter’s generic strategies in order to exceed the performance of the other rival competitors. Porter (1985) suggests a framework for competitive advantage shown below. Porter’s Generic matrix Source: http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html University of Cambridge- Institute of Manufacturing, Accessed on 10 March, 2014. 1. A firm chooses to become the low cost producer. 2. A firm chooses to offer unique products 3. The company chooses to lower costs in the targeted segment. 4. The aim is to be different in the target segment As suggested by Porter (1985), the firm needs to have sustainable competitive advantages in order to survive. Organic Orange Juice will use mainly two strategies namely: differentiation and cost focus in order to gain competitive advantage. Cost focus will be achieved through careful and effective management of the cost drivers for the business (Robinson, 2007). In this case, the firm will use company owned stores to lower costs such as rentals. The company will also use the internet to carry out its marketing activities since this is cheaper compared to other forms of marketing communication. The company will also use the strategy of differentiation in order to gain a competitive advantage. According to Porter (1985, p.120), differentiation is “the process when the company provides something unique that is valuable to buyers beyond simply offering a low price.” In this particular case, organic orange juice is unique in its own right since there are still few products in the beverages market that are purely organic. The company is likely to incur substantial costs in setting up business as well as other related operational costs. However, there is hope that the company will generate enough revenue to sustain its operations since there are few competitors in this market segment that specialises in offering purely organic juice. Part 2: Type of business model going to be adopted by Organic Orange Juice Ltd A business model is described as a way in which a particular organization operates in order to generate revenue while at the same time satisfying the needs of the customers. There are different types of business models. In this case, OOJ will adopt the retailing business model since it is primarily concerned with selling the final product to the customers. More details about this model are provided below. Selected business model Retailing includes all activities involved in selling products and services directly to the final consumers for their personal use (Kotler & Armstrong, 2010). The product line will be specialised and the type of business will specifically focus on speciality stores where a narrow product line will be carried. In this case, the new business focus will be on organic fruit and vegetable. The main idea behind this business model is that health issues are gaining prominence especially with regards to the type of food that is consumed by different people. Therefore, people who are health conscious are likely to take proactive measures by choosing organic diets that are recommended as healthy for their bodies in the long run. The exponential growth of the use of the internet in retailing has significantly changed the industry. Against this background, it can be noted that the main advantage of e-retailing especially in the US is that it has witnessed a steady growth of gateways or portals into the internet and as gatekeepers, these have the potential to act as the first contact intermediary for the end user (Willcoks & Sauer, 2000). This business model of e-retailing is advantageous in that the consumers especially in the US can identify with homemade brands that often have a cultural connotation on the preferred brands consumed by the customers. OOJ will harness on the use of the internet to carry out its retailing activities of the organic orange juice to different segments of the targeted customers. The brand will be sold through company operated retail stores that would be specifically located in upmarket areas. The main reason for this positioning strategy is that the targeted customers will be mainly comprised of the affluent people who are conscious about their health and wellness issues. The products offered by the company will also attract premium prices since they would be made from original ingredients and free from any additives that characterise other beverages found in the industry. Risks The major risk likely to be encountered by the company is related to losses being incurred. Launching a new business enterprise is always characterised by uncertainties. For instance, the customers may not be aware of the product offered and this might have a bearing on the performance of the brand in the market. Negative attitude among the targeted customers may result in the brand faring poorly on the market. This is a risk since the company may not be able to recoup the money that would have been invested in the business venture. Market volatility is the other risk that is likely to be encountered by OOJ. Unprecedented forces can shape the market at any given time and these may influence the buying behaviour of the targeted consumers. For instance, financial crisis or rising interest rate in the market can negatively impact on the operations of the organization. This means that the targeted customers may also experience economic hardships which would mean that these people might end up having less disposable income. This product cannot be treated as a priority against other pressing issues that may need immediate attention. These factors can contribute towards losses incurred by the company since it may face difficulties to generate enough revenue to cover the money invested in launching the business venture. Proposed forecast of balance sheet (ASSETS) and income statement It is focused that a huge amount of money will be invested in the start up of this business. About $500 000 is required as initial investment for this business venture. The firm would need to acquire its own buildings that it would use as retail stores. These buildings are likely to cost the company about $200 000. Since most of the business would be done online, the company will also need to procure hardware such as computers and other related telecommunications equipment. This infrastructure has to be installed and maintained and it is anticipated that about $150 000 would be required for this particular purpose. The other $100 000 would be used as operating capital while the remaining $50 000 would be used to carry out marketing communications for the company. Various marketing strategies such as personal selling, sale promotion, public relations as well as advertising would be used to market the brand so as to help the company to attract many customers. It is anticipated that the company would generated about 5% of the total money invested as revenue during the first quarter of the operating year. Amount required Based on the forecast predicted above, it can be noted that a total of about $500 000 would be ideal for the total investment of this whole business venture. It is anticipated that about two thirds of the total amount of money required to start up this business venture would be obtained on credit lines from Citi Bank. The loan would be sourced in order to cover the investment expenses that are likely to be incurred when business is launched. It is anticipated that the loan would be paid through the revenue generated from the operations of the organization after are five year period. This would help the company to realise its profit oriented goals while at the same time meeting its financial obligations such as sustaining its operations. If carefully implemented, this investment strategy would go a long way in building a formidable business enterprise that can leave a mark in the Fairtrade industry. Part 3 According to Keller’s Brand Equity Model (2014), “The concept behind the Brand Equity Model is also known as customer value proposition is simple: in order to build a strong brand, you must shape how customers think and feel about your product.” This can be done through building the right type of experiences which help the customers to have positive thoughts, feelings, opinions as well as attitudes towards a brand. Utilising the brand "resonance" helps the customers to identify with the brand such that they can also create loyalty towards it. When the brand resonates with the needs and interests of the customers, it means that the customers are ready to buy the product offered. In the case of OOJ, the aim is to increase the sales volumes of the organic orange fruits offered by the company to different customers in the market. There are different strategies that can be taken into account to make this business venture a success. Given that the customers are likely to have a deep, psychological bond with our brand, the company aims to increase the market share by 5 % and this can be done through harnessing on behavioural loyalty that can be achieved through repeat sales. The strategy that can be utilised in this case is the use of e-retailing for marketing the product to the customers. It can also be observed that customer value would be created through the use of social networking in order to create a link with the customers. Social networks like face book can be utilised for customer value proposition in as far as the new product in the market is concerned. Sales Pitch Ever thought of a product that is comprised of two crucial components in one brand! Then organic orange juice is the right product for you. Quality, health and wellness issues are guaranteed from our fair-trade organic product. The price is affordable and we believe in offering value for money. We value your health so hurry while stocks last. “OOJ, the way to go!” Conclusion Over and above, it can be seen that starting a new business venture is a process that requires a holistic approach. It is important to choose the right business model for the product going to be offered. As discussed in this paper, it is also essential to segment the market so as to be in a position to target the consumers. It is also essential to estimate the costs that are likely to be incurred when starting a business venture since this will determine its success or failure. References Keller’s Brand Equity Model, 2014 “Building a powerful brand”[online] Accessed 10 March 2014, from:. Kotler, P. & Armstrong, G. (2010). Principles of Marketing. SA: Person. Porter M.E. (1985), Competitive Advantage; Creating and Sustaining Superior Performance. New York: The Free Press. Robinson W (1997), Strategic Management and Information Systems, 2nd Edition, Prentice Hall, UK. Types of business models. [online]. Accessed 10 March 2014, from:. University of Cambridge- Institute of Manufacturing (N.D.) [online]. Accessed 10 March 2014, from:. Willcoks, L & Sauer, C., (2000). Moving to e-business: The ultimate practical guide to e- business. Random House: Sydney. Read More