A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Revenue modeling incorporates a sustainable financial model for revenue generation within a business model design. Revenue modeling can help understand what options make more sense in creating a digital business from scratch; alternatively, it can help analyze existing digital businesses and reverse engineering them.
A revenue model is a key component of a business model. When that becomes scalable, it also makes the whole business sustainable.
That is why figuring out how you will make money is a key part of the future success of your organization.
Where many tech companies do not stress over revenue generation, early on, once the product has been validated by the market, it will need to become financially sustainable.
For that, pricing strategies and patterns can help figure out a revenue model that works.
The pricing patterns below can build up a viable business model.
AppSumoed: transforming subscriptions in lifetime deals
AppSumo partners up, usually with SaaS (Software as a Service) companies, and offers lifetime deals only available on its platform for a limited time.
If you know AppSumo, that is among the most popular deals platforms in the SaaS space.
AppSumo takes a company with a subscription revenue model and transforms it (only for its platform) into a lifetime deal, thus making it a no-brainer for its audience to purchase the deal.
This sort of pricing strategy can be effective at launch. When you have a product and a brand that none knows, leveraging this sort of pricing strategy can:
Help you feature your product on deals platforms which can amplify it in a very short time frame.
Enable many users to join an entry product, thus prompting those users to convert to higher-paying tiers over time.
It is possible to gather feedback from many initial users, thus helping them refine your product.
Thus, at launch, it can also be a good pricing strategy for software products (which require continuous updates and support).
However, that is not suited as a long-term pricing strategy.
It’s instead a good long-term strategy only for those products not requiring many updates over time (digital products, one-time services).
Auction: the winner takes it all
In an auction pricing strategy, two or more people bid on a product, and the product gets sold to the bidder who offers the most.
In an auction-style listing, sellers name a starting price and you bid against other buyers. You can watch the item to see how the bidding is going. When the listing ends, the highest bidder wins the item and completes the purchase.
eBay’s core business is a platform business model that makes money from transaction fees through its marketplaces. In short, eBay primarily makes money by charging fees on successfully closed transactions. For instance, in 2021, on an $87 billion worth of gross merchandise value sold on eBay, the company generated $9.77 billion in transaction revenues at an 11.19% take rate (fee).
The auction makes sense in eBay’s case as the company is a marketplace (or platform business model) that succeeds in turning revenue when sellers and buyers can close the bidding successfully.
The auction can be a good pricing strategy in a few circumstances:
Fast-changinginventory: the bidding system is successful as it enables a quick turnover of inventories, which can drive more people on the platform who are always looking for new, exciting stuff.
Curated goods: this sort of system might also be very suited for platforms enabling transactions of goods that are harder to find anywhere else.
Maximized value: when the platform is highly curated and the items are well selected. The transaction value can be driven up by buyers’ willingness to pay more for those objectives they are looking for (collectors are willing to pay more).
Thus, in this scenario, this sort of system would work.
In other cases, though, it might make less sense if the platform sells regular stuff anywhere else.
Bundled: more for less
Bundling consists of grouping a set of products and services, more conveniently priced if they were priced singularly.
Thus in the bundle, they cost more than the single product, yet overall way more convenient.
For instance, a single pen sells at $1. A bundled package of ten pens, each with a different color, can be bundled and sold at just $5.
The customers pay more in absolute numbers, yet less in relative numbers, and they can get more variety.
Your margins are reduced, yet you also make the offer more attractive, and you can sell more based on volume.
Thus, the advantages of bundling are:
Amplify the reach of the product.
Expand the customer base.
Make the product more accessible.
Test pricing variations of otherwise products that get sold singularly.
Experiment with product variety.
Use the best-selling products to push otherwise less-known products.
Create higher-ticket yet convenient offers.
Therefore, bundling can be a powerful pricing strategy. Yet, it needs to be tested carefully, as the risk is to dilute the core product offering.
As companies build up distribution power in a market, they bundle up products in adjacent and complementary markets.
Consumption-based: pay what you consume
In a consumption-based model, customers only pay when the product gets used. This is usually well suited for those services or products that require continuous usage.
For instance, cloud services are primarily charged on a consumption basis. This pricing model is the opposite of a recurring model where certain resources are comprised independently from their usage.
For instance, you pay your Netflix subscription whether or not you watch it. Yet you also pay a convenient price, as if you do watch it as you could potentially watch the full library of content.
Customers usually like consumption-based, especially on a B2B, as this doesn’t create lock-in or overheads, and businesses only get charged if they do use it.
Couponized: discounted as default
In a “couponized” scenario, the platform acts as a deal platform where you can find default continuous discounts.
For instance, e-learning platforms like Udemy leverage aggressive coupon strategies to enable a large number of people to join in.
Also, a platform like Groupon built a whole business model on matching people with businesses offering coupons for services.
While coupons can be a great way to attract more customers (we all like to save or feel like we’re saving money), you can build a whole business model around coupons.
Companies that offer a wide variety of products, or connect many sellers with potential buyers, can use coupons effectively.
Fixed-price: the safe price
In a fixed-pricing pricing strategy, the company “promises” to keep the same pricing level forever, thus assuring customers about the potential future market fluctuations.
While fixed pricing can be great for attracting a larger number of customers, at the same time, it might not scale well.
Indeed, fixed pricing is just the opposite of a dynamic pricing strategy where pricing can vary according to demand and offer and the company, so the offer and demand of those services can adjust accordingly.
Pay-as-you-go: charge it up and go
In a pay-as-you-go pricing strategy, you can enable customers to prepay for a certain level of service to be used at their discretion.
In this pricing model, flexibility is the key advantage for the customers, as the service can be used within a time frame.
Pay as you want: customer-made pricing
In a pay-as-you-want model, customers make the price.
This sort of strategy can be useful when launching a service with highly variable pricing, given its low marginal costs, thus making it possible to make an informed guest (driven by customers’ feedback) on the best pricing for that product.
In short, rather than guessing, you can just see what most customers pay for that product and price accordingly.
However, pay as you want might work only in certain circumstances.
For instance, if you apply the pay-as-you-want formula to customers who already know you, they might use it fairly and not against you (to get it for free).
In addition, pay as you want might be a good strategy to launch a product, as feedback (make sure to set a minimum price) to know how much people would feel comfortable paying.
Or a pricing strategy applied to a limited set of customers and conditions (for instance, to give back to lower-income customers), but make sure to prevent cannibalizing your existing customer base.
Platformed: get a cut on one or both sides
In a platform business model, you can make money by charging a single side of the platform (LinkedIn charges recruiters) or by collecting a fee from both (Airbnb earns a commission from both hosts and guests).
When you develop a successful platform where people can transact with each other, you have the potential to charge on both sides or perhaps evaluate which side is willing or able to Austin the cost of the transaction in exchange for a continuous stream of customers.
Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. Due to the pandemic, Airbnb is stretching its business model and experimenting with new formats like online experiences to transition toward fully digital experiences.
Psychological pricing: change the product’s perception
In a psychological pricing strategy, rather than changing the physical nature of the product offered, you can leverage on psychological elements to carve the perception around your product.
Some examples are time constraints (offers for a limited time), and others are based on using the “9” at the end (for instance, use $1.99 rather than $2, as it might give the perception of a less expensive option).
More than a pricing strategy, this is a tactic to be used whatever pricing option you choose, as it can help you change the perception of your product by using only psychology.
The key here is experimentation, also based on what psychological tactics are been used by others. Model after them and test.
See also how companies like Netflix use psychological pricing to their packages.
SaaSified: transform a product into a service
In the SaaS industry, most software is sold as subscription services.
This model proved viable as it enabled those companies to keep investing in continuous software updates, bug fixes, and the willingness to keep improving the product, thanks to customers’ feedback.
WeWork defined its revenue model as space-as-a-service and claimed to be more scalable than traditional commercial real estate.
Almost any product can be transformed into a service with a bit of thinking and tweaking.
The advantage is creating a continuous customer relationship and a more stable revenue stream.
Of course, continuous service requires an important investment in product development. And a great customer support team.
Subsidized: let the rich pay for the poor
In a subsidized pricing strategy, a set of customers pay for everything else.
This pricing strategy makes the product free for most customers while premium for others.
It can take the form of various revenue streams from freemiums (where only a small percentage pays for the premium service, while most users will pick the basic, free service) to sponsorships (where a small number of sponsors pay to make the service available to a large segment of people who don’t pay for it).
Companies like MailChimp leverage a freemium offering as they have a stable and strong customer base able to sustain the free offerings for accounts that might never convert into paid customers.
Uberized: dynamic pricing
Dynamic pricing is the practice of having multiple price points based on several factors, such as customer segments, peak times of service, and time-based consumption, that allow the company is applying dynamic pricing to expand its revenue generation.
Dynamic pricing is the practice of having multiple price points based on several factors, such as customer segments, peak times of service, and time-based consumption, that allows the company to apply dynamic pricing to make the transactions on the platform more scalable.
Indeed, with dynamic pricing, demand and supply can adjust accordingly.
For instance, if suddenly there is way more demand for a ride at a time of the day where fewer drivers are available, the price surges, thus making it possible for the few drivers left to accept the ride, as they can gain more.
This pricing strategy can work pretty well in the case of services offered that can go through high volatility in demand and offer, thus making it possible to scale revenues even when the volume of transactions grows exponentially.
Unbundled: let them get what they want
In an unbundled scenario, rather than trying to lock in with a higher-priced product bundle, the company can make available the only product people want the most.
For instance, Apple iTunes unbundled CDs by enabling people to purchase single songs, which finally gave people the option to get only what they wanted rather than purchasing the whole CD.
Unbundling is a business process where a series of products or blocks inside a value chain is broken down to provide better value by removing the parts of the value chain that are less valuable to consumers and keeping those in a period in time consumers value the most.
Pricing Strategies and Revenue Models:
Pricing Strategy and Business Model Alignment: A pricing strategy serves as a crucial bridge between a company’s offerings and its business model. By setting the right prices for products or services, companies aim to strike a balance between meeting customer needs and generating sufficient profits. This alignment ensures that customers find value in the products while the company achieves its financial objectives.
Importance of Revenue Modeling: Revenue modeling is the process of designing a sustainable financial model for revenue generation within a business. It involves understanding how different pricing strategies and monetization methods contribute to the overall financial health of the company. Successful revenue models not only support the company’s operations but also enable investments in growth and innovation.
Revenue Model and Business Sustainability: In the context of digital businesses, a solid revenue model is crucial for long-term sustainability. While startups might prioritize user acquisition and product development initially, a point comes when the business must become self-sustaining financially. Revenue models guide how a company generates income, ensuring it can cover operational costs and continue delivering value to customers.
Various Pricing Patterns:
AppSumoed (Lifetime Deals): The AppSumoed strategy involves partnering with other companies to offer limited-time lifetime deals. This approach can create a surge in user adoption and provide feedback for product refinement. However, it might not be suitable for long-term profitability, especially if the product requires continuous updates and support.
Auction Pricing: The auction pricing strategy, as seen on platforms like eBay, enables dynamic price discovery through competitive bidding. It’s effective for products with rapidly changing inventory or unique items that attract collectors. The auction model aligns well with platform businesses that connect buyers and sellers.
Bundling: Bundling combines multiple products or services into a package that offers convenience and perceived value to customers. It’s advantageous for expanding customer reach, increasing sales volume, and experimenting with product combinations. However, careful consideration is needed to avoid diluting the core offering.
Consumption-Based Pricing: Consumption-based pricing, commonly used in cloud services, charges customers based on their actual usage. This model is well-suited for services that require continuous engagement, enabling customers to pay only for what they use. It aligns with customer preferences for flexibility and cost-effectiveness.
Couponized: The couponized strategy involves offering continuous discounts to attract price-sensitive customers. This approach can be effective for platforms with a wide range of products or services, as it appeals to customers seeking deals. However, relying solely on coupons may impact perceived product value over time.
Fixed-Price and Pay-As-You-Go: Fixed pricing assures customers of consistent costs but may not accommodate dynamic demand or market changes. Pay-as-you-go models provide flexibility for customers to use services as needed, making them suitable for scenarios where usage patterns vary.
Pay-As-You-Want: The pay-as-you-want model empowers customers to choose the price they are willing to pay. It can be useful for gathering pricing insights and launching products with uncertain value perception. However, careful implementation is required to prevent misuse.
Platformed: Platform businesses can generate revenue from one or both sides of transactions. This approach depends on the value proposition for each side and the willingness to pay. Successful platformed models create a sustainable ecosystem where users find value and are willing to engage.
Psychological Pricing: Psychological pricing leverages human cognitive biases to influence buying decisions. Tactics like time constraints create a sense of urgency, while using prices ending in “9” can make products appear more affordable. These strategies enhance the perceived value of products without changing their physical attributes.
SaaSified: The SaaSified strategy involves transforming products into subscription-based services. This model allows companies to provide continuous updates and support, building long-term relationships with customers. It’s a common approach in the software industry to ensure ongoing revenue streams.
Subsidized Pricing: Subsidized pricing involves offering products for free or at a lower cost to a large segment of users, with a smaller group of paying customers subsidizing the rest. This approach can be seen in freemium models or sponsorships. It’s a way to attract a wide audience while generating revenue from a subset of customers.
Uberized (Dynamic Pricing): Dynamic pricing adjusts prices based on real-time demand and supply conditions. This strategy is effective for services that experience fluctuations in demand, enabling companies to optimize revenue during peak times. It aligns with customers’ willingness to pay more when demand is high.
Unbundled Pricing: Unbundling involves offering individual components of a value chain as standalone products. This strategy caters to customers who seek specific features or services without paying for the entire package. Unbundling provides customization and flexibility while targeting different customer segments.
Case Studies
AppSumoed (Lifetime Deals)
StackSocial: Promotes a variety of tech deals, from software to courses.
Lifetime Deals: Platform offering lifetime subscriptions to various software tools.
LTDFeed: Showcases lifetime offers from multiple sectors.
Auction Pricing
Sotheby’s: Globally recognized auction house for art and collectibles.
Christie’s: Another leading name in art auctions.
Paddle8: Online auction platform for art and luxury collectibles.
Bundling
Microsoft Office Suite: Packages Word, Excel, PowerPoint, etc.
Hulu/Disney/ESPN Bundle: Offers combined subscription to all three services.
Cable TV Packages: Providers bundle channels together at different price points.
Consumption-Based Pricing
Azure: Microsoft’s cloud service that charges based on consumption.
DigitalOcean: Cloud infrastructure provider with a pay-as-you-use model.
SendGrid: Email service that charges based on the number of emails sent.
Couponized
RetailMeNot: A leading savings destination for deals.
Honey: Browser extension that searches for online discount codes.
SlickDeals: Users share and vote on the best deals and coupons.
Fixed-Price
Walmart: Retail products at set prices.
McDonald’s: Fixed pricing for fast-food items across most locations.
Apple Store: Products have a standard price across regions.
Pay-As-You-Go
Zipcar: Car-sharing service where you pay for the hours you use.
Oyster Card (London): Pay-as-you-go system for public transportation.
TracFone: Wireless service where you buy minutes as needed.
Pay-As-You-Want
Patreon: Creators receive donations/payments of any amount from fans.
Humble Bundle: Customers can decide their price for bundles of games/software.
Some Indie Games: Occasionally use a pay-what-you-want model for promotions.
Platformed
Etsy: Platform for sellers to offer handmade and vintage goods, charging fees.
Fiverr: Freelancers offer services, and Fiverr takes a commission.
Udemy: Instructors provide courses, and Udemy takes a share of the revenue.
Psychological Pricing
Gas Stations: Often price fuel at numbers like $2.99 9/10 per gallon.
Retail Sales: Products might be priced at $49.95 instead of $50.
Fast Food: Items priced at, for example, $4.99 instead of $5.
SaaSified
Slack: Communication platform with monthly or yearly subscription pricing.
Asana: Task management tool with a recurring fee for premium features.
Zoom: Video conferencing software with a subscription model.
Subsidized Pricing
Mobile Phones with Contracts: Carriers subsidize phone costs in exchange for long-term contracts.
Kindle Special Offers: Discounted Kindle prices in exchange for viewing ads.
Spotify Free: Ad-supported version that’s free for users.
Uberized (Dynamic Pricing)
Amazon: Dynamic prices for products based on demand, availability, and competitors.
Hotels.com: Hotel room prices that vary based on demand.
Ticketmaster: Concert or event ticket prices may vary based on demand.
Unbundled Pricing
A la Carte TV Services: Services like Sling TV let you choose individual channels.
Airlines: Many now charge separately for baggage, meals, seat selection, etc.
Modular Phones: Buy the base phone and then add on the features you want.
Expanded Pricing Strategies Explorer
Pricing Strategy
Description
Key Insights
Cost-Plus Pricing
Markup added to production cost for profit
Ensures costs are covered and provides a predictable profit margin.
Value-Based Pricing
Prices set based on perceived customer value
Aligns prices with what customers are willing to pay for the product or service.
Competitive Pricing
Pricing in line with competitors or undercutting
Helps maintain competitiveness and market share.
Dynamic Pricing
Prices adjusted based on real-time demand
Maximizes revenue by responding to changing market conditions.
Penetration Pricing
Low initial prices to gain market share
Attracts price-sensitive customers and establishes brand presence.
Price Skimming
High initial prices gradually lowered
Capitalizes on early adopters’ willingness to pay a premium.
Bundle Pricing
Multiple products or services as a package
Increases the perceived value and encourages upselling.
Psychological Pricing
Pricing strategies based on psychology
Leverages pricing cues like $9.99 instead of $10 for perceived savings.
Freemium Pricing
Free basic version with premium paid features
Attracts a wide user base and converts some to paying customers.
Subscription Pricing
Recurring fee for ongoing access or service
Creates predictable revenue and fosters customer loyalty.
Skimming and Scanning
Continually adjusting prices based on market dynamics
Adapts to changing market conditions and optimizes pricing.
Promotional Pricing
Temporarily lowering prices for promotions
Encourages short-term purchases and boosts sales volume.
Geographic Pricing
Adjusting prices based on geographic location
Accounts for variations in cost of living and local demand.
Anchor Pricing
High initial price as a reference point
Influences perception of value and makes other options seem more affordable.
Odd-Even Pricing
Prices just below round numbers (e.g., $19.99)
Creates a perception of lower cost and encourages purchases.
Loss Leader Pricing
Offering a product below cost to attract customers
Drives traffic and encourages additional purchases.
Prestige Pricing
High prices to convey exclusivity and quality
Appeals to premium or luxury markets and enhances brand image.
Value-Based Bundling
Combining complementary products for value
Encourages customers to buy more while receiving a perceived discount.
Decoy Pricing
Less attractive third option to influence choice
Guides customers toward a preferred option.
Pay What You Want (PWYW)
Customers choose the price they want to pay
Promotes customer goodwill and can lead to higher payments.
Dynamic Bundle Pricing
Prices for bundled products based on customer choices
Tailors bundles to customer preferences.
Segmented Pricing
Different prices for the same product by segments
Considers diverse customer groups and willingness to pay.
Target Pricing
Prices set based on a specific target margin
Ensures profitability based on specific financial goals.
Loss Aversion Pricing
Emphasizes potential losses averted by purchase
Encourages decision-making by highlighting potential losses.
Membership Pricing
Exclusive pricing for members of loyalty programs
Fosters customer loyalty and membership growth.
Seasonal Pricing
Price adjustments based on seasonal demand
Matches pricing to fluctuations in consumer behavior.
FOMO Pricing (Fear of Missing Out)
Limited-time discounts or deals
Creates urgency and encourages purchases.
Predatory Pricing
Low prices to deter competitors or drive them out
Strategic pricing to gain market dominance.
Price Discrimination
Different prices to different customer segments
Capitalizes on varying willingness to pay.
Price Lining
Different versions of a product at different prices
Catering to various customer preferences.
Quantity Discount
Discounts for bulk or volume purchases
Encourages larger orders and repeat business.
Early Bird Pricing
Lower prices for early adopters or advance buyers
Rewards early commitment and generates initial sales.
Late Payment Penalties
Additional fees for late payments
Encourages timely payments and revenue collection.
Bait-and-Switch Pricing
Attracting with a low-priced item, then upselling
Uses attractive deals to lure customers to higher-priced options.
Group Buying Discounts
Discounts for purchases made by a group or community
Encourages collective buying and customer loyalty.
Lease or Rent-to-Own Pricing
Lease with an option to purchase later
Provides flexibility and ownership choice for customers.
Bid Pricing
Customers bid on products or services
Prices determined by customer demand and willingness to pay.
Quantity Surcharge
Charging a fee for purchasing below a certain quantity
Encourages larger orders and higher sales.
Referral Pricing
Discounts or incentives for customer referrals
Leverages word-of-mouth marketing and customer networks.
Tiered Pricing
Multiple price levels based on features or benefits
Appeals to customers with varying needs and budgets.
Charity Pricing
Donating a portion of sales to a charitable cause
Aligns with corporate social responsibility and attracts conscious consumers.
Behavioral Pricing
Price adjustments based on customer behavior
Customizes pricing based on customer interactions and preferences.
Mystery Pricing
Prices hidden until the product is added to the cart
Encourages customer engagement and commitment.
Variable Cost Pricing
Prices adjusted based on variable production costs
Reflects cost changes and maintains profitability.
Demand-Based Pricing
Prices set based on demand patterns and peak periods
Maximizes revenue during high-demand periods.
Cost Leadership Pricing
Competing by offering the lowest prices in the market
Focuses on cost efficiencies and price competitiveness.
Asset Utilization Pricing
Pricing based on the utilization of assets
Optimizes revenue for assets like rental cars or hotel rooms.
Markup Pricing
Fixed percentage or dollar amount added as profit
Ensures consistent profit margins on products.
Value Pricing
Premium pricing for products with unique value
Attracts customers willing to pay more for exceptional features.
Sustainable Pricing
Pricing emphasizes environmental or ethical considerations
Appeals to conscious consumers and supports sustainability goals.
Price skimming is primarily used to maximize profits when a new product or service is released. Price skimming is a product pricing strategy where a company charges the highest initial price a customer is willing to pay and then lowers the price over time.
Productized services are services that are sold with clearly defined parameters and pricing. In short, that is about taking any product and transforming it into a service. This trend has been strong as the subscription-based economy developed.
Menu costs describe any cost that a business must absorb when it decides to change its prices. The term itself references restaurants that must incur the cost of reprinting their menus every time they want to increase the price of an item. In an economic context, menu costs are expenses that are incurred whenever a business decides to change its prices.
A price floor is a control placed on a good, service, or commodity to stop its price from falling below a certain limit. Therefore, a price floor is the lowest legal price a good, service, or commodity can sell for in the market. One of the best-known examples of a price floor is the minimum wage, a control set by the government to ensure employees receive an income that affords them a basic standard of living.
Predatory pricing is the act of setting prices low to eliminate competition. Industry dominant firms use predatory pricing to undercut the prices of their competitors to the point where they are making a loss in the short term. Predatory prices help incumbents keep a monopolistic position, by forcing new entrants out of the market.
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors.
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.
The anchoring effect describes the human tendency to rely on an initial piece of information (the “anchor”) to make subsequent judgments or decisions. Price anchoring, then, is the process of establishing a price point that customers can reference when making a buying decision.
A price maker is a player who sets the price, independently from what the market does. The price setter is the firm with the influence, market power, and differentiation to be able to set the price for the whole market, thus charging more and yet still driving substantial sales without losing market shares.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula to fit their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long-term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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