The marketing model, business model and financial model of an enterprise are like three-stage rockets, gradually promoting the rapid development of enterprises.

A good business model essentially controls social resources through the value chain and transforms corporate value into profit. The core is to solve the following three problems, value chain, moat and profit zone.

1. Control social resources through the value chain and solve the problem of benefit distribution;

2. Continue to invest resources to build a moat and strengthen core competitive advantages;

3. Lock users to occupy the core profit area and solve the problem of value realization;

"Value Chain" was originally proposed by Michal Porter, a professor at Harvard University in the United States in 1985. The value chain is the general term for a series of economic activities carried out by enterprises to create value for customers. An enterprise can also be said to be a collection of these activities.

The essence of the value chain is that a group of stakeholders invest their own resources and capabilities to form a transaction structure. As this transaction structure continues to trade, it will continue to create value. Whether it is the upstream and downstream of the enterprise, or the internal employees of the enterprise, each party will distribute this value according to a certain proportion of interests. If the value received by each party exceeds the opportunity cost of its ability to invest resources, the transaction structure will become more and more stable.

When building a value chain, the most important thing is to start from the customer. What are the customer preferences, what sales channels are convenient for them, and what kind of products/services are they willing to buy? , what do we need to invest, and what assets/core capabilities do we have to achieve this?

Although business models can continuously create value, they cannot avoid being copied and imitated by others. Quality products, high market share, effective execution and excellent management may be short-lived good news that cannot withstand the erosion of time. Buffett proposed the concept of moat in long-term value investing. A moat is a structural feature that enables an enterprise to maintain a competitive advantage and is a core advantage that is difficult for other competitors to copy.

Common corporate moats include the following aspects:

1. Intangible assets, such as brands, patents or statutory licenses; well-known brands, technology patents owned by the company, government Legal licenses can give companies pricing power and effectively prevent competitors from entering.

2. Customer switching costs. When customers face high switching costs in competition with similar products, they will not easily try new products unless the new products have great improvements in price or functionality. .

3. Network effect. As more and more users use a certain product or service, the value of the product or service to new and old users also increases, which results in a network effect.

4. Cost advantage. Companies can compete at lower prices to seize market share. Favorable cost advantages may come from process advantages, good geographical locations, scale effects or access to a unique asset. The convenience of obtaining.

5. Economies of scale. If an enterprise can serve more users without increasing costs, then its marginal cost will tend to 0, and the enterprise's economies of scale will be very strong.

In the office of stock investor Warren Buffett, there is a photo of former Boston Red Sox legend Ted Williams’ first game. His career batting average is as high as 34.4, making him one of the players with the highest batting average. He once famously said: "To be a good hitter, you have to wait for a good pitch before you hit it. If I always hit balls outside the lucky zone, there is no way I will become a Baseball Hall of Famer. ”

No diamonds, no porcelain work. When we determine what kind of moat we want to build to keep ourselves away from homogeneous competition, we need to continuously invest resources to build a core competency circle.

When competitors enter the game, they will receive a blow immediately!

Google started as a search engine. By May 2014, it occupied 68% of the online search market. Although Google defines itself as a technology company, developing self-driving cars, Android phones, wearable devices, etc. However, 95% of its revenue still comes from search engine advertising, and revenue from other products was only US$2.35 billion in 2012. This is the core profit area of ??a company, where corporate value is continuously realized into profits.

Every industry has its own life cycle. With the entry of competitors and homogeneous competition in pursuit of market share, oversupply has led to the gradual formation of no-profit zones in the industry. Most companies eventually Only managers' salaries are available.

So how can we always grasp the profit zone of the industry? There is only one answer, which is to always keep up with customer needs.

One way is to continuously iterate the product itself to continuously meet customer needs. For example, the transition from PC-side computer Internet to mobile phone-side mobile Internet is also a game product. In order to adapt to customers having fun on the mobile phone, the operation design of the game has undergone great changes.

Another way is to extend and expand products around the customer's economic system. For example, a printing factory expands from providing printing services to providing design, warehousing and delivery services, thereby creating more value for customers and earning more profits.

We must clearly understand:

Why do customers continue to rely on us, and what kind of value do customers need from us?

Why are customers willing to continue paying? Where is the core profit area we occupy?

In the book "Discovering the Profit Zone", Slevowski summarized the following 22 common profit zone models of enterprises to help us better design our own corporate profit zones.

1. Customer Solution Model

Invest in understanding your customers, designing solutions, and building great customer relationships. For the supplier, this approach is a net investment in the early stages of developing a customer relationship, but can lead to substantial profits later on. One famous example is: General Electric (from hardware to services to solutions).

2. Product Pyramid Model

The differences in income and preferences of customers form the product pyramid. At the bottom of the tower are low-priced, high-volume products; at the top are high-priced, low-volume products. Most profits are concentrated at the top of the pyramid, but products at the bottom also have an important strategic role. Because the products here can act as a "firewall".

3. Multi-component system model

In the multi-component system model, a supply system contains several subsystems, some of which account for a large proportion of profits, and some of which are almost unprofitable. The multi-component system model can be applied to various industries, such as the carbonated beverage industry (profits are mainly in restaurants and vending machine subsystems), and the hotel industry (regular business profits are low, and company conference rental business profits are extremely high).

4． Switchboard Model

In some markets, many suppliers transact with many customers, and transaction costs for both parties are high. This will lead to the emergence of a valuable intermediary business. This business function is similar to a switchboard, and its function is to establish a communication channel between different suppliers and customers, thereby reducing transaction costs for buyers and sellers. The more suppliers and customers that join the system, the greater the value of the switchboard.

5． Velocity Model

In some industries, suppliers of innovative businesses have a first-mover advantage and can thereby earn excess returns. As imitators followed, profits began to erode. The velocity model reflects the first-mover advantage of innovators. In the velocity model, profits come from the uniqueness of the product or service. Excess profits will gradually disappear with the entry of imitators. A successful example of applying the speed model is Intel, which is always two steps ahead of its peers in the competition.

6. Blockbuster "Blockbuster" Model

In industries such as pharmaceuticals, music publishing, film and television production, and publishing, the main business activities revolve around projects. In these industries, the cost of various projects can vary by a factor of 5, while project returns can vary by a factor of 50, with all the profits concentrated on the "blockbuster" projects. For example, a drug may cost between $50 million and $300 million to develop and generate cumulative revenue from $500 million to $15 billion.

7. Profit Multiplier Model

The Profit Multiplier Model refers to the repeated harvesting of profits from a certain product, product image, trademark or service. The best example of applying the profit multiplier model is Disney. Disney packages the same image in different ways. Characters such as Mickey, Minnie, and the Little Mermaid appear in movies, TV shows, books, clothing, watches, lunch boxes, theme companies, and specialty stores. No matter what form they take, these characters pay off for the Disney company.

8. The Entrepreneur Model

As a business succeeds and grows, diseconomies of scale come into play: the business's overhead costs rise, unnecessary expenses increase, decision-making is slow, and it becomes disconnected from customers. To counteract this negative force, some companies, such as ABB and Software Library, have reorganized themselves into many very small profit centers in order to strengthen their responsibility for profitability and move closer to their customers.

9. Specialized Profit Model

In many industries, the profits of specialized manufacturers are several times that of "snake oil" manufacturers. The reasons why specialized manufacturers make huge profits are: low cost, high quality, good reputation, short sales period, and higher cash inflow.

10. Basic product model

In many businesses that apply the basic product model, the sales or profits of the base product are not high, but the profits of its follow-up products are extremely attractive. Such businesses include: copiers, printers, razors, elevators, etc. The key is to build the base product with the greatest potential to generate more subsequent product sales and profits.

11. Industry Standard Model

The most striking feature of the industry standard model is its returns to scale. In industries with positive returns to scale, a large number of competitors (from starting device manufacturers, to application developers, to users) are sucked into the "gravitational field" of industry standards. The more people who enter the system, the higher the value of the system. Therefore, as the value of the system increases, industry standard holders can obtain higher returns to scale.

12. Brand Models

Over the years, companies using brand models have made huge marketing investments to increase public understanding, recognition, trust and credibility of their products. When customers are willing to pay a high price for such products, the brand effect is converted into tangible profits.

13. Unique product model

When a company develops a new product, it will profit from the premium price of this product. Unique products are highly profitable before competitors start to follow suit.

14. Regional Leadership Model

In many industries, companies' operations are almost entirely regional. Such industries include: door-to-door medical care, food stores, and retail outlets. It’s important to be a regional leader, not a national company.

15. Large transaction model

In some industries characterized by transactions, as transaction volume and revenue increase, the cost of completing each transaction does not increase at the same rate. Profits are concentrated on large transactions. Examples include investment banking, real estate operations, and long-distance air transportation.

16. Value chain positioning model

In many industries, profits are concentrated in certain parts of the value chain, while profits in other parts are minimal. In the computer industry, profits are concentrated in microprocessors and software. In the chemical industry, profits are concentrated in production rather than sales.

For general products, profits are concentrated in the sales area, not the production area.

17. Cyclic Profit Model

Many industries have unique and obvious cyclicality, such as chemical industry, steel, equipment manufacturing and other industries. In these industries, corporate profits are a function of industry cycle changes. Therefore, the utilization of production capacity can reflect the profit level of an enterprise.

18. After-sales profit model

In industries such as product manufacturing and air transportation, companies do not rely on selling products or providing services to make profits, but rely on after-sales services and financing for products. For example, Kingston sold add-on memory to personal computer users and made a high profit.

19. New Product Profit Model

New product profits are a function of the new product and its growth rate. After the launch of new high-margin products, development will be rapid. Once a product matures, profits decline. In industries such as automobiles and machinery and equipment, product cycles range from 3 to 7 years. The key to winning is developing the next generation of leading products and achieving leadership. Next-generation leading products are those that best meet the most important needs of customers at that time.

20. Relative Market Share Model

In many industries, companies with high market shares are more profitable than other companies. Because large companies have more product manufacturing experience and the ability to purchase raw materials in bulk, they have cost and pricing advantages. Relative market share refers to competitors in the same industry, rather than absolute market share.

21. Experience curve model

The experience curve model means that when a company accumulates more experience in manufacturing products or providing services, the cost of each transaction will decrease. A business that has accumulated a lot of specialized experience will be more profitable than a business that has no experience.

22. Low-Cost Enterprise Design Model

You can always beat past experience, and many people have. You can use low-cost enterprise design to overcome past experience, thus making the experience of existing opponents in the industry worthless. Dell Computer Company applied the low-cost enterprise design model to use direct sales to overcome the traditional street store sales method and multi-level sales channels.

The profit zone of a company comes from precise control of customer needs. No matter what profit model is chosen, only continued customer dependence can realize corporate value into profits.

Business model, simply put, is to form a transaction structure through the value chain and transfer the value to customers for monetization. The key to a good business model is to find the moat and protect your profit area.

I hope today’s sharing will inspire you~