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