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Corporate issuer > Business models and risks > Flashcards

Business models and risks Flashcards

1
Q

When should an analyst expect a business model to employ premium pricing?

A

When significant differentiation is possible in the product category.

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2
Q

What is a platform business?

A
  • It is based on network effects.
  • It can be a non-technology business.
  • Value creation for customers occurs externally.
  • It can be difficult to attract users in the beginning.
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3
Q

What are the components of the customer’s targeting?

A
  • Geography
  • Segments
  • Type of business (B2C or B2B)
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4
Q

What are the components of the firm offering?

A
  • Product service
  • Differentiation
  • Customer needs
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5
Q

What are the components of the firm’s channel?

A
  • Direct
  • Intermediary
  • Digital
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6
Q

What is a firm’s channel?

A

It refers to how the firm is selling its product/service and how it is being delivered to its customers.

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7
Q

What is a direct sales strategy?

A

It is to sell directly to the end customer and bypass the first 2 stages.

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8
Q

What is an intermediary strategy?

A
  • The wholesaler and/or retailer might work on an agency basis and earn commissions rather than taking ownership of the goods.
  • It requires ceding at least some control to the intermediary.
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9
Q

What is dropshipping?

A

It is a model that enables the online marketer to have goods delivered directly to the end customer without the intermediary taking them into inventory.

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10
Q

What is an omnichannel strategy?

A

It is when both digital and physical channels are used to complete a sale.

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11
Q

What are the pricing components?

A
  • Premium, parity, discount
  • Differentiation
  • Pricing power
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12
Q

What is value-based pricing?

A

It is to set pricing based on the value received by the customer.

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13
Q

What is cost-based pricing?

A

It is to set pricing based on costs incurred.

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14
Q

What is price discrimination?

A

It occurs when firms charge different prices to different customers.

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15
Q

What are the most common pricing discrimination strategies? Describe them.

A
  • Tiered pricing: charging different prices based on volume purchased.
  • Dynamic pricing: charging different prices at different times.
  • Auction/reverse auction models: prices are established through bidding.
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16
Q

What are the most common pricing strategies for multiple products? Describe them.

A
  • Bundling: combines multiple products or services so that customers are incentivized or required to buy them together.
  • Razors-and-blades pricing: combines a low price on a piece of equipment and a high margin on repeat-purchase consumables.
  • Optional product pricing: when a customer buys additional services or product features either at the time of purchase or afterward.
17
Q

What are the most common pricing strategies for rapid growth? Describe them.

A
  • Penetration pricing: it is discount pricing used where firms willingly sacrifice margins to build scale and market share.
  • Freemium pricing: it allows customers a certain level of usage or functionality at no charge.
  • Hidden revenue business model: It provides services to users at no charge and generates revenues elsewhere.
18
Q

What is the most common alternative of ownership?

A
  • Recurring revenue/subscription pricing
  • Fractionalization: selling an asset in smaller units or selling the use of an asset at specific times.
  • Leasing
  • Licensing
  • Franchising
19
Q

What is a firm’s value proposition?

A

It refers to the product or service attributes that lead customers to prefer a firm’s offering over that of its competitors.

20
Q

What is a value chain?

A

It includes only the functions performed by a single firm.

21
Q

What is a supply chain?

A

It refers to the entire sequence of processes involved in the creation of a product, both internal and external to a firm.

22
Q

What are Porter’s five primary activities?

A
  • Inbound logistics
  • Operations
  • Outbound logistics
  • Marketing
  • Sales and services
23
Q

What are the four primary support activities?

A
  • Procurement
  • Human resources
  • Technology development
  • Firm infrastructure
24
Q

What are the main E-commerce business models variation? Describe them.

A
  • Affiliate marketing: generates commission revenues for sales generated on others’ websites.
  • Marketplace businesses: create networks of buyers and sellers without taking ownership of the goods during the process.
  • Aggregators: similar to marketplaces, but the aggregator re-markets products and services under its own brand.
25
Q

What are network effects?

A

It refers to the increase in value of a network to its users as more users join.

26
Q

What is crowdsourcing?

A

It enables users to contribute directly to a product, service, or online content.

27
Q

What are the external factors?

A
  • Economic conditions
  • Demographic trends
  • Sector demand
  • Industry cost characteristics
  • Political, legal, and regulatory environment
  • Social and political trends
28
Q

What is the macro risk?

A

It refers to the risk from political, economic, legal, and other factors that impact all businesses in an economy, a country, or a region.

29
Q

What are the main macro risks?

A
  • GDP slowdown
  • Exchange rates
  • Political instability
  • Gaps in the legal or financial framework
30
Q

What is business risk?

A

It refers to the risk that a firm’s operating results will differ from expectations, independent of how the business is financed.

31
Q

What are the different business risks?

A
  • Preventable risks: risks to be avoided.
  • Strategic risks: to be taken to achieve business benefits.
  • External risks: outside management control and to be mitigated.
32
Q

What are the industry risks? Describe them

A
  • Cyclicality: an important factor for discretionary goods, durable goods, and housing.
  • Industry structure: lower concentration in the market is generally associated with a high degree of competitive intensity.
  • Competitive intensity: it influences overall industry profitability.
  • Competitive dynamic within the value chain: potential profitability pressures from the interaction of buyers, suppliers, current and potential competitors, and suppliers of substitute goods.
  • Long-term growth and demand outlook: these are more a determinant of industry attractiveness than of risk.
  • Other industry risks: regulatory and other potential external risks.
33
Q

What are the components of the business risk?

A
  • Industry risk
  • Company-specific risk
34
Q

What is the company-specific risk? Describe them

A
  • Competitive risk: risk of a loss of market share or pricing power to competitors, typically due to a lack of competitive advantage.
  • Product material risk: it is the risk that the market for a new product or service will fall short of expectations.
  • Execution risk: the possibility that management will be unable to deliver the expected results.
  • Capital investment risk: it is the potential for sub-optimal investment by the firm and is a greater concern for mature businesses that generate CF but do not have the natural reinvestment opportunities in their current businesses.
  • ESG risk
  • Operating leverage: sensitivity of a firm’s operating profit to a change in revenues.
35
Q

When are the company-specific risks greater?

A

When the company is smaller.

36
Q

What are the main sources of competitive advantages?

A
  • Cost advantages
  • Product or service differentiation
  • Network effects
  • Switching effects
37
Q

What is financial risk?

A

It is the risk arising from the capital structure, in particular to the level of debt and other obligations that involve fixed contractual payments.

38
Q

What are the 2 components of operating leverage?

A
  • Contribution
  • EBIT
    Contribution/EBIT
39
Q

What are the 2 components of financial leverage?

A
  • EBIT
  • EBT
    EBIT/EBT

Corporate issuer (8 decks)

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