Optimal Capital Structure Flashcards
CFA deck is misleading; should be "Business Models"
What is a “Business Model”?
A concise description of how a business works and makes revenue and profits, including its customers, products or services, channels for reaching customers, and pricing.
What are “Channels”?
(i.e., sales channels)
Venues where a company markets and/or delivers its products and services.
What is “Segmenting”?
(Marketing)
A process of identifying and grouping customers by decision-useful attributes.
What are “Direct Sales”?
marketing and/or delivering products and services to customers without an intermediary or third party between the customer and the seller.
What is “Omnichannel”?
Refers to a company selling its products or services in multiple channels, such as in store and online.
What are “Commodity Producers”?
A firm that makes and/or sells commodities.
What are “Differentiated Products”?
A product or service from a firm that is distinguishable or distinct from those of competing firms.
It is customers who determine and value whether a product is differentiated.
What is “Pricing Power”?
The ability of a firm to set prices for its products or services without materially losing volume share.
Generally this means that the product or service is not a commodity because the firm is not a price taker.
What is “Price Discrimination”?
A pricing approach that charges different prices to different customers based on their willingness to pay.
What is “Tiered Pricing’?
A pricing approach that charges different prices to different buyers, commonly based on volume purchased.
What is “Dynamic Pricing”?
A pricing approach that charges different prices at different times.
Examples include “surge” pricing.
What is “Value-Based Pricing”?
When pricing is set primarily by reference to the value of the product or service to the customers.
What is an “Auction Pricing Model”?
Pricing models that establish prices through bidding of buyers.
(think Ebay)
What is an “Reverse Auction Pricing Model”?
Pricing models that establish prices through bidding of sellers.
(think government contract bids)
What is “Bundling”?
A pricing approach that refers to combining multiple products or services so that customers are incentivized or required to buy them together.
What is “Razor, Razorblade” pricing?
A pricing approach that combines a low price on a piece of equipment and high-margin pricing on repeat-purchase consumables.
What is “Add-on Pricing”?
A pricing approach based on high-margin option features, customizations, and additional content.
(i.e., car sales)
What is “Penetration Pricing”?
A discount pricing approach used when a firm willingly sacrifices margins in order to build scale and market share.
What is a “Freemium Business Model”?
A pricing approach that allows customers a certain level of usage or functionality at no charge. Those who wish to use more must pay.
What is a “Hidden Revenue Business Model”?
Business models that provide services to users at no charge and generate revenues elsewhere.
(i.e., Google Search and Google Ads)
What is “Franchising”?
A situation where an owner of an asset and associated intellectual property divests the asset and licenses the intellectual property to a third-party operator (the franchisee) in exchange for royalties.
Franchisees operate under the constraints of a franchise agreement.
What is a “Value Proposition”?
The product or service attributes valued by a firm’s target customer that lead those customers to prefer that firm’s offering.
What is a “Value Chain”?
The systems and processes in a firm that create value for its customers.
What is a “Supply Chain”?
the sequence of processes involved in the creation and delivery of a physical product to the end of the customer, both within and external to a firm, regardless of whether those steps are performed by a single firm.
What are “Unit Economics”?
The expression of revenues and costs on a per-unit basis.
What are “Contract Manufacturers”?
Companies that make products for other companies that meet specific terms and specifications.
What are “Value-added resellers”?
Businesses that distribute a product and also handle more complex aspects of product installation, customization, service, or support.
(i.e., car dealership)
What are “Licensing Arrangements”?
Rights to produce a product or have access to an intangible asset using someone else’s brand name in return for a royalty (often a percentage of revenues).
(i.e., Estee Lauder selling DKNY fragrance)
What are “Network Effects”?
A business model that increases in value to its users as the number of users increases, for example communication and payment networks.
What is “Crowdsourcing”?
A business model that enables users to contribute directly to a product, service, or online content.
(i.e., A video game where players can create content)
