How business model captures downstream cost and revenue?

After a firm readies a product ex-factory it incurs further cost in delivering it to the market to be sold to derive revenue. While upstream there is only cost and no revenue at all downstream on the other hand allows firm to derive revenue along with associated cost. Business model captures the entire scenario in lively manner:

Value proposition: Firm must offer a unique and unbeatable value proposition to the market place. This offer has dimensions such as standards in terms of quality, duration & utility and features that are advanced and user friendly ones. There is cost structure related to selling & marketing and the revenue stream that arises after goods are sold.

Key activities: The key activities must set a firm apart from fellow customers with unique differentiation in the manner it conducts its customer relationship, selects channels of distribution and caters to differentiated customer segments whose needs and desires the firm has understood well and factored into in its value proposition. All these affect downstream cost and revenue ultimately.

Key resources:  Investing in key resources means the firm has skilled marketing staff, financial muscle in undertaking advertisement and promotional blitz that allow it to bulldoze its ways through high-intensive competition.

Customer relationship: Undoubtedly maintaining all round customer relationship is a must for every firm that needs market success. How intense this relationship is and how frequently firm is in touch with its customer base are matters that impact sales turnover. There is a cost associated with this activity too. However the overall benefit in the form of customer loyalty and increased and/or repeat purchases on the part of customer pool counterbalance downstream cost.

Channels: Distribution of products takes place via channels. This is where firm reaches the customer first time and thereafter continues to maintain contacts. These customers belong to one of the few segments firm plans to cater to. The channels cover communication, sales and marketing in addition to after-sales service. To make channels of distribution effective firm must out-lay cost in downstream.

Customer segments: Firms create value for a particular customer base that is often segmented in terms of market niche and need assessment based upon, demography, purchase value and buying patterns. Vital point is firm must utilize them effectively with a well-integrated and cost-efficient marketing program to deliver value.

Net revenue stream: The final net revenue stream that arises in the downstream has been generated after incurring the cost structure of upstream where the product was brought to the factory gates and the downstream cost of selling & distribution to a segmented market using customer relationship. Net revenue stream is therefore gross revenue minus the cost structure arising out of production as well as selling & marketing in downstream.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist