The business model can be broken down into three elements: the product, the price, and the distribution. The product is what the company produces and the distribution is how it is sold. The price is what the customer pays for the product. The presence of substitute products in the market refers to the availability of alternatives to the product.
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Differentiating your product
Differentiating your product refers to the fact that your product is unique and not easily replaced by other products in the market. This can be done through the use of specific features, the quality of the product, or the customer service that is offered.
The threat of substitutes
The threat of substitutes can refer to the presence of competitors who offer substitute products that could potentially replace your own products. This could mean that you may have to compete on price, quality, or features, and could affect your profitability. Additionally, substitutes may exist in the form of customer loyalty or word-of-mouth advertising.
Finding your niche
The presence of substitute products in the market refers to the competition that you will face as a new business. If you are entering a new market, you must research what other businesses are doing to stay ahead of the competition. This will help you find your niche and focus on what you can do better than your competitors.
Creating customer loyalty
The presence of substitute products in the market refers to the fact that customers have the option to purchase similar products from other businesses. This creates competition among businesses, which drives down prices and improves the quality of products. In order to maintain customer loyalty, businesses must continue to offer high-quality products that are different from their substitute products.
The power of pricing
Pricing represents one of the most important elements of any business model. The right pricing can attract new customers and keep current ones, while the wrong price can lose customers. Pricing also affects how much revenue a business generates.
The most common way to set prices is to calculate what the product’s cost is and then add a markup, or increase, to that figure. For example, if you make a product that cost $10 to produce and you want to charge $12 for it, you would add 12 percent ($1.12) to the cost of the product to get the price you want.
A company can also set prices based on what it expects to earn from a product. For example, a company that makes cars might set prices according to the cost of cars and the amount of profit it expects to make on each one.
Some businesses, such as airlines and hotels, set prices regardless of what it costs to produce a product or what it would bring in. These businesses call this the “cost plus” or “fair” pricing model.
The business model element that refers to the presence of substitute products in the market is the product.