1. Company Z (Z) offers short-term car rentals through its digital platform.

The rental cars are provided by willing car owners, and Z charges a
percentage fee on each transaction. If all transactions are sold under Z's own brand, then Z is best described as a(n):

 A. aggregator.

B. affiliate marketer.

C. marketplace business.

Explanation

E-commerce business models

Description Examples

Generates commissions by Social influencers that

Affiliate marketer promoting and selling clients' specialize in promoting luxury
products and services brand clothing

As a digital marketplace, facilitates

Marketplace
transactions between numerous Amazon Marketplace, eBay
business
buyers and sellers

Under its own brand, markets

Aggregator Airbnb, Uber, Spotify, Turo
services provided by other parties

A business model describes how a company positions itself to deliver goods and services to customers and thus generate profits. E-commerce
business models leverage web-based technology to generate sales. Three common types of e-commerce models are:

affiliate marketer,
marketplace business, and
aggregator.

An aggregator markets services provided by other parties under its own brand. Frequently, an aggregator charges a percentage fee on each
transaction amount. In this scenario, Company Z offers car rental services under its own brand name and charges a fee based on each rental
transaction between a car renter and a car owner.

(Choice B) An affiliate marketer generates leads and sales for its clients. It typically earns a commission from the sales or leads generated.

(Choice C) A marketplace business facilitates purchases and sales transactions between parties. The products or services traded are not
marketed under the business's own brand. For example, products sold on eBay are not eBay-branded products.

Things to remember:
Three common types of e-commerce models are affiliate marketer, marketplace business, and aggregator. An aggregator markets services
provided by other parties under its own brand.

Describe key features of business models

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2. Which of the following is most likely a form of price discrimination?

 A. Auction models

B. Optional product pricing

C. Razors-and-blades pricing

Explanation

Forms of price discrimination

Description Example

Tier 1 CRM software pricing:

Price based on volume 500 users at $20/month per user
Tiered pricing
purchased Tier 2 CRM software pricing:
100 users at $30/month per user

Ride-sharing surge pricing before

Price based on demand rush hour: $30 per ride
Dynamic pricing
at different times Ride-sharing surge pricing during
rush hour: $55 per ride

Limited edition soccer jersey on

Auction/reverse online auction platform: $5,000 for
Price based on bids
pricing the first card, $7,000 for next
identical card

CRM = Customer relationship management

Pricing is a key component of a firm's business model since revenue directly impacts profits. Pricing (ie, revenue) models are either value-based
or cost-based. Value-based pricing is based on the value delivered to customers (eg, Apple charges relatively high prices for iPhones). Cost-
based pricing is based on input costs plus a markup (eg, budget retailer sells clothes for cost plus margin).

Price discrimination occurs when different customers pay different prices for the same goods (or services). There are several types of price
discrimination, including:

Tiered pricing involves charging different prices based on the volume of usage.

Dynamic pricing refers to charging different prices at different times, based on demand at the point of sale.

Auction pricing requires each customer to express an estimate of value through a bidding process; the price is usually established by the
highest bid for a particular item.

(Choice B) Optional product pricing is designed for customers who buy additional services or features. For example, a vendor may offer to sell
extended warranty protection on a new computer. Customers accepting this offer would pay more than other customers but receive an additional
product feature.

(Choice C) Razors-and-blades pricing pairs complementary products, generally pricing one product (eg, a printer) at a low margin to attract the
customer, then pricing another product—ideally, replenishable accessory parts (eg, ink cartridges)—at a high margin.

Things to remember:
Price discrimination occurs when firms charge different customers different prices for the same goods or services. Tiered pricing, dynamic pricing,
and auctions are three forms of price discrimination.

Describe key features of business models

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3. Which of the following pricing models most likely relies on hidden revenues to rapidly increase scale?

 A. Free online newspaper

B. Discounted digital streaming bundle

C. Freemium-priced video game service

Explanation

Companies use various pricing models to lower the cost for customers and encourage them to adopt the company's products or services.
Increasing such adoptions builds customer scale, which may result in the company achieving a cost advantage or improved profitability in the long
run.

Using a hidden revenues business model, the company can generate revenues from third parties, such as advertisers, instead of its customers.
This alternative revenue source allows the company to give the customers free access to its products or services. The third-party revenues
remain "hidden" from the customers in the sense that they are not paying the company directly.

In this question, an online newspaper's hidden advertising revenues allow for granting customers free access to newspaper content; this access
encourages increased customer adoption and scale.

(Choice B) A bundle of products sold at a relative discount lowers the cost of customer adoption, but it does not generate hidden revenues from
third parties.

(Choice C) In freemium pricing, customers gain free access to a sample of products or a basic level of features, but they must pay directly for
premium features. Since freemium model revenues are paid by customers, these revenues are not hidden.

Things to remember:
Companies that generate revenues from third parties (eg, advertisers) can offer customers free access to products or services. The third-party
revenues are "hidden" from the customers. Pricing models can be used to lower the cost barriers to customer adoption, thus allowing companies
to build scale.

Describe various types of business models

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4. If a company prices a product based on the product's low total cost of ownership, the company's pricing model is best described as:

A. cost-based.

 B. value-based.

C. bundle discounting.

Explanation

Pricing models

Value-based Premium for customer value

Cost-based Markup of company costs

Volume discounts
Price discrimination Off-peak or "surge" pricing
Auction

Bundling discount
Multiple products Product with consumables
Optional features or services

Discount pricing
Growth Free version of product or service
Third-party revenues

Companies that differentiate their products or services relative to competing alternatives often employ a premium pricing strategy. Product
differentiation results in additional value for customers due to:

greater capabilities (eg, performance, functionality), and/or

lower total cost of ownership (TCO) over the product's useful life.

In a value-based pricing model, the potential for pricing a product at a premium corresponds directly to the relative value a customer realizes over
the entire ownership period; this benefit to the customer is the product's value proposition. In this scenario, the lower TCO represents the value a
customer realizes subsequent to purchasing the product, which would offset a higher upfront purchase price. Thus, the company uses a value-
based pricing model.

(Choice A) Cost-based pricing is focused internally on a company's costs to produce and sell a product. In contrast, TCO is focused externally
on the costs incurred by customers.

(Choice C) Bundle discounting of a combination of products or services lowers the customer's purchase cost but does not necessarily impact
other costs the customer incurs over the product's useful life.

Things to remember:
In a value-based pricing model, the potential for pricing a product at a premium is directly related to the product's value proposition. Customers
realize more value from products with greater benefits and/or lower total costs of ownership. Cost-based pricing is focused on the cost to the
producer, not the customer.

Describe various types of business models

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5. An e-commerce company offers customers the option to pick up orders from an independent local retailer. Using the retailer is least likely to be
part of the e-commerce company's:

 A. value chain.

B. supply chain.

C. value proposition.

Explanation

A company can be analyzed as a combination of systems and processes that add value in the production of goods or services for the customer.
Commonly used models for this analysis assess a company's:

Supply chain: internal and external steps in production and delivery

Value chain: internal systems and processes that support the firm's operating and administrative activities

Value proposition is the measure of value added for customers by the firm's competitive advantages. This includes value created within the
supply chain (eg, convenient delivery) and other areas, such as:

Product differentiation
Sales processes
Customer service and support
Pricing

In this case, the option for customer delivery through a local retailer is part of the e-commerce company's supply chain (Choice B). The
convenience created for customers by using the retailer is part of company's value proposition (Choice C).

Things to remember:
Value proposition is the measure of value added for customers by a company's competitive advantages in areas such as its supply chain, product
differentiation, customer service and support, and pricing. The company's value chain includes the internal systems and processes supporting its
operating and administrative activities. The supply chain is the internal and external steps in the production and delivery of the company's
product(s).

Describe various types of business models

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