Bussiness 1/16

Introduction to Business Concepts

  • Speaker's Experience: The speaker opens with an anecdote regarding personal fears and experiences with movies, setting an informal and engaging tone.

Core Products vs. Associated Products

  • Definition of Core Product:

    • The main reason for starting a business.

    • Example: Starbucks, where coffee is the core product, but the experience is considered more valuable.

    • Other examples of core products: haircuts, smoothies, calculators.

  • Definition of Associated Product:

    • Items that complement the core product and often generate recurring revenue.

    • Example: Razors (core product) vs. razor blades (associated product).

      • The speaker notes that companies often make more profit on associated products, as customers need to continually purchase them.

      • The speaker reflects on needing to buy new razors every two weeks while the core razor remains unchanged for years.

  • Key Insights:

    • The strategy of creating associated products keeps customers engaged and leads to continuous sales without needing a subscription model.

    • Companies can sometimes offer core products at lower prices to incentivize purchase of associated products, leading to higher overall profits.

Augmented Products

  • Definition of Augmented Product:

    • Enhancements or additional services that add value to the core product.

    • Examples include loyalty programs at restaurants (e.g., punch cards for free items).

    • Restaurants like Jersey Mike’s provide points systems to encourage return customers, making rewards attractive for budget-conscious consumers.

  • Marketing Strategies:

    • Use of loyalty cards and coupons to financially incentivize repeat business (e.g., McDonald's survey rewards).

    • Companies utilize these strategies to maintain customer engagement and promote habitual purchasing.

Customer Preferences and Convenience

  • Understanding Target Demographics:

    • The speaker identifies college students as a unique demographic that prioritizes cheap, fast, filling, and convenient food options, which paved the way for services like Uber Eats.

    • Emphasizes the dynamic nature of consumer choices and how business models must adapt accordingly.

  • Examples of Convenience:

    • Mention of fast food experiences illustrates how convenience is a driving force in modern consumer behavior.

    • The popularity of services like Uber, despite potential safety concerns, highlights changing social norms around transportation and food delivery.

Pricing Strategies

  • Factors Influencing Product Pricing:

    • Key question: How do you price your product?

      • Consumer perception plays a significant role in this process.

        • Examples: Different students' opinions on what a product is worth demonstrate the variances in value perception.

    • Understanding supply costs versus value is crucial when setting prices.

      • Example discussed of overpriced restaurant meals that result in perceived poor value for customers.

  • Examples of Pricing Strategies:

    • Penetration Pricing:

      • New businesses often set low initial prices to attract customers (e.g., lower-priced coffee to compete with Starbucks), hoping to raise prices post-customer acquisition.

    • Price Skimming:

      • High introductory prices, as employed by brands like Apple, to convey premium product status and to capitalize on early adopters.

    • Psychological Pricing:

      • Pricing strategies designed to make products seem less expensive (e.g., pricing at $9.99 instead of $10).

    • Value-Based Pricing:

      • Setting prices based on what consumers believe the product is worth. This is influenced by customer perceptions and brand positioning, such as Starbucks fostering a high-end coffee experience.

Grubhub Case Study

  • Company Overview:

    • Grubhub connects customers to local restaurants, allowing for online order placement from over 50,000 establishments.

    • Originated from entrepreneurs frustrated with existing ordering methods.

    • Built with a focus on customer convenience and technology integration for both diners and restaurants.

  • Business Environment:

    • Successful navigation of diverse business environments, including economic, legal, technological, competitive, and social factors.

    • Economic and Legal Environment:

      • U.S. supports private ownership and minimal bureaucratic barriers for starting businesses.

    • Technological Environment:

      • Importance of staying updated with technology to ensure good customer experiences.

    • Competitive Environment:

      • Adaptation to competition with efficient technology, number of partnering restaurants, and value proposition to both diners and partners.

    • Social Environment:

      • Changing food preferences and takeout perceptions, aiming to deliver more diverse cuisine options beyond traditional Chinese and pizza offerings.

  • Key Metrics:

    • In 2016, Grubhub generated $3 billion in restaurant sales, significantly benefiting restaurants in their network compared to those not on the platform.

    • Highlights that they have no markup on menu prices, maintaining transparency and competitive edge.

Conclusion and Implications

  • Thoughts on Business Strategy:

    • The importance of understanding customer perception and market dynamics is emphasized for anyone launching a business.

    • Learning from existing businesses like Grubhub provides valuable insights into strategic planning, customer engagement, and successful business operations.

    • Encouragement to think critically and apply learned concepts to individual business ideas.