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What are the most important costs inherent in our business 41

model? Which Key Resources are most expensive? Which

Key Activities are most expensive?

Naturally enough, costs should be minimized in every Value-driven Variable costs
business model. But low Cost Structures are more Some companies are less concerned with the cost Costs that vary proportionally with the volume of
important to some business models than to others. implications of a particular business model design, goods or services produced. Some businesses, such as
Therefore it can be useful to distinguish between two and instead focus on value creation. Premium Value music festivals, are characterized by a high proportion
broad classes of business model Cost Structures: Propositions and a high degree of personalized service of variable costs.
cost-driven and value-driven (many business models usually characterize value-driven business models.
fall in between these two extremes): Luxury hotels, with their lavish facilities and exclusive Economies of scale
services, fall into this category. Cost advantages that a business enjoys as its output
Cost-driven expands. Larger companies, for instance, benefit from
Cost-driven business models focus on minimizing Cost Structures can have the following characteristics: lower bulk purchase rates. This and other factors
costs wherever possible. This approach aims at cause average cost per unit to fall as output rises.
creating and maintaining the leanest possible Fixed costs
Cost Structure, using low price Value Propositions, Costs that remain the same despite the volume of Economies of scope
maximum automation, and extensive outsourcing. goods or services produced. Examples include salaries, Cost advantages that a business enjoys due to a larger
No frills airlines, such as Southwest, easyJet, and rents, and physical manufacturing facilities. Some scope of operations. In a large enterprise, for example,
Ryanair typify cost-driven business models. businesses, such as manufacturing companies, are the same marketing activities or Distribution Channels
characterized by a high proportion of fixed costs. may support multiple products.

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