Pinterest Business Model Canvas

Executive Summary:

I have calculated that Pinterest can make a profit of around $5M using the business model canvas.  Pinterest is a social media website that allows users to discover new products or ideas from all over the internet and store them all in one place.  It is also a way for businesses to get new products or services in front of a large audience.  Pinterest has two customer segments; all social media users and businesses with an online presence.  Today there are 1.8B social media users in the world and 30M online businesses.  Pinterest's current market share is 4% of social media users or 70M and 1.65% of businesses or 500,000.

Pinterest can use their business users to make money through leveraging their 70M users.  Pinterest currently lets business users register as a business, which gives them access to analytic tools.  Currently this service is free, but I believe Pinterest could charge $100 a year for these tools and instantly make revenues of $50M.

In addition, Pinterest can make revenue through advertising.  They are currently testing this concept with promoted pins, which look like regular pins, but a created by companies to advertise their product or services.  Pinterest can charge for promoted pins in two ways.  For large companies that want to launch large advertising campaigns to targeted audiences, Pinterest can charge around $1.5M or $30-$40 CPM.  Pinterest is able to charge this premium because they have a high click through rate of 1.1%.  If Pinterest gets only 10 companies to use promoted pins it will create revenue of $15M.  Pinterest is also testing an advertising concept small and medium businesses can partake in.  They are calling it self-serve promoted pins, which allows users to create their own promoted pin and pay per click.  If Pinterest charges only $1 per click and has 500 companies interested in creating 2 promoted pins that each receive 1000 clicks, they will make 1M in revenue.

All three revenue stream add of up to annual revenues of $66M.  I have calculated the cost to run Pinterest's website to be $61M based off twitter's 2011 expenses.  Therefore, leaving a profit of $5M.

Works Cited:

Twitter's 2013 Annual Report

http://www.statista.com/statistics/278414/number-of-worldwide-social-network-users/

http://www.internetretailer.com/commentary/experts/how-many-online-retailers-are-there-worldwide/

http://searchenginewatch.com/article/2282835/Pinterest-Tops-70-Million-Users-30-Pinned-Repinned-or-Liked-in-June-Study

http://semiocast.com/en/publications/2013_07_10_Pinterest_has_70_million_users

http://marketingland.com/pinterest-advertisers-start-paying-promoted-pins-early-next-month-report-77645

http://blog.bufferapp.com/pinterest-marketing-guide-tips

Mo Data Mo Money

Big data is very interesting to me.  The amount of data we produce today versus even a few years ago is unbelievable.  "Demystifying Big Data" stated 90% of the world's data was created in the past two years! So the question is what to do with all of this data? There are so many uses for big data, but one of the more beneficial is targeted marking.  In my industry, retail, companies have actually been using big data for years.  Many companies have loyalty programs and they track customer spending habits and much more.  In fact, Target does this so well they are said to know women are pregnant before they even know!  I think that Target is one of the leading retailers in big data use.  They know have a mobile coupon app, cartwheel, that I think will evolve to personalized ads delivered to customers while they are in the store.  The sky is the limit when it comes to big data.

 Target, however, is one of the few companies that uses big data to its potential.  My company, BJ's Wholesale Club, has just as much data collected about its customers through membership cards, but does not use the data nearly as well as Target does.  There is so much data out there it can be overwhelming for companies. The key is to filter through it and decide what will most benefit your company.  It's kind of like what I do as a merchant; I have to edit the assortment presented to the end consumer otherwise they get overwhelmed and won't buy.

Lastly, I want to mention that big data is not something that just businesses can profit from.  We read an interesting article on how big data is being used in the health industry.  Below is an article on how the US Post Office can use the massive amounts of big data they collect/have the potential to collect.

http://www.forbes.com/sites/federicoguerrini/2014/07/03/how-big-data-and-the-internet-of-things-will-change-the-postal-service/

BJ's Wholesale Club Canvas Business Model

Executive Summary
BJ's Wholesale club is an East-coast membership based retailer that offers its members a wide variety of products at incredibly low prices.  BJ's is able to make revenue by selling merchandise at incredibly low prices in clubs, on its website, and at its gas stations.  The company operates 200 clubs along the east-cost from Maine all the way down to Florida, in addition to 3 distribution centers.  BJ's just recently redefined its target market as affluent couples, new moms, new homeowners, empty-nesters, and the growing Hispanic population.  I estimated the market segment of affluent couples, new moms, and new homeowners to be 9M, the empty-nesters to be 14.4M and the Hispanic population to be 10.4M.

My estimations were calculated as follows:

Affluent couples, New Moms, New Homeowners:

4M affluent Gen X living on their own
45M Gen Y
49M market segment - 50% (assuming only half fit in above criteria) x 36% (percent of US population living on the east-coast)=9M

Empty-nesters:

80M Baby-boomers - 50% (assuming about half of baby boomers are empty-nesters) x 36% (percent of US population living on the east-coast) = 14.4M

Hispanic Population:

52M Hispanics x 20% (assuming less than 36% of Hispanic population lives on the east-cost)=10.4M

I estimated that BJ's currently has 27% of the affluent couples, new moms, and new homeowners market, 25% of the empty-nester market, and 27% of the Hispanic Market, which equates to 8.8M members (BJs currently has 9M members).  The membership fee at BJ's is $50, creating a revenue of $442M a year.  The average basket size at BJ's is $150 and the average customer shops 6 times a year.  This creates a revenue stream of $8,000M.  I assumed the online average purchase to be $75 shopped an average of 4 times per year, creating a revenue stream of $2,600M.  Lastly I assumed members spent and average of $40 on gas every time they came to the club (6 times a year), creating a revenue stream of $2,100M.

Therefore, the total revenue stream is as follows:
Membership:          442M
In club sales:       8,000M
Online sales:       2,600M
Gas:                   2,100M
Total Revenue: 13,142M

The biggest costs for BJ's to operate are the cost of goods sold, the cost to operate 200 clubs and 3 distribution centers, and the cost of acquiring new members.  Of these costs the biggest is cost of goods sold, which is about 90% of Revenues, amounting to $11,800M.  This may seem high, but BJ's whole concept is selling a lot of product at very low margins.  I estimated the cost of running the clubs/distribution centers, and the cost of acquiring new customers to be $500M each.  This brings total costs to $12,800M.

Therefore, BJ's is left with a profit of $342M, leaving room to still make money with other expenses, interest payments, taxes added in.  I think BJ's business model is viable as long as they continue to grow members and don't increase expenses.  Because BJ's cost of goods sold is so high, they really need to be careful with what other expenses they incur.

Works Cited:
US Census Bureau
BJ's Annual Report 2011
bjs.com
Lifetime Brand's Global Trend Report
Inside knowledge from working at BJ's

A new era of retailing

Today is an interesting time to work in retail because so much change is happening.  There are online only retailers, brick and mortar only retailers and everything in between, but what is the direction to move?  I have worked at 3 companies in the last 4.5 years and all have found themselves asking that very question.

While at Toys R Us I witnessed a retailer struggling to compete on price with Walmart, Target, and Amazon.  They were being attached on all fronts like they never had before and there next move was very important.  They decided to focus on omnichannel retailing, such as in store pick up, ship from store, ect.  There first year into this effort did not go so smoothly and they ended up loosing money on omnichannel transaction because they just hadn't gotten all the kinks out yet.  So was it the right choice for Toys R Us to try to go head to head with their biggest competitors?  I think the jury is still out on this, but I hear they are still struggling.

Next I went to Ross Stores, who had no online presence and no plan to get one.  I often wondered and asked if this was the right choice.  At Toys R Us online was the only growing business model, so it seemed crazy to me for a company not to have one at all.  However, Ross' whole business model was a treasure hunt, which was simply hard to manage online.  Similar retailers, such as Tuesday morning and TJ Maxx tried and failed to have an online presence.  However, TJ Maxx just launched a website for the second time, so they believe it is a necessity.  Again the jury is out, but for the Ross business model staying away from the internet might just work.

I now work at BJ's Wholesale Club, who was very late to the online party.  BJ's does not have the infrastructure in place for a website, so they're website is no where near where it should be.  The website has many many limitations, such as it is unable to do certain promotions, any area that is picked and packed can't be online, it is a hassle for a merchant to even get an item online.  In this case i think it is really hurting BJ's not having a robust online presence, like any other mass retailer.

As you can see different companies will have different strategies based on their business model and this will always be the case.  The key is to figure out what works best for you in this digital era.  I liked hearing about online only companies now showcasing in brick and mortar locations.  I firmly believe that brick and mortar stores cannot cease to exist.  They may change over time, but people will always need to touch, feel, and  try on product.