Re-View Business Model
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Transcript of Re-View Business Model
Executive Summary With the increasing need for enterprises to efficiently manage their employees, talent
management market has been rapidly expanding in these years. The development of computer
technology has also changed the way of managing people. Nowadays almost all evaluations are
done on cloud based software (Saas platforms), which offers great convenience and efficiency for
enterprises to input, edit and review evaluation data over time. However, the convenience and
efficiency do not come cheap. Talent management suites developed by large professional
companies such as SuccessFactors (by SAP) and Oracle Taleo (by Oracle) cost a lot as a result of
brand effect and some other functions.
However, from the aspect of cost, Moxie’s Re:View can be quite outstanding. Moxie’s low
development cost derives from its strategic focus on only core functionalities: evaluation and
review. That focus allows Moxie to achieve cost goals without having to compromise on quality.
Low development cost can be easily translated into low price for customers, which would help
Moxie gain great advantage in competition. Also, the simplicity of Re:View also indicates less
installing and training cost on clients’ end. Therefore, it is highly advisable for Moxie to enter
talent management market with its cost advantage as well as its accumulated knowledge and
experience in information technology over the decade.
This report focuses on both qualitative and quantitative business model of Re:View, including
SWOT analysis, pricing strategy, demand overview, cost structure, profit linear model and some
further suggestions for the product. A dynamic Excel spreadsheet is also created to simulate a 12-
month sales cycle based on the financial model established in this report. Information provided in
this report would help Moxie’s management arrive at a reasonable decision in terms of pricing and
distributing Re:View through its product lifecycle.
Contents
I. SWOT Analysis ............................................................................................. 1
II. Product Development ................................................................................. 1
Minimum Viable Product (MVP) Functions .................................................................... 1
Suggested Changes for Pivoting .................................................................................... 2
III. Price ........................................................................................................... 2
3.1 Overall Pricing Strategy ........................................................................................... 2
1. Price Skimming ................................................................................................................... 2
2. Price Penetration ............................................................................................................... 2
3.2 Available Price Offerings ......................................................................................... 3
1. Pay-per-user ....................................................................................................................... 3
2. Pay-per-employee .............................................................................................................. 3
3. Pay-Per-Appraisal ............................................................................................................... 3
3.3. Product Types ........................................................................................................ 3
1. Free Trial ............................................................................................................................. 3
2. Monthly/ Annual Subscription (Basic)............................................................................... 4
3. Business Subscription (Premium, Main Income Source) ................................................. 4
IV. Demands ................................................................................................... 4
V. Cost Structure ............................................................................................. 5
5.1 Development cost ................................................................................................... 5
5.2 Maintenance cost ................................................................................................... 5
5.3 Promotion cost ....................................................................................................... 6
VI. Conclusions ................................................................................................ 6
VII. Quantitative Modeling .............................................................................. 6
7.1. Estimate Customer Ratings .................................................................................... 6
Discussions ............................................................................................................................. 7
Limitations .............................................................................................................................. 7
7.2. Estimate Profits ..................................................................................................... 7
Scenario 1. Two Versions for SMBs and Large Businesses................................................... 8
Scenario 2. One Single Version for All Users ........................................................................ 8
Discussions ............................................................................................................................. 9
Limitations ............................................................................................................................ 10
VIII. Reference .............................................................................................. 12
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I. SWOT Analysis
Strength Weakness
Easy to learn and use
Multi-platform support
Low development cost means low price for
customers --- highly competitive
More intuitive UI than competing software
New to the market, no reputation
accumulated in this field for quickly
acquiring new customers.
The dev team may have less knowledge in
providing maintenance and support
compared to competitors.
Opportunities Threats
Talent management market is growing
rapidly
Propagation of Saas platforms
Modern SEO, SEM, SMM allows for more
efficient product promotions
Competing products are with more
functions, which may outweigh Re:View’s
simplicity.
Competitors are mainly companies
specializing in software developing, they
may easily gain advantages when
competing with us.
II. Product Development
This section is written from the perspective of Lean process in order to eliminate resource waste
and maximize investment efficiency in Re:View’s development phase.
Minimum Viable Product (MVP) Functions
It is crucial for Moxie’s management and development team to have a clear understanding of
what Re:View should be like. Although Re:View, as any other products, will be continuously
updated and improved over time, we should always be aware of what functions are indispensable
for the MVP.
MVP functions are highly focused on Re:View’s core customer values as follows.
1. Clean and intuitive user interface (Pay attention to usage of plain texts), clear navigation
2. Easy to register for and use
3. Integrations with other software (Does not require many integrations for MVP)
4. Evaluation data history review and some other related statistics
5. Reasonable and affordable price for customers
6. Responsive design
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7. Help/ Technical Support
Suggested Changes for Pivoting
Besides what we have known about what functions the MVP should have, we should also
explore new possibilities by encouraging pivot (Ries, 2011) and boldly testing any hypothesis we
have about the product. From that Lean’s point of view, the following changes/experiments are
suggested. We can either apply the changes now or hold these changes until we have acquired
clear feedbacks from our customers.
Use a more objective evaluation method by calculating final performance ratings based on
both manager's and colleagues' ratings, but with different weights. This can be a test about
whether managers believe more of his or her own judgement or they prefer to listen to
others’ judgements as references.
Offer different product types to target different customers (Differentiated targeting). For
SMBs managing performance is relatively easy while it becomes difficult for large
businesses. Therefore, large businesses with more complex human resource hierarchy may
be willing to pay more for this innovative way of managing performance of its team
members. Different product types are strongly suggested by McLean & Company
according to its research in 2014.
UI themes and layout A/B testing. This is less related to core customer value but may still
significantly affect customers’ ratings on the product.
III. Price
3.1 Overall Pricing Strategy
Two overall pricing strategies are available for selection. Our final choice depends on how we
want to acquire market share.
1. Price Skimming
Set price higher than competition and lower price over time. In this way it will allow us to
quickly recoup investment before we are forced to lower price due to increasing competition.
Lowering price over time can also serve as a way to attract price-sensitive markets.
2. Price Penetration
Set low price when entering the market. This method helps increase brand awareness quickly
but is slower in generating profits.
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3.2 Available Price Offerings
According to the research, three pricing methods are typically used for performance evaluation
platform. The price can be based on either number of users (monthly), number of employees
(monthly) or the total number of evaluations (one-time).
1. Pay-per-user
User is defined as any employee that is registered on the software, inactive employees are not
counted.
Price Range: $3-$10/user/month, with setup fees in the $800-$1,500 range.
Performance software with this pricing model includes: ManagetoWin, TriNet Perform,
Trakstar, Appraisd.
2. Pay-per-employee
Fee is based on employee whether they are registered in the system or not. This is usually
compensated for by lowered per-unit pricing but these solutions may still have one-time setup fees
or extra costs for support and training. Higher employee numbers typically result in a lower cost-
per-employee.
Price Range: $1.50-$5/employee/month, implementation fees can range from $800-$2,000 one
time.
Performance software with this pricing model: Reviewsnap, WorkForceGrowth.
3. Pay-Per-Appraisal
Less popular. paying one-time for individual or packs of employee evaluations. Rarely are
there setup fees with this model.
Price Range: $15-$40/appraisal.
Performance software with this pricing model: 20 Dollar Eval, Primalogik 360.
3.3. Product Types
To target more potential clients with different attributes, we can also diversify our product
offerings. It is commonly seen that Saas platforms often provide three types of products: free trial,
individual/SMB subscription and business subscription. Therefore, we can also follow the trend
and offer three product selections.
1. Free Trial
Alternative 1
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30-day trial of any version and then ask for further service subscription otherwise the service
will be terminated.
Alternative 2
Permanent trial of a limited version. E.g. limited integration, member number, frequency of
evaluation and info presentation methods.
2. Monthly/ Annual Subscription (Basic)
For small teams and SMBs. Fee is based on total number of people on the team. The maximum
number of people allowed for this version can be 10. However, not all functions will be provided
in this version.
3. Business Subscription (Premium, Main Income Source)
This version is designed for large customers and provides full functionality. Fee depends on
attributes of each client (the most important attribute would still be size).
IV. Demands
The market for corporate talent management software continues to expand. Research shows
that this market grew by 17% in 2013 and is now over $5 billion in size (Bersin, 2014). There is
no doubt that companies have now realized the importance of “talent optimization”. Also, it has
been reported that the global talent management market is expected to grow from $5,270.3 million
in 2014 to $11,367.0 million by 2019, at a Compound Annual Growth Rate (CAGR) of 16.6%.
The TMS software market is expected to grow from $3,618.9 million in 2014 to $7,222.6 million
by 2019, at a CAGR of 14.8% during the forecast period. The Talent management services market
is expected to grow from $1652.0 million in 2014 to $4,144.4 million by 2019, at a CAGR of 20.2%
during the forecast period.
Current market trend requires third-party software to be highly integratable to other productivity
software. Besides integratability, modern and easy to use are also important characteristics of
corporate solutions that buyers are looking for (Bersin, 2014).
According to the research, advanced reporting and analytics functionality that allows the
integration of data points from separate modules has become a point of differentiation for some
vendors. However, only organizations with sophisticated reporting needs will be drawn to this
functionality; basic functionality should be able to serve the needs of a majority of organizations
(McLean & Company, 2014). Therefore, this conclusion indicates that it is necessary for Moxie to
offer different products types to SMBs and large businesses.
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When evaluating talent management suite, clients usually evaluate different products and
vendors from several aspects. In terms of product, clients mostly consider features, usability,
affordability and architecture; in terms of vendor, they usually evaluate viability, strategy, reach
and channel (McLean & Company, 2014). The weight of each attributes is shown in the pie chart
in the picture below.
V. Cost Structure
Our final offering price should be determined by both theoretical pricing strategies and the
actual costs associated with the product. Below are three types of the most significant costs that
will be incurred in Re:View’s product lifecycle.
5.1 Development cost
Investment in Re:View’s development phase. Includes study costs, employee’s salaries,
development tool licenses, equipment, etc. It is estimated that the initial development cost is
between 25k to 30k.
5.2 Maintenance cost
Investment in Re:View’s post-launch phase. Includes costs incurred when we maintain
background mechanisms and provide customer support to clients. This part of cost is typically
maintenance tool licenses, various management tools licenses, employee salaries, etc. The estimate
of maintenance cost is $7,500 per month.
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5.3 Promotion cost
We may also launch various marketing campaigns to increase public exposure of Re:View.
Costs that will incur would include but not limited to SEO, SEM, SMM and generic advertising
costs. This part of cost will be determined after Moxie’s rebranding is completed and we have
selected certain marketing tools to deploy.
VI. Conclusions
Given Moxie’s cost advantage and its abundant experience and knowledge accumulation in
information technology, it is viable for Moxie to launch Re:View in talent management market.
Excellent product performance is also highly expected.
In terms of product, it is suggested that Moxie develop different product types for SMBs and
larger business because of their different demands. Basic version for SMBs can be less expensive
but with limited function; Premium version for larger business would cost more but provides full
functionality. This strategy would allow Moxie to target different market segments and eliminate
consumer surplus as much as possible. However, a 30-day free trial of each version is suggested
for prospects to better understand the products.
In terms of price, pay-per-employee can be a better choice. Because this would get more people
involved in the evaluation, which means more revenue for Moxie. This method can also bring
client enterprises benefits by encouraging them to conduct more holistic evaluation that includes
more of its employees each time. Based on the costs, we can probably set the basic price at around
$2/employee/month. Additionally, it is worth mentioning that price skimming and price
penetration strategy can also greatly affect Re:View’s price. If Moxie is to acquire customers as
fast as possible, it should price it low regardless of the development cost; if Moxie is to recoup
investment before competition intensifies, it should price Re:View higher regardless of its cost
advantage.
As for promotions, Moxie should first make full use of its social websites, which have been
quite idle for a long time. Also, SEO and SEM should also be carefully designed and tweaked over
time to achieve the best product performance while also ensuring the most economical investment.
VII. Quantitative Modeling
7.1. Estimate Customer Ratings
Besides advertising and other SEO or SEM efforts, word of mouth can also significantly affect
Re:View’s sales. Word of mouth is actually a form of customers’ ratings. Therefore, it is crucial
for Moxie to estimate customers’ ratings so that the development team can pay different level of
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attention to each attributes of the product. According to McLean & Company’s research in 2014,
we can create a linear formula to estimate customers’ ratings.
Please note that because of Moxie’s cost advantage, we can assume every potential customer
can afford Re:View. Therefore, we can give affordability a weight of 0. However, that only means
affordability will not affect customers’ rating, it does not mean affordability does not affect
demand.
According to the weight of product and vendor, we have 𝑅 = 0.8𝑃 + 0.2𝑉. Furthermore, with
the breakdown weight of each attribute of product and vendor, we can then have
𝑃 = 0 ∗ Affordability + 0.2 ∗ Architecture + 0.4 ∗ Features + 0.4 ∗ Usability
𝑉 = 0.15 ∗ 𝐶ℎ𝑎𝑛𝑛𝑒𝑙 + 0.25 ∗ 𝑅𝑒𝑎𝑐ℎ + 0.3 ∗ 𝑆𝑡𝑟𝑎𝑡𝑒𝑔𝑦 + 0.3 ∗ 𝑉𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
Therefore, putting P and V into the formula of calculating R, we have a breakdown function
to calculate customers’ ratings:
𝑅 = 0 ∗ 𝐴𝑓𝑓𝑜𝑟𝑑𝑎𝑏𝑖𝑙𝑖𝑡𝑦 + 0.16 ∗ 𝐴𝑟𝑐ℎ𝑖𝑡𝑒𝑐𝑡𝑢𝑟𝑒 + 0.32 ∗ 𝐹𝑒𝑎𝑡𝑢𝑟𝑒𝑠 + 0.32 ∗ 𝑈𝑠𝑎𝑏𝑖𝑙𝑖𝑡𝑦
+ 0.03 ∗ 𝐶ℎ𝑎𝑛𝑛𝑒𝑙 + 0.05 ∗ 𝑅𝑒𝑎𝑐ℎ + 0.06 ∗ 𝑆𝑡𝑟𝑎𝑡𝑒𝑔𝑦 + 0.06 ∗ 𝑉𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
The meaning of the function is to help the development team focus differently on each
attributes of Re:View so that this product can achieve the best customer rating with the highest
development efficiency.
Discussions
The coefficient before each variable indicates the variable’s weight. The higher the value, the
more important the attribute is. For example, Features and usability with coefficient of 0.32 are
the most important attributes affecting customer’s rating for a talent management product,
followed by architecture with 0.16 and then viability and strategy with 0.06.
Limitations
The function above provides a rough reference in terms of how to strategically develop
Re:View. However, the way we acquire the function has also its limitations as follows.
First, this model is using criteria for the talent management suite to estimate employee
performance evaluation system, which is only a part of the whole suite.
Second, although linear model is the most commonly used method for data estimation, it may
not fit the real situation of Re:View.
7.2. Estimate Profits
8
According to product development plan, Moxie will spend around 20-30k for the development
of MVP and about 5000-10,000 per month to maintain and grow (sales, hosting, support,
marketing, R&D).
Let n denote the number of month since product launch, total cost can be calculated as
𝐶𝑜𝑠𝑡 = 25000 + 7500 ∗ 𝑛
Based on Moxie management’s plan, Re:View would either have two different versions for
SMBs and large businesses or simply have one version for all users. Therefore, there are two
scenarios to consider. However, according to the research, having two different product types is
highly suggested.
Scenario 1. Two Versions for SMBs and Large Businesses
When Re:View’s three types license fee is charged monthly, the total revenue for Moxie at
the end of nth month is
∑(0 + 𝑃𝐵𝑎𝑠𝑖𝑐 ∗ ∑ 𝑄𝐵𝑎𝑠𝑖𝑐_𝑖
𝑛
𝑖=1
+ 𝑃𝑃𝑟𝑒𝑚𝑖𝑢𝑚 ∗ ∑ 𝑄𝑃𝑟𝑒𝑚𝑖𝑢𝑚_𝑖
𝑛
𝑖=1
)
𝑛
𝑖=1
Hence, Moxie’s total profit after product launch is
Profit = Revenue − Cost
= ∑(0 + 𝑃𝐵𝑎𝑠𝑖𝑐 ∗ ∑ 𝑄𝐵𝑎𝑠𝑖𝑐_𝑖
𝑛
𝑖=1
+ 𝑃𝑃𝑟𝑒𝑚𝑖𝑢𝑚 ∗ ∑ 𝑄𝑃𝑟𝑒𝑚𝑖𝑢𝑚_𝑖
𝑛
𝑖=1
)
𝑛
𝑖=1
− 25000 − 7500 ∗ 𝑛
Therefore, if Moxie charges $2/employee/month for basic version and $4/employee/month for
premium version, the function becomes
𝑃𝑟𝑜𝑓𝑖𝑡 = ∑(2 ∗ ∑ 𝑄𝐵𝑎𝑠𝑖𝑐_𝑖
𝑛
𝑖=1
+ 4 ∗ ∑ 𝑄𝑃𝑟𝑒𝑚𝑖𝑢𝑚_𝑖
𝑛
𝑖=1
)
𝑛
𝑖=1
− 25000 − 7500 ∗ 𝑛
Scenario 2. One Single Version for All Users
In this scenario the calculation is simpler. Since there will only be one price, the total revenue
for Moxie at the end of the nth month is
∑(0 + 𝑃 ∗ ∑ 𝑄𝑖
𝑛
𝑖=1
)
𝑛
𝑖=1
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Hence, Moxie’s total profit after product launch is
Profit = Revenue − Cost
= ∑(0 + 𝑃 ∗ ∑ 𝑄𝑖
𝑛
𝑖=1
)
𝑛
𝑖=1
− 25000 − 7500 ∗ 𝑛
Therefore, if Moxie set price at $2/employee/month as is suggested before, the function
becomes
Profit = ∑(0 + 2 ∗ ∑ 𝑄𝑖
𝑛
𝑖=1
)
𝑛
𝑖=1
− 25000 − 7500 ∗ 𝑛
Discussions
Again, for simplicity reasons, we usually use linear expression to model the relationship
between price and demand for basic and premium Re:View products as 𝑃 = 𝐴 − 𝐵 ∗ 𝑄, where A
and B are positive constants. However, finding out parameter A and B is not very meaningful as
they can be easily changed when Moxie adjusts its advertising, SEO and SMM efforts. Therefore,
the meaning of the two functions above is more of allowing Moxie to set different sales goals and
see what the results(profits) are.
An Excel has been created to perform a simulation of a 12-month sales cycle in Scenario 1.
Moxie can set different sales goals for each month to calculate a rough estimate of the profit at the
year end.
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Simulation of a 12-month Sales Cycle
Please also note that there can be infinite combinations of n (time period) and Q (sales goal) to
determine the profit, theoretically. Thus, Moxie must set realistic values (goals) for this model to
make sense.
Limitations
The limitations mostly derive from assumptions underlying this model.
First, this model is assuming linear price-demand relationship, which is usually the case.
However, there can still be exceptions. Therefore, linear relationship may not necessarily fit the
real situation of Re:View. To acquire the most accurate predictions, it is highly suggested that
Moxie conduct a survey specifically for this product.
Second, this model assumes that no customers will unsubscribe from Re:View when
calculating revenues, which is probably not the case in real life. To ensure the accuracy of the
model without considering this limitation, Moxie must make sure there is the least number of
customers quitting the service. One way is to keep eyes on customer ratings as discussed before.
Third, the fixed cost and monthly cost are just rough numbers and is subject to change as the
development cycle continues. Price of the service are also likely to be changed as Moxie
understand more about the market.
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VIII. Reference
Bersin, J. (2014). The Talent Management Software Market Surges Ahead. Forbes Leadership.
Retrieved from
http://www.forbes.com/sites/joshbersin/2014/06/26/the-talent-management-software-
market-surges-ahead/
Medved, P. (2014). How much does performance appraisal software cost? Capterra Talent
Management Blog. Retrieved from
http://blog.capterra.com/much-performance-appraisal-software-cost/
McLean & Company. (2014). Vendor Landscape: Talent Management Suites. Retrieved from
https://www.hrsmart.com/sites/default/files/campaigns/product-
sheets/McLean%20%26%20Co%20-%20Talent%20Management%20Vendor%20Landscape
%20Report.pdf
Newstex Blog Editors. (2015). CompaniesandMarkets.com: Global talent management software
market is forecast to total US$11.4bn in 2019. Newstex Trade & Industry Blogs. Retrieved
from
http://search.proquest.com/docview/1659726595?accountid=11752
Ries, E. (2011). The Lean Startup. Retrieved from
http://www.stpia.ir/files/The%20Lean%20Startup%20.pdf
Wikipedia Editors. (2015). Pricing Strategies. Wikipedia. Retrieved from
https://en.wikipedia.org/wiki/Pricing_strategies
Zale, N. (2014). Setting the Right Price for Sustainable Profit. The Strategy and Tactics of Pricing
--- A Guide to Growing More Profitably, 131- 135.