Strategy and a Company's Business Model

Read the overview below and complete the activities that follow.

While the company's strategy sets forth an approach to offering superior value, a company's business model is management's blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit.

The two elements of a company's business model are (1) its customer value proposition and (2) its profit formula. The customer value proposition is established by the company's overall strategy and lays out the company's approach to satisfying buyer wants and needs at a price the customer will consider to be a good value. The greater the value provided and the lower the price, the more attractive the value proposition is to customers. The profit formula describes the company's approach to determining a cost structure that will allow for acceptable profits given the pricing tied to its customer value proposition. The lower the costs given the customer value proposition, the greater the ability of the business model to be a moneymaker. The nitty-gritty issue surrounding a company's business model is whether it can execute its customer value proposition profitably. Just because company managers have crafted a strategy for competing and running the business does not automatically mean that the strategy will lead to profitabilityit may, or it may not.

Go to investor.siriusxm.com and check whether Sirius XM's recent financial reports indicate that its business model is working. Are its subscription fees increasing or declining? Is its revenue stream from advertising and equipment sales growing or declining? Does its cost structure allow for acceptable profit margins?

• Does its cost structure allow for acceptable profit margins? Explain your answer.