Business model analysis using computational modeling:
A strategy tool for exploration and decision-making
Online Appendix
A1 Model Validation
We demonstrate a range of validation tests, e.g., extreme condition tests, behavior sensitivity tests, and loop knock-out tests, unit consistency test, to ensure a high level or model validity (Forrester and Senge 1980; Groesser and Schwaninger 2012). The process of modeling is naturally characterized by setbacks. The detailed analysis of the sources of error and the subsequent model adjustments lead to a continuous optimization of the simulation model. The conducted validation steps prove a pass of all below mentioned tests:
- Integration Error Test
- Parameter Verification Test
- Structure Verification Test
- Face Validity Test
- Dimensional Consistency Test
- Pattern Prediction Test
- Extreme Conditions Test
- Behavior Reproduction Test
A2 Model Equations
In the following, the Vensim equations and simulation control parameters are provided for replication purposes. We used Vensim DSS V.6.3.
Equations
(01)"add-on revenue per basket tab"([(0,0.5)-(1e+007,2)],(0,0),(100,0),(500,1.6),(10000,1.75),(50000,1.8),(100000,1.75),(250000,1.65),(500000,1.61),(1e+007,1.6))
Units: Euro/order
Description: Revenue share of additional gifts per order table
(02)Additional marketing GMPVC=INTEG (-Inflow from add marketing,INIT GMPVC)
Units: person/year
Description: Number of persons per year which can be contacted trough German Media Pool fund
(03)adoption from Marketing=success rate of marketing*contact rate of marketing*Potential customers
Units: person/year
Description: Number of person who adopt MIFLORA (become customers) due to marketing activities
(04)adoption from special events=PULSE TRAIN of events*Valentines and Mothers Day demand
Units: person/year
Description: Demand increase due to seasonal circumstances
(05)"adoption from word-of-mouth"=("contact rate of word-of-mouth"*"success rate of word-of-mouth"*Potential customers*MIFLORA customers/total population)+adoption from special events
Units: person/year
Description: Number of person who adopt MIFLORA (become customers) due to word-of-mouth
(06)average experience per employee=XIDZ(Cumulated experience,current total employees,0)
Units: Experience unit/person
Description: Total experience in the firm divived by number of MIFLORA employees
(07)"average shelf-life time"=0.2498
Units: year
Description: Average time of flowers to be faded
(08)cashinflow=flower arrangement revenue per basket*COGS*orders
Units: Euro/year
Description: Free cash flow generated by costumer bank transfer
(09)cash outflow=Net Working Capital/payment time
Units: Euro/year
Description: Free cash flow paid to suppliers
(10)change in population GER=Population of Germany*population growth GER
Units: person/year
Description: Population decline due to higher mortality rate than birthrate
(11)change in potential customers due to population changes=(-share target customers AT*increase in population Austria*market entry Austria)+(change in population GER*share target customers GER)
Units: person/year
Description: Outflow of population per year due to population growth
(12)change in relative product attractiveness=("price/quality MIFLORA"-"price/quality competitors")*existance of MIFLORA
Units: Dmnl/year
Description: Change in product attractiveness due to comparison of price/quality ratio of MIFLORA and weigthed market competitors
(13)COGS=effect of economies of scale on COGS tab(orders)
Units: Dmnl
Description: Percentage share of cost of goods sold on revenue per order
(14)complaints in orders fraction=effect of ratio qualified to unqualified employees on complaints in orders fration tab (unqualified employees fraction)
Units: Dmnl
Description: Share of complaints due to quality defects to total orders
(15)contact rate of marketing=(contacted population+Contacts from media for equity deal)/total population
Units: person/person/year
Description: Frequency per person and year of contacts with MIFLORA marketing activities
(16)"contact rate of word-of-mouth"=7.5
Units: person/person/year
Description: Frequency per person and year of contacts with word-of-mouth
(17)contacted population="SEM, Deals, Affiliate & CRM"*effect of experience on contacted population*existance of MIFLORA
Units: person/year
Description: Number of persons per year contacted by MIFLORA marketing activities
(18)Contacts from media for equity deal= INTEG (Inflow from add marketing,0)
Units: person/year
Description: Number of contacted persons per year due to media-for-equity deal
(19)conversion rate of marketing=0.052
Units: Dmnl
Description: Initial success rate of marketing
(20)"conversion rate of word-of-mouth"=0.26
Units: Dmnl
Description: Initial success rate of word-of-mouth
(21)costs for marketing activities=costs for marketing activities tab(success rate of marketing)
Units: Dmnl
Description: Percentage share of costs for marketing activities on revenue per order
(22)costs for marketing activities tab([(0,0)-(1,0.8)],(0,0),(0.0475,0),(0.048,0.65),(0.053,0.5),(0.0551341,0.4),(0.0637395,0.3),(0.0811927,0.266667),(0.100795,0.25),(0.113787,0.245),(0.47499,0),(1,0.25))
Units: Dmnl
Description: Impact of learning curve effects on marketing expenses due to gained experience (e.g. more efficient mix of marketing channels)
(23)costs per order=(COGS+costs for marketing activities+operationalcosts+customer care compensation)*revenue per order
Units: Euro/order
Description: Percentage share of total costs on revenue per order
(24)Cumulated experience= INTEG (new experiences-loss of experience,INIT Cum exp)
Units: Experience unit
Description: Experience of MIFLORA employees
(25)cumulated orders= INTEG (orders,0)
Units: order
Description: Number of served customers since MIFLORA establishment
(26)Cumulitive CM2 Profit= INTEG (MIFLORA Profit,0)
Units: Euro
Description: Company earnings per year since MIFLORA establishment
(27)current total employees=Temporary workers+Qualified employees
Units: person
Description: Number of MIFLORA employees
(28)customer care compensation=complaints in orders fraction*(customer care compensation logistics+customer care compensation external factors)
Units: Dmnl
Description: Percentage share of customer care compensation costs on revenue per order
(29)customer care compensation external factors=rate of complaints external factors*(COGS+operational costs)
Units: Dmnl
Description: Customer care compensation costs due to other defects
(30)customer care compensation logistics=0.348942
Units: Dmnl
Description: Customer care compensation costs due to quality defects
(31)customer loss rate=MIFLORA customers/"average shelf-life time"
Units: person/year
Description: Number of person per year who become potential customers again due to end of shelf-life (outflow of MIFLORA customers)
(32)customers from venture star=init customers from venture star/TIME STEP*PULSE( founding time MIFLORA, TIME STEP)
Units: person/year
Description: Inflow of customers from mother company Venture Stars
(33)duration PT=1/12
Units: year [0.25,?]
Description: Temporal duration of Pulse Train
(34)effect of average emperience per employee on operational costs=effect of average emperience per employee on operational costs tab(average experience per employee)
Units: Dmnl
(35)effect of average emperience per employee on operational costs tab([(5000,0)-(5e+006,0.4)],(0,0),(5000,0),(5000,0.35),(50000,0.25),(200000,0.2),(850000,0.175),(2e+006,0.1643),(5e+006,0.18),(1e+007,0.181))
Units: Dmnl
Impact of average employee experience (i.e. served customers) on optimization of Description: production processes
(36)effect of cumulated experience on customer trust and success of WOM=effect of cumulated experience on customer trust and success of WOM tab(Cumulated experience)
Units: Dmnl
Description: Exceptional ratings on customer comparison websites
(37)effect of cumulated experience on customer trust and success of WOM tab([(10000,0.7)-(1e+006,1)],(0,0),(5000,0),(10000,0.727),(49357.8,0.778947),(100000,0.825),(234037,0.85),(375000,0.875),(666973,0.896053),(1e+006,0.9),(1e+007,1))
Units: Dmnl
Description: Improvements of customer trust/exceptional ratings due to quality management and customer relationship management by Customer Care
(38)effect of economies of scale on COGS tab([(0,0)-(800000,0.7)],(0,0),(499.99,0),(500,0.65),(5000,0.65),(22018.3,0.607895),(50000,0.55),(141896,0.491228),(250000,0.45),(369419,0.408333),(500000,0.375),(638532,0.35614),(750000,0.35),(800000,0.345),(1e+006,0.345))
Units: Dmnl
Description: Economies of Scale for comission on COGS (net price + comission for transport and processing expenses)
(39)effect of experience on contacted population=effect of experience on contacted population table(average experience per employee)
Units: Dmnl
Description: Impact of employee experience on number of contacts through marketing activities (Economies of Scale on SEM, deals, affiliates and CR marketing)
(40)effect of experience on contacted population table([(0,0)-(20000,50)],(0,1),(4000,10),(5500,20),(7000,30),(10000,40),(15000,44),(20000,45),(1e+006,47.5))
Units: Dmnl
Description: Impact of employee experience on number of contacts through marketing activities (Economies of Scale on SEM, deals, affiliates and CR marketing) table
(41)effect of learning curve on success rate of marketing=push factor complexity of order process(average experience per employee)*push factor divergence loss(average experience per employee)*existance of MIFLORA
Units: Dmnl
Description: Positive as well as negative learning curve effects depending on gained experience
(42)effect of ratio qualified to unqualified employees on complaints in orders fration tab([(0,0)-(1,0.8)],(0,0.05),(0,0.05),(0.1,0.05),(0.2,0.1),(0.262997,0.15),(0.3,0.1869),(0.35,0.3022),(0.4,0.4506),(0.45,0.5539),(0.629969,0.691228),(1,0.75))
Units: Dmnl
Description: Impact of share of unksilled workers to total number of MIFLORA employees on rate of complaints
(43)effect of social media database on order frequency=effect of social media database on order frequency table(cumulated orders)
Units: Dmnl
Description: Impact of customer data on order frequency per customer (e.g. through reminder on birthdays of friends)
(44)effect of social media database on order frequency table([(5000,1)-(1e+006,2)],(0,1),(5000,1),(27500,1.25),(100000,1.45),(200000,1.6),(375000,1.6666),(1e+006,1.75),(5e+006,1.825),(1e+007,1.85),(5e+007,1.95),(1e+009,2))
Units: Dmnl
Description: Impact of customer data on order frequency per customer (e.g. through reminder on birthdays of friends) table
(45)effect of unqualified employee fraction on operational costs=effect of unqualified employee fraction on operational costs tab(unqualified employees fraction)
Units: Dmnl
(46)effect of unqualified employee fraction on operational costs tab([(0,0)-(1,1)],(0,1),(0.165138,0.947368),(0.314985,0.864035),(0.470948,0.635965),(0.58104,0.429825),(0.764526,0.267544),(1,0.2))
Units: Dmnl
Description: Impact of share of unskilled workers to total employees on production efficiency
(47)employee maturation rate=Temporary workers/probation period
Units: person/year
Description: Number of unskilled workers per year which receive training to become qualified MIFLORA employees
(48)employees loss rate=normal loss rate of employees*Qualified employees
Units: person/year
Description: Fluctuation of qualified employees
(49)employees required=orders/order capacity per employee
Units: person
Description: Number of required employees to process current demand (number of orders)
(50)existance of MIFLORA=STEP( 1, founding time MIFLORA)
Units: Dmnl
Description: Activation of MIFLORA variables due to establishment
(51)experience per new serving=1
Units: Experience unit/order
(52)first event=2013
Units: year
Description: Starting point of Pulse Train
(53)flower arrangement revenue per basket=flower arrangement revenue per basket tab(Cumulated experience)
Units: Euro/order
Description: Revenue share of flower arrangement per order
(54)flower arrangement revenue per basket tab([(0,20)-(1e+006,40)],(0,0),(100,0),(500,23),(10000,27),(50000,29.5),(100000,31),(250000,33.5),(500000,35),(1e+007,35))
Units: Euro/order
Description: Revenue share of flower arrangement per order table
(55)founding time MIFLORA=2013
Units: year
Description: Year of MIFLORA establishment
(56)gap in employees=employees required-current total employees
Units: person
Description: Difference between required employees for current demand and actual number of MIFLORA employees
(57)increase in population Austria=population growth Austria*Population Austria
Units: person/year
Description: Population growth due to lower mortality rate than birthrate
(58)Inflow from add marketing=if then else (MIFLORA Profit>0, 1,0)*Additional marketing GMPVC/TIME STEP
Units: person/year/year
Description: Option of additionally contacted persons due to media-for-equity deal rationale (restriction to be profitable)
(59)INIT Cumexp=5000
Units: Experience unit
Description: Initial experience
(60)init customers from venture star=5000
Units: person
(61)init founding members=10
Units: person
(62)INIT GER=8.18e+007
Units: person
Description: Initial population in Germany as per year 2010
(63)INIT GMPVC=1e+006
Units: person/year
Description: Marketing capacity of German Media Pool fund
(64)INIT PAT=8.42631e+006
Units: person
Description: Initial population in Austria as per year 2012
(65)internet affinity AT=0.79
Units: Dmnl
Description: Share of population with access to internet in Austria
(66)internet affinity GER=0.85
Units: Dmnl
Description: Share of population with access to internet in Germany
(67)last event=2050
Units: year
Description: End point of Pulse Train
(68)loss of experience=average experience per employee*(employees loss rate+loss of temporary workers)
Units: Experience unit/year
Description: Loss of experience due to fluctuation
(69)loss of temporary workers=Temporary workers*normal loss rate of employees
Units: person/year
(70)market entrance Austria threshold=25000
Units: Euro
Description: Needed resources for expansion to Austria
(71)market entry Austria=SAMPLE IF TRUE( Net Working Capital>market entrance Austria threshold, 1, 0)
Units: Dmnl
Description: Option for market expansion depending on free cash flow restriction
(72)market share discount retailers=0.4
Units: Dmnl
Description: Market revenue share of discount retailers
(73)"market share e-commerce"=0.3
Units: Dmnl
Description: Market revenue share of e-commerce
(74)market share stationairy florists=0.3
Units: Dmnl
Description: Market revenue share of stationairy florists
(75)MIFLORA customers= INTEG (customers from venture star+rate of customers adoption-customer loss rate,0)
Units: person
Description: Menschen, die eine Bestellung bei MIFLORA tätigen
(76)MIFLORA Profit=orders*profit per order
Units: Euro/year
Description: Company earnings per year
(77)Net Working Capital= INTEG (cf inflow-cf outflow,0)
Units: Euro
Description: Free cash flow from delayed payments
(78)new customers from first market entry AT=Population Austria*share target customers AT/TIME STEP*PULSE( market entry Austria, TIME STEP)
Units: person/year
Description: Number of potential customer, that inflow per year due to market expansion to Austria
(79)new experiences=orders*experience per new serving
Units: Experience unit/year
Description: Gain of experience due to served customers
(80)new qualified employees from founding=init founding members/TIME STEP*PULSE(founding time MIFLORA, TIME STEP)
Units: person/year
Description: Inflow of employees due to MIFLORA establishment
(81)new temporary workers=max(0,gap in employees/time to hire temporary workers)
Units: person/year
Description: Hires of unskilled employees per year
(82)normal loss rate of employees=0.2
Units: 1/year
Description: Fluctiation rate of MIFLORA employees per year (Average stay: 5 years)
(83)normal order frequency=1
Units: order/person/year
Description: Initial number of orders taken per year by a single customers without condiseration of interdependencies
(84)operational costs=effect of average emperience per employee on operational costs*effect of unqualified employee fraction on operational costs
Units: Dmnl
Description: Percentage share of operational and payment costs on revenue per order
(85)order capacity per employee=10000
Units: order/person/year
Description: Capacity of order processing per employee and year
(86)order frequency per customer=normal order frequency*effect of social media database on order frequency
Units: order/(year*person)
Description: Number of orders taken per year by a single customers
(87)orders=MIFLORA customers*order frequency per customer
Units: order/year
Description: Yearly orders per MIFLORA customer
(88)payment time=0.0277778
Units: year
Description: Agreed terms of payment (cash flow delayed by 10 days; 3 days pre-order + 7 days payment target)
(89)Population Austria= INTEG (increase in population Austria,INIT PAT)
Units: Person
Description: Number of people living in Austria
(90)population growth Austria=0.00266408
Units: 1/year
Description: Positive growth factor of population development
(91)population growth GER=0.00263732
Units: 1/year
Description: Negative growth factor of population development
(92)Population of Germany= INTEG (change in population GER,INIT GER)
Units: person
Description: Number of people living in Germany
(93)Potential customers= INTEG (-change in potential customers due to population changes+new customers from first market entry AT+customer loss rate-rate of customers adoption,INIT GER*share target customers GER)
Units: person
Description: Number of persons with targeted group characteristics in served markets
(94)"price/quality competitors"="price/quality discount retailers"*market share discount retailers+"price/quality e-commerce"*"market share e-commerce"+"price/quality stationairy florists"*market share stationairy florists
Units: Dmnl/year
Description: Weighted price/quality ratio (evaluation/ranking) of market competitors
(95)"price/quality discount retailers"=0.729
Units: Dmnl/year
Description: Average evaluation/ranking of discount retailers
(96)"price/quality e-commerce"=0.7305
Units: Dmnl/year
Description: Average evaluation/ranking of e-commerce companies
(97)"price/quality MIFLORA"=0.758
Units: Dmnl/year
Description: Price/quality ratio (evaluation/ranking) of MIFLORA
(98)"price/quality stationairy florists"=0.72
Units: Dmnl/year
Description: Average evaluation/ranking of stationairy florists
(99)probation period=3/12
Units: year
Description: Time duration of training
(100)profit per order=revenue per order-costs per order
Units: Euro/order
Description: Company earnings per order
(101)PULSE TRAIN of events=PULSE TRAIN(first event, duration PT , repetition interval , last event )
Units: Dmnl
Description: Mechanism for displaying the high demand times on Valentines and Mothers Day
(102)push factor complexity of order process([(0,0.9)-(100000,1)],(0,1),(1529.05,0.997807),(3516.82,0.995175),(6700,0.983),(8300,0.975),(9633.03,0.956579),(11000,0.94),(13000,0.93),(15596.3,0.922368),(21100.9,0.915789),(31804.3,0.908333),(56269.1,0.90307),(100000,0.9),(1e+006,0.7))
Units: Dmnl
Description: Increasing complexity of websites due to extended product portfolio
(103)push factor divergence loss([(0,0)-(50000,4)],(0,1),(2446.48,1.05263),(5198.78,1.22807),(7645.26,1.4386),(10091.7,1.82456),(12385.3,2.07018),(17278.3,2.31579),(25076.5,2.36842),(44189.6,2.4),(100000,2.5))
Units: Dmnl
Description: Decreasing divergence loss due to optimizations in marketing with gained experience
(104)Qualified employees= INTEG (new qualified employees from founding+employee maturation rate-employees loss rate,0)
Units: person
Description: Number of employees with required knowledge (qualifications)
(105)rate of complaints external factors=0.5395
Units: Dmnl
Description: Share of customer care compensation due to other defects to total orders
(106)rate of customers adoption=(adoption from Marketing+"adoption from word-of-mouth")*existance of MIFLORA
Units: person/year
Description: Number of person per year who adopt MIFLORA
(107)Relative product attractiveness= INTEG (change in relative product attractiveness,1)
Units: Dmnl
Description: Product attractiveness with regards to the comparison of price/quality ratio of MIFLORA and weigthed market competitors
(108)repetition interval=1
Units: year