The elements of a business model are the value proposition, target market segment, distribution channel, relationship with the consumers, configuration of organisational resources, core competencies, strategic partnerships, cost structures, and revenue streams (Zott, Amit & Massa, 2011). Veja’s business model falls under the cost leadership strategy, a strategy that entails keeping the operating costs low in order to offer customers the lowest prices in the market.
The value proposition is an organisation’s solution to the customers’ problem, and for Veja, this proposition is the provision of footwear that enables the customers to avoid contracting foot-related diseases. The target market segment is the Nigerian population that falls in the lower-middle class income group and below; according to Deloitte (2014), this segment has at least 120 million people. Veja plans to distribute its product through the hundreds of thousands of retail outlets in which the lower-middle income groups shop. The retail outlets are appropriate because they provide the high traffic that the company needs in order to generate sufficient sales and acquire a large share of the footwear market for the Nigerian lower-middle income group. Veja will forge a close relationship with the consumers through the appropriate marketing channels. In a particular, the company will advertise its brand in electronic media in order to inform its target market of the affordable footwear brands it will stock in various retail outlets. To market to the low-income group, the prices of the shoes will be low and affordable, and Veja will stock these shoes in the outlets that this group frequents.
The configuration of organisational resources relates to how Veja will deploy its people, processes, and information systems to deliver the customer value proposition. Veja hopes to recruit skilled personnel who will work in the manufacturing plants and provide the services that support the core operations. If there is insufficient skilled labour, Veja will train the people it is planning to recruit. Veja plans to design its operations according to the principles of best practice in order to ensure the highest levels of efficiency and effectiveness. The adoption of the techniques of quality management is important considering that Veja plans to position itself as a cost leader, and this means it has to attain manufacturing excellence as a core competence. Veja plans to form partnerships with the suppliers of its raw material inputs and the distributors of its products. The company will rely on the suppliers it will contract to import synthetic rubber, and this means it will have to offer them the support they need in order to operate efficiently and effectively. On the upstream side of the value chain, Veja will partner with retailers and support them so that they offer its brands the shelf space needed to capture a substantive share of the low-cost footwear market. The cost structure is an important consideration when designing Veja’s business model because of the significance of the operating costs to the company’s strategic positioning. The company plans to keep the manufacturing costs within 40% of sales revenue so that the mark up it applies on its products does not increase the retail prices. Veja’s revenue will come from the sale of footwear to the Nigerians in, or below, the lower-middle income category.
Various internal and external factors influence Veja’s ability to attain its goals in the Nigerian low-end footwear market. Veja has two key strengths. First, it is a global firm with over 150 stores worldwide. Attaining such an impressive global footprint requires manufacturing excellence, and this means Veja has the requisite competencies it needs to position itself successfully as a cost leader in the low-end footwear market in Nigeria. Second, Veja’s operations integrate sustainability concepts, and this implies that it will find it easy to penetrate the low-end segment of the Nigerian footwear market because the consumers will find that it offers a win-win proposition. Veja will offer employment not just to the people it will employ in its manufacturing and administrative operations, but also all those who will oversee the operations along the entire value chain. The cheap prices for its products will appeal to Veja’s target market segment because they will give the consumers relief from the high direct and indirect costs of medical care they have to incur after contracting foot-related diseases.
Veja’s main weakness is that its brand recognition in the low-end segment of the Nigerian footwear market is low, and this will make it difficult for it to penetrate the target market. To surmount this weakness, Veja needs to invest in the customer relationships that will enhance its brand awareness and recognition and help it to build the brand equity it needs in order to attain the largest share of the footwear market. The other weakness is that its operations rely heavily on the suppliers of its raw material inputs into the production process, and if these suppliers face problems, Veja will have difficulties achieving its goals. To address the second weakness, Veja must form partnerships with its suppliers.
Veja’s opportunities are a big market and the availability of synthetic rubber and cotton that it will use as inputs for the production process. According to the United Nations Economic Commission for Africa (2017), the Nigerian population is set to reach 229 million within the next seven years, and this means that the low-end segment of the footwear market is set to expand tremendously. Current estimates suggest that the customer numbers in this segment are in the area of 120 million, and at the current growth rate, this number will double within the next seven years. With Deloitte (2014) projecting the Nigerian GDP growth is expected to average 7% over the next decade, the disposable income of Veja’s target market will increase, thus creating opportunities for up-scaling the value proposition.
According to Mijiyawa(2013), GDP growth in Sub-Saharan Africa tends to decline after periods of a sustained increase, and this means that the threat facing Veja is that the Nigerian GDP growth is likely to slow down, resulting in the contraction of its target market. Political risks such as governance instability and terrorism also pose threats to Veja. These risks are likely to disrupt commercial activities and cause losses to firms that operate in Nigeria. Economic risks such as volatile currency exchange rates and inflation are a threat to Veja because they are likely to cause an increase in the operating costs, thus undermining the viability of Veja’s strategic positioning. To pre-empt the potential consequences of these threats, Veja needs to adopt a phased approach to investing in the Nigerian market. Investing in phases will minimize the sunk costs that Veja is likely to incur in the event these threats materialise.
- Deloitte (2014). Beyond GDP- Nigeria. Accessed https://www2.deloitte.com/content/dam/Deloitte/za/Documents/technology/ZA_Nigeria_BeyondGDP_06052014.pdf
- Mijiyawa, A. G. (2013). Africa’s Recent Economic Growth: What Are the Contributing Factors? African Development Review, 25(3), 289-302
- United Nations Economic Commission for Africa (2017). Country Profile 2016: Nigeria. Accessed https://www.uneca.org/sites/default/files/uploadeddocuments/CountryProfiles/2017/nigeria_cp_eng.pdf
- Zott, C., Amit, R., & Massa, L. (2011). The business model: recent developments and future research. Journal of management, 37(4), 1019-1042