MaRS Library Revenue models: Low-value transactions in ICT, medical devices and biopharmaceuticals
Low-value transactions are smaller, one-off payments that enable a good to change owners.
Low-value transactions are common in many markets including information and communication technologies (ICT), medical devices and biopharmaceuticals. Other examples include media purchases (CDs, DVDs, newspapers and audio or video files), over-the-counter medication, food, consumer electronics, and other retail products.
Customer relationships in low-value transactional revenue models
For one-off transactions, sellers must provide an excellent customer experience, building brand recognition and positive brand associations. Since a third-party retailer often governs customer experiences, the primary sellers must ensure that the retailer represents the brand properly and maintains appropriate customer service levels.
Often, producers of low-value items will partner with a distributor to take advantage of existing sales infrastructure and customer relationships. In the life sciences industries, a 50% markup on goods sold through these channels is common; the cost of goods sold must therefore be kept low.
Marketing issues related to low-value transactions
The low-value transactional revenue model relies on a continuous flow of new purchasers. A company can achieve this through aggressive promotional activities such as advertising, direct mail or telemarketing.
Operationally, companies that profit from low-value transactional revenue must focus on cost-efficient scalability, and highly efficient marketing.
Financial and strategic implications
Establishing traction in a crowded market can be an extremely slow process for companies that rely on low-value transactions for revenues. Building brand recognition and developing effective direct marketing campaigns requires both time and capital. Marketing in particular requires a significant pre-revenue budget.
For companies that rely on low-value transactional revenues, important metrics include the cost of customer acquisition and the cost of goods sold.
Costs and benefits of the low-value transactional model
Effective sales promotions that persuade customers to try the product can lead to repeat purchases and a positive customer experience. Because margins on low-value transactions are extremely thin, however, this model depends heavily on sales volume. It can be difficult for start-up companies to generate and fulfill the required volume of sales.