PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
The design of a business is the means for delivering value to customers
and earning a profit from that activity. The business design incorporates the
selection of customers, its offerings, the tasks it will do itself and those it will
outsource, and how it will capture profits. Business design is often called
business concept. A successful business design represents a better way than
existing alternatives. It is like writing a news story, which will be used to attract
investors, customers, and team members. In other words, the business
design itself is an opportunity to be innovative [Zott and Amit, 2007].
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
A good business design involves what your firm will and will not do and how
the firm will create a sound value proposition. The business design answers three
key questions: who is the customer, how are the needs of the customer
satisfied, and how are the profits captured and profitability protected. The
resulting outcome of the business design process is the business model, which is
the description of the business and how it will work in economic terms. A business
model is a set of planned assumptions about how a firm will create value for all its
stakeholders [Magretta, 2002]. A business model is the framework that connects a
technology to economic profits.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
The term business model refers to a company's plan for making
a profit. It identifies the products or services the business plans to sell, its
identified target market, and any anticipated expenses. Business models
are important for both new and established businesses. They help
companies attract investment, recruit talent, and motivate management
and staff.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
The first critical element of a business model is the selection of
the customer. The business design aims to specify the customers with
unmet or latent needs, which will then define the target market. It is
important to choose customers who will permit you to profit and spurn
customers who want great value but are difficult or unfairly demanding.
Instead of making all customers very happy, focus on the right customer
and create an offering that allows good value to the customer and a
reasonable profit to your firm.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
The second step is to clearly state a unique value proposition that will
provide differentiation for your firm. Show how the value proposition will
address the market segment you have identified.
Next, explain the scope of product and activities and organizational
design that will enable you to implement the value proposition. A clear path
to profitability is critical. You should determine your company’s actual and
projected revenues and expenses, identifying the key factors that influence
total revenues and costs. Then, plot cash flow versus time to determine your
financing needs [Hamermesh et al., 2002].
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
Furthermore, it is important that you can retain good profit margins so
that you can invest for the future. In general, it is best to avoid competing solely
on price and making price the dominant value of the value proposition.
Customers influence changes in sound business models as their
priorities change. Many business models fit a context that eventually evolves
and necessitates changes in the models. The obsolescence of an outmoded
business model and the necessity for a redesign of the business model is
called value migration [Slywotzky, 1996].
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
The business design process is summarized in the figure below. The dynamic
firm continuously tests for changing conditions and redesigns its value proposition to
meet the values of its customers.
Almost every aspiring entrepreneur assumes that his or her first business plan
(plan A) will be successful. What should an entrepreneur do when it falters or
investors are not attracted? Determining what projected customers will actually pay
for is difficult. A few focus groups and surveys is a start, but will likely come up short
of what is needed. Good entrepreneurial teams try plan A on customers, but then are
ready to adjust and move to plan B. They test hypotheses against reality and then
are ready to adjust plans.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
Businesses should regularly update their business model
or they'll fail to anticipate trends and challenges ahead.
Business models also help investors to evaluate companies
that interest them and employees to understand the future of a
company they may aspire to join.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
TWO SIDES OF A BUSINESS MODEL
A business model covers production operations such as design, suppliers,
raw materials, and manufacture (backstage). However, there is another part that
includes other necessary activities when selling a product: locating your audience,
finalizing a deal, distributing a product, and offering a service (stage). This is
referred to as the two sides of a business model. The stage is in front of the
audience, and the backstage area is behind the curtains. Most of the time, we only
see the tactics that are "visible" to us, yet many breakthroughs occur without our
knowledge.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
KEY COMPONENTS OF A BUSINESS MODEL
There are three key components within a business model: creating value,
delivering value, and capturing value. This shows that the business model doesn’t
revolve around money. It revolves around value.
• Creating Value - everything it takes to make something; design, raw materials,
manufacturing, and labor.
• Delivering Value - everything it takes to sell that thing; marketing, distribution, delivering
a service, and processing the sale.
• Capturing Value - how and what the customer pays; pricing strategy, payment methods,
and payment timing.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
BUSINESS MODEL CANVAS
The Business Model definition was created by the Swiss Consultant Alexander
Osterwalder as a result of his PhD thesis, entitled The Business Model Ontology, in
which he researched different business model definitions to create a single one. It
was this document that later gave birth to the popular Business Model Canvas tool.
The business model canvas is a tool used by designers to map out the essential
stakeholders, activities, and resources of a business or product, as well as the value
proposition for target customers, customer connections, channels involved, and
financial considerations. It provides an overview to assist in identifying requirements
for service delivery, as well as other information.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
The Business Model Canvas consists of nine essential parts:
• Customer Segments – Who is your customer? This defines the different groups of people or organizations
that a business plans to reach. Identify who would be your key customers and group them by their pain
points, demographics, buyer behavior, or other relevant characteristics. Buyer personas would be super
helpful for this part. List the top three segments. Look for the segments that provide the most revenue.
• Value Propositions – What makes you better than others? What are your products and services? What is
the job you get done for your customer? A Value Proposition creates a unique value for customers through a
mix of elements that could be qualitative or quantitative. This could include price, speed, design, or customer
experience.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Channels – How will you communicate your value proposition? It is how your organization will
communicate with each consumer category and convey your value proposition. These channels
may include social media, the internet, newspaper advertisements, and word of mouth, to mention
a few. Evaluate how you communicate with each client segment and consider how you might
improve or adjust that communication.
• Customer Relationships - How will you interact with your customers? How does this show up
and how do you maintain the relationship? It is crucial to understand which method will best serve
your customer’s needs. There are three driving motives for building relationships with your
customers; New Lead Generation, Customer Retention, and Upselling.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Revenue Streams – How will you make money? Explain what your primary, secondary,
and additional revenue sources will be. You can link your revenue streams to your value
propositions and customer segments. You may want to offer customized products/solutions
to certain customer segments. It measures the earnings a company generates from each
customer segment. When targeting each customer segment, think about what each group
is willing to pay. When you realize that different groups of customers are willing to pay at
different levels, you can come up with different revenue streams to apply to each of these
groups.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Key Resources – Who/what are your key resources? Key Resources are the important assets that
are available to you and are required to make your business plan a success. These resources
allow you to create your unique value proposition, maintain important relationships with your
customers, reach new markets, and create revenue. These resources can range from physical,
financial, intellectual, or human assets.
• Key Activities – What are the activities that would enable you to deliver your value proposition? It
describes the important process that a business must take part in for a business model to work.
Much like key resources, these activities are required to maintain customer relationships, reach
new markets, create value propositions, and earn revenues.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Key Partners - List the partners that you can’t do business without. It revolves around the
network you build. This can include suppliers, partners, or even other businesses in your
industry to create an alliance with.
• Cost Structure - List your top costs by looking at activities and resources. It describes all
costs involved in operating a business model. When your business defines how to create
value, maintain customer relationships, and generate income, it will see costs incurred on
each of these levels.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
TYPES OF BUSINESS MODELS
There are as many business models as there are types of business developed. Some of
the most common are:
• Freemium Business Model - Freemium is a combination of the words free and premium.
Companies following the freemium business model offer the most basic version of their product
or service for free to entice consumers to purchase the more advanced features, capabilities, or
add-ons of the product or service in the future. The freemium business model works for new
companies by cultivating strong relationships with customers. It also works best for internet-
based service companies. Examples are Spotify, Zoom, Dropbox
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Subscription-Based Model - The subscription-based model allows companies to charge
consumers monthly or yearly subscription fees to access their product or service. This model
depends on these consumers continuing to love and utilize the service. To keep consumers
satisfied and paying monthly subscription fees, companies need to continually improve their
products or services to keep up with changing trends or competitors. Examples are Spotify, Netflix
• Peer-to-Peer Business Model - In a peer-to-peer business model, a company acts as the go-
between businesses and the customers interested in purchasing their products or services. The
companies using this model provide the platforms, navigate the regulations, and set pricing for the
products or services. A well-known example of this business model would be ride-sharing services
such as Uber. These platforms allow people to receive rides to and from requested destinations by
those who apply to be drivers for the service. Examples are Shopee, Airbnb, and Uber
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Franchise Model - It provides a sense of working for oneself with the added security of having a
company’s backing with familiar trademarks and products. There is a legal and commercial
relationship between the franchisor, the parent company owner (usually a corporation), and the
franchisee. The franchisee (or business owner) is allowed to sell the franchisor’s products or
services in exchange for paying a royalty fee. Examples are McDonald and Jollibee
• Direct Sales Business Model - In the direct sales model, a company’s employees will be the
ones who demonstrate and sell the products or services being offered directly to the intended
consumers. This effectively eliminates steps within the distribution process, such as wholesalers
and regional distribution centers. This model is when a person is compensated for sales made
by salespersons recruited by them and under their authority. Example Avon, Herbalife, and
Tupperware
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Affiliate Marketing Business Model - People using the affiliate marketing business model promote and
sell products from other companies online to get paid a percentage of the sales they make. This business
model is common with “influencers” on Instagram or other leading social media apps. They will post about a
company’s product to entice their followers to buy it through them. Many of their followers will buy the
product through the supplied link. It is a win-win situation for both the influencer marketing the product and
the company selling it. Examples are Capterra, Amazon Associates
• E-Commerce Business Model - Electronic commerce, or “e-commerce,” is a business model in which
companies and individuals buy and sell products and services online. Because the business is entirely
online, the products and services offered are nearly limitless. An e-commerce business offers companies
the extra convenience of not needing a physical store. This increases the selection of products available to
consumers. Example are Amazon, Shein, Lazada, and Zalora
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Drop-Shipping Business Model - A cost-effective and entertaining business concept. In drop-
shipping, a business owner contacts a variety of suppliers/wholesalers to sell their product on
the website. Once an order is placed on a company owner's website, the wholesaler sends the
products straight from the manufacturer to the client. In this situation, the business owner does
not need to keep any inventory and instead hires a third party to handle all of the shipping and
logistics. Examples are Shopify, Doba, Salehoo
• Vertically Integrated Business Model - This model focuses on the corporation owning and
managing the supply chain activities (manufacturing, distribution, and retail) for its own
products. When a corporation has greater control over how a product is manufactured and
distributed to end users, it can offer products at lower prices (with a higher margin) to
customers. Examples are Tesla, Apple, and Jollibee.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Consulting Business Model - There are two parts to the consulting business model. First, hiring
experts or developing a list of freelancing consultants, and second, charging a fee to provide
access to these experts by your clients. Typically, your experts will provide a service that speaks to
the consumer’s needs. Hopefully, the customer will return to you as further needs arise. Common
examples of this could be online tutoring, mentoring, and freelance work in several different fields.
• Ad-Supported Business Model - Advertising is a significant component in why some companies
are incredibly profitable and why some will financially fail. Failure to advertise a product or service
can lead to people not even knowing a company exists. The ad-supported business model
emphasizes the importance of advertising and the sales generated from it. Popular platforms to
advertise products or services include print media, online media, and television. Example are CNN,
GMA 7
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Enterprise Business Model - In the enterprise business model, specific aspects of a
business are modeled, such as infrastructures and asset groups. The company leaders will
see what needs to be altered within the business to maximize profits. The enterprise model is
more about evaluating how the business is functioning than it is about the overall structure of
the business. Examples are Boeing, SpaceX
• Lock-In Business Model or Lock-In Strategy - The lock-in business model takes customer
loyalty and kicks it up a notch. This is done by essentially locking customers into a company’s
product or service by making it difficult to abandon the company without dealing with negative
consequences. Some of these consequences include increased costs or making it difficult to
switch. Examples are cable or network providers, Netflix, Apple
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Multi-Brand Business Model - With the multi-brand business model, a parent company will offer
similar products with different brand names to increase their market share. By doing this, the
company effectively reduces any potential competition. A company with many similar products at
different price points will appeal to a significant number of customers. Examples are Procter and
Gamble, Unilever, and Nestle
• Razor and Blade Model - In this model, one item (Razor) is sold at a low price while another
associated item (blade) is sold at a premium price. It is also known as a printer and cartridge
business model. For example, the price of inkjet printer itself was just a one-time expense,
however, getting a new ink cartridge replaced is an ongoing expense for consumers. Examples
are Hp Printers, Xbox or PlayStation Video Games
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Distribution Based Business Model - A company that works by having one or a few
key distribution channels to integrate with its final customers follows this model.
Companies that use this model provide channels for businesses to sell to customers
via dealers, brokers, supermarkets, retailers, and so on. The distribution-based
business model facilitates the distribution of products or services offered from the
manufacturers to the consumers. With this model, the business ensures that the
mode of distribution chosen to get the product or service to the consumer is the most
direct, and more importantly, the most cost-efficient manner possible. Example is
Unilever
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Direct-to-Consumers Business Model - With the direct-to-consumer business model, customers buy
products or services directly from a company’s website, eliminating the middleman. The model not only
saves the company money but can be convenient for the customer as well. Consumers would have to
physically visit a store to purchase the product they desire but know they can order the product directly
from the company or manufacturer. Examples are Warby Parker, Primary, Aloha
• Low-Touch Business Model - Some customers want the least amount of interaction with the company
possible. Businesses that want to meet that need should adopt a low-touch business model. Products sold
using this model can be consumed or used with little interference from salespersons or customer service.
Due to the pandemic of 2020, many businesses learned to adapt to the threat. These businesses adopted
low-touch strategies to help keep their doors open. Examples are Amazon, IKEA, eBay
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• Fractionalization Business Model - The fractionalization model involves offering a product or
service for partial use or in separate sections. It is a technique that splits items and services into
subcategories in order to increase product variety, with each category charged separately.
Example: You can sell a pizza by the box or individual slices of different varieties (cheese/
pepperoni)
• Pay-As-You-Go Model - As the name suggests, consumers will pay for the service or product as
they use it. Meaning there is no recurring bill or subscription necessary. This model should
entice those who do not like to be tied down. If the product or service is of high quality and worth
the price paid, they will continue using it. Example are electricity, cell phone and water
companies.
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS
PAMPANGA STATE UNIVERSITY
(Formerly Don Honorio Ventura State University)
• User-Generated Content Business Model - User-generated content business
is a type of content distribution platform where the users create the content.
This model eliminates the need to create content as a primary way to engage
visitors. This is another type of business model that is often combined with the
advertising model. Examples are YouTube, Instagram, Facebook, and GoPro
PAMPANGA STATE UNIVERSITY
TECHNOPR323 LUBAO CAMPUS