BUSINESS MODEL

DEVELOPMENT
Business Model
— Describes the rationale of how an
organization creates, delivers and captures
value
— Can best be described through 9 building
blocks that show the logic of how a
company intends to make money.
What is a business model?
— A framework of how the business will
achieve its purpose through the activities
of using its resources in generating
revenues through the application of
necessary skills and competencies. The
revenues generated should be higher than
the cost of using resources.
What is a business model?

How a business plans to make

money to achieve its purpose!
 A Business Model Framework
Management Competencies

Sell
Profit PURPOSE

Produce
Business Model Environment

— Key trends
— Market forces
— Macroeconomic forces
— Industry forces
Business Model Building Blocks
— Key Partners
— Key Activities
— Value Proposition
— Customer Relationship
— Customer Segments
— Key Resources
— Channels
— Cost structure
— Revenue Stream
BUSINESS CANVASS
 Business Model Canvass
Key Partners Key Customer Customer
Activities Relationships Segment

Value
Proposition
Key Resources Channels

Cost Structure Revenue Streams

CUSTOMER SEGMENTS
Conditions to Differentiate
Customer Segments
— Customer groups represent separate
segments if
◦ Their needs requires and justify a distinct
offer
◦ They are reached through different
Distribution Channels
◦ They require different types of relationships
◦ They have substantially different profitabilities
◦ They are willing to pay for different aspects of
the offer
Types of Customer Segments
— Mass market
◦ Value proposition, distribution channels, customer relationship all focus
on one large group of customers with broadly similar needs and
problems
— Niche market
◦ Value proposition, distribution channels, and customer relationships are
tailored to specific requirements of the market
— Segmented
◦ Market segments with slightly different needs and problems
— Diversified
◦ Unrelated customer segments with different needs and problems
— Multi-sided platforms
◦ Two or more interdependent customer segments
VALUE PROPOSITIONS
Product or service offer that
answers the following questions…
— What value do we deliver to the
customers?
— Which one of our customer’s problems
are we helping to solve?
— Which customer needs are we satisfying?
— What bundles of products and services
are we offering to each customer
segment?
Value proposition …
— Newness — Price
— Performance — Cost reduction
— Customization — Risk reduction
— Getting the job done — Accessibility
— Design — Convenience/usabilit
— Brand/status y
 CHANNELS

Describes how a company communicates with and reaches

its customer segments to deliver value proposition
Functions Channels Serve
— Raising awareness among customers about a
company’s products and services.
— Helping customers evaluate company’s value
proposition
— Allowing customers to purchase specific
products and services
— Delivering a value proposition to customers
— Providing post-purchase customer support
 Channels
Channel Types Channel Phases

Sales Force 1. Awareness 2. Evaluation 3. Purchase 4. Delivery After

sales

Web sales How do we How do we How do we How do we How do

Direct

raise awareness help our allow our deliver a we

about our customers customers to value provide
company’s evaluate our purchase proposition post
Own

Own Stores
products and company’s value specific to a purchase
services? proposition? products or customer? customer
Partner services? support?
stores
Indirect
Partner

Wholesaler
CUSTOMER
RELATIONSHIP
Describes the type of relationship the establishes with a
specific customer segment;
Driven by motivation for
• Customer acquisition
• Customer retention
• Boosting sales
Categories of Customer
Relationship
— Personal assistance
— Dedicated personal assistance
— Self-service
— Automated services
— Communities
— Co-creation
REVENUE STREAMS

Cash a company generates from each customer

Ways to generate Revenue Streams
— Asset sale
— Usage fee
— Subscription fee
— Lending/renting/leasing
— Licensing
— Brokerage fees
— Advertising
 Pricing Mechanisms
Fixed Menu Pricing Dynamic Pricing
List Price Fixed price for Negotiation Price negotiated
individual products, (Bargaining) between two or
services or other more partners
value propositions depending on
negotiation power
and/or negotiation
skills
Product feature Price depends on Yield management Price depends on
dependent the number of inventory and time
quality value of purchase
proposition features (normally used for
perishable
resources such as
hotel rooms or
airlines seats)
Customer segment Price depends on Real-time market Price is established
dependent the type and dynamically based
characteristic of a on supply and
customer segment demand
Volume dependent Price as a function Auctions Price is determined
of the quantity by outcome of
 KEY RESOURCES
Describes the most important asset required to make a
business model work

What key resources do our Value Propositions require/ our

Distribution Channels? Customer relationships? Revenue
Streams?
Categories of Key Resources?
— Physical
— Intellectual
— Human
— Financial
 KEY ACTIVITIES

Describes the most important things the compaany must do

to make its business model work
Categories of Key Activities
— Production
— Problem solving
— Platform/network
 KEY PARTNERSHIPS

The network of suppliers and partners that make the

business model work
Types of Partnerships
— Strategic alliances between non-
competitors
— Coopetition: strategic partnerships
between competitors
— Joint ventures to develop new business
— Buyer-supplier relationships to assure
reliable supplies
Motivations for creating a
partnership
— Optimization and economies of scale
— Reduction of rick and uncertainty
— Acquisition of particular resources and
activities
 COST STRUCTURE

Describes all costs incurred to operate a business model

Classes of business model Cost
Structure
— Cost-driven – focus on minimizing costs
— Value-driven – focus on value creation
Characteristics of cost structures
— Fixed costs – costs that remain the same
despite the volume of goods and services
produced or delivered
— Variable costs – vary proportionately with
volume of good and services produced
— Economies of scale – cost advantages the
business enjoys as output expands
— Economies of scope – cost advantages a
business enjoys due to wider scope of
operations
KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITION CUSTOMER RELATIONSHIP CUSTOMER SEGMENTS
Who are our key partners? What key activities do our value What value do we deliver to our What type of relationship each of our
Who are our key suppliers? propositions require? Our customers? customer segment wants us to For whom are we creating value?
Which Key Resources are we distribution channels? Customer Which one of our customers’ establish with them? Who are our most important customers?
requiring from partners? relationships? Revenue streams? problem are we helping to solve? Which ones have we established?
Which key activities do partners What bundles of products and How are they integrated with the rest Mass Market
perform? CATEGORIES: services are we offering to each of our business model? Niche Market
Production customer? How costly are they? Segmented
MOTIVATIONS FOR PARTNERSHIPS: Problem solving Which customer needs are we Diversified
Optimization and economy Platform and network satisfying? EXAMPLES Multi-sided Platform
Reduction of risk and uncertainty Personal assistance, self-service,
Acquisition of particular resources CHARACTERISTICS: automated services, co-creation,
and activities Newness community
KEY RESOURCES Performance CHANNELS
What key resources do our value Customization Through what channels do our
proposition require? Our “Getting the job done” market segments want to be
distribution channels? Customer Design reached? How are we reaching them
relationship? Revenue streams? Brand status now? How are our channels
Price integrated? Which one works best?
TYPES OF RESOURCES: Cost reduction Which are most cost efficient?How
Physical; Intellectual (Patent, Risk reduction are we integrating them with
copyrights, data); Accessibility customer routines?
Human; Financial Convenience/Usability
CHANNEL PHASES:
Awareness, Evaluation, Purchase,
Delivery, After Sales

COST STRUCTURE REVENUE STREAMS

What are most important cost inherent in our business model?Which key resources are For what value are our customers really willing to pay? For what do they currently pay?
most expensive?Which key activities are most expensive? How are they currently paying? How would they prefer to pay? How much does each Revenue
Is your business more: Stream contribute to overall revenues?
Cost Driven (leanest cost structure, low price value proposition, maximum automation, Types:Asset sale; Usage fee; Subscription Fees; Lending/Renting/Leasing; Licensing
extensive outsourcing) Brokerage fees; Advertising
Value Driven ( focused on value creation, premium value proposition) Fixed pricing: List Price; Product feature dependent; Customer segment dependent; Volume
sample characteristics: dependent
Fixed Costs (salaries, rents, utilities);Variable costs; Economies of scale; Dynamic pricing: Negotiation( bargaining); Yield Management; Real-time-Market
Economies of scope
Business Models Samples

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