A business model describes the rationale of how an organisation creates, delivers and captures value.
1. Customer Segments - geographic, social, demographic
Defines the different groups of people or organisations an enterprise aims to reach and serve.
- segments: groups with common needs, common behaviours, other attributes
- which segments to serve and which to ignore?
For whom are we creating value?
Who are our most important customers?
Examples of customer segments:
- mass market (no distinguishment between segments -> one broad group with broadly similar needs and problems) eg. consumer electronics
- niche market: cater to specific, specialised Customer Segments. All tailored to requirements of the niche
- segmented: slightly different needs and problems
- diversified: serves two unrelated Customer Segments
- multi-sided platforms (or multi-sided markets): serving two or more interdependent Customer Segments. For example, credit card company needs holders and merchants
2. Value Propositions - its not about idea, its about need
Describes the bundle of products and servces that create value for a specific Customer Segment.
- value proposition is reason why customers turn to one company over another: it solves a customer problem or satisfies a customer need
- products/services caters to requirements of specific Customer Segment
- what value do we deliver to the customer?
- which problem of our customer are we helping to solve?
- which customer need are we satisfying?
- what bundles of products and services are we offering each customer segment
- needs may be quantitative (price, speed of service) or qualitative (design, customer experience)
Example elements of value creation
- newness: value prop statisfying entirely new set of needs customer didn't perceive
- performance: improving product or service
- customisation: tailoring products and services to specific needs of individual customers in segment
- "getting the job done": eg. Rolls Royce engines into airplanes
- design: impacts to fashion
- brand/status: value by displaying brand
- price: low-price, and impacts into rest of model
- cost reduction: helping customer reduce cost
- risk reduction: for example, service level guarantee
- accessibility: make products/services accessible to those that previously cound not access
- convenience/usability: making things more convenient/easy-to-use
3. Channels - how products gets to customers
How a company communicates with and reaches its Customer Segment to deliver Value Proposition.
- communication, distribution and sales channels comprise a company's interface with customers
- raising awareness, helping evaluate
- allowing purchase
- delivering Value Proposition
- providing post-purchase support
- through which Channels to our Customer Segments want to be reached? How reaching them?
- How Channels integrated? Work best, most efficient?
4. Customer Relationships - how get, keep and grow customers?
The types of relationships a company establishes with Customer Segments.
- personal? automated?
- customer acquisition? customer retention? boosting sales (upselling)?
What types of relationships does our Customer Segments expect us to establish and maintain?
Which ones already established? How costly? How integrated into rest of our business model?
- personal assistance
- dedicated personal assistance
- automated services
5. Revenue Streams/Models
The cash a company generates from each Customer Segment.
- how actually making money
- what value is the customer paying for?
Strategy: one-time customer payments, direct sales, recurring revenues
Tactics: pricing is the tactics
For what value are customers really willing to pay? What currently pay? How currently paying? How prefer? How much does each Revenue Stream contribute to overall revenues
- asset sale, usage fee, subscription fee, lending/renting/leasing, licensing, brokerage fees, advertising
6. Key Resources
The most important assets required to make business model work.
- resources allow enterprise to create and offer Value Proposition, reach markets, maintain relationships with
Customer Segments, and earn revenues.
- can be physical, financial, intellectual or human
- owned or leased or acquired from key partners
What Key Resources do our Value Propositions require?
Our Distribution Channels? Customer Relationships? Revenue Streams?
- Physical: nichefacturing facilities, buildings, machine systems, point-of-sale systems
- Intellectual: brands, proprietary knowledge, patents, copyrights, partnerships, customer databases
- Human: resources; special skill set or creative skill set
- Financial: e.g. vendor financing, line of credit
7. Key Activities
Most important thing company must do to make business model work
What Key Activities do our Value Propositions require? Distribution Channels? Customer Relationships? Revenue Streams?
- productions: designing, make, delivering product
- problem solving: coming up with new solutions to customer problems
- activities such as knowledge management and continuous training
- platform/network: for those with platform as Key Resource
- platform management, service provisioning, platform promotion
8. Key Partnerships
- what key resources are we acquiring?
- what key activities do they perform, and when?
- the network of suppliers and partners that make the business model work
- create alliances to optimise business models, reduce risk, or acquire resources
Types of partnerships:
- strategic alliances between non-competitors
- Coopetition: strategic partnerships between competitors
- Joint Ventures to develop new businesses
- Buyer-supplier relationships to assure reliable supplies
Who are our Key Partners? Key suppliers? Key Resources acquiring from partners? Key Activities do partners perform?
Motivations for creating partnerships:
- optimisation and economy of scale: to reduce costs, often outsourcing or sharing infrastructure
- reduction of risk and uncertainty
- acquisition of particular resources and activities: can extend our capabilities by relying on other firms to furnish particular resources or perform activities
9. Cost Structure
Describes all costs incurred to operate business model.
What are most important costs inherent in our business model? Which Key Resourcese are most expensive? Which Key Activities are most expensive?
Cost Structures may be:
- Cost-driven: leanest possible, minimising costs
- Value-driven: premium value propostitions or personalised service may characterise value-driven business models
Characteristics of Cost Structures:
- fixed costs
- variable costs
- economies of scale
- economies of scope
- cost advantages due to larger scope of operations, for example, same Channels may support multiple products