Business Models and Model Businesses

October 6, 2011

Business Model defined (BMG)

• “A business model describes the rationale of how an organization creates, delivers, and captures value.”

9 Building Blocks

1. Customer segments2. Value propositions3. Channels4. Customer relationships5. Revenue streams6. Key resources7. Key activities8. Key partnerships9. Cost structure

1. Customer segments

• No customers = no survival• Customer groups represent several segments if:

– Their needs require 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

For whom are we creating value?

• Mass markets: value proposition, distribution channels, and customer relationships all focus on one large group of customers

• Niche market: cater to specific, specialized customer segments

• Segmented: customers have slightly different problems and needs

• Diversified: serve at least two unrelated customer segments

2. Value propositions

• Solves a customer problem or satisfies a customer need

• The reason why customers choose one company over another

• How?• Newness• Performance• Customization• Design• Price• Brand / status• Convenience

3. Channels

• Communication, distribution, and sales – the “customer touch points” that influence the customer experience

• Channels…– Raise awareness about company’s products and services– Help customers evaluate value proposition– Let customers buy specific products / services– Let the business deliver its value proposition to customers– Provide post-purchase customer support

4. Customer relationships

• How the business interacts with each of its distinct customer segments

• Examples:– Personal assistance

– Dedicated personal assistance

– Self-service

– Automated services

– Communities

– Co-creation

5. Revenue streams

• The cash a business generates from each customer segment

• Two types:• Transaction revenues from one-time

customer payments• Recurring revenues from ongoing payments

(value proposition delivery or post-purchase support)

6. Key resources

• Physical

• Financial

• Intellectual

• Human

• Can be owned, leased, or borrowed from key partners

7. Key activities

• Most important things a business does to make its business model work

• Categories

• Production

• Problem solving

• Platform / network

8. Key partnerships

• Network of suppliers and partners that make the business model work

• Strategic alliances (partnerships with non-competitors)

• Coopetition (partnerships with competitors)• Joint ventures to develop new businesses• Buyer-supplier relationships for reliable

supplies

9. Cost structure

• All costs incurred to operate the business model

• Approaches:– Cost-driven– Value-driven

• Characteristics– Fixed versus variable costs– Economies of scale and scope