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 Key Customer Customer
Partners Activities Relationsh Segment
ips

Value
Proposition
Key Channels
Resources

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
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 customers
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 Accessibility
done Convenience/usa
Design bility
Brand/status
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 companys products and
services.
Helping customers evaluate
companys 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
O D Sales 1. 2. 3. 4. After
w ir Force Awareness Evaluation Purchase Delivery sales
n e
ct Web sales How do we How do we How do we How do we How do
raise help our allow our deliver a we
awareness customers customers value provide
Own about our evaluate our to purchase proposition post
In
Stores companys companys specific to a purchas
di products value products or customer? e
Pa re Partner and proposition? services? custom
rt ct stores services? er
ne Wholesale support
r r ?
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 (Bargaining) between two or
products, more partners
services or depending on
other value negotiation
propositions power and/or
negotiation
skills
Product feature Price depends Yield Price depends
dependent on the number management on inventory
of quality value and time of
proposition purchase
features (normally used
for perishable
resources such
as hotel rooms
or airlines seats)
Customer Price depends Real-time Price is
segment on the type and market established
dependent characteristic of dynamically
a customer based on supply
segment and demand
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
Who are our key partners?
Who are our key suppliers?
Which Key Resources are we
requiring from partners?
Which key activities do partners
perform?
MOTIVATIONS FOR PARTNERSHIPS: Problem solving
Optimization and economy
Reduction of risk and uncertainty
Acquisition of particular resources
and activities
KEY ACTIVITIES VALUE PROPOSITION
What key activities do our value What value do we deliver to our
propositions require? Our customers?
distribution channels? Customer Which one of our customers
relationships? Revenue streams? problem are we helping to
solve?
CATEGORIES: What bundles of products and
Production services are we offering to each
customer?
Platform and network Which customer needs are we
satisfying?
CHARACTERISTICS:
Newness
Performance
KEY RESOURCES Customization
What key resources do our value Getting the job done
proposition require? Our Design
distribution channels? Customer Brand status
relationship? Revenue streams? Price
Cost reduction
TYPES OF RESOURCES: Risk reduction
Physical; Intellectual (Patent, Accessibility
copyrights, data); Convenience/Usability
Human; Financial
CUSTOMER RELATIONSHIP CUSTOMER SEGMENTS
What type of relationship each of
our customer segment wants us to For whom are we creating value?
establish with them? Who are our most important
Which ones have we established? customers?
How are they integrated with the
rest of our business model? Mass Market
How costly are they? Niche Market
Segmented
EXAMPLES Diversified
Personal assistance, self-service, Multi-sided Platform
automated services, co-creation,
community
CHANNELS
Through what channels do our
market segments want to be
reached? How are we reaching them
now? How are our channels
integrated? Which one works best?
Which are most cost efficient?How
are we integrating them with
customer routines?
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
most expensive?Which key activities are most expensive?
Is your business more:
Cost Driven (leanest cost structure, low price value proposition, maximum automation,
extensive outsourcing)
Value Driven ( focused on value creation, premium value proposition)
sample characteristics:
Fixed Costs (salaries, rents, utilities);Variable costs; Economies of scale;
Economies of scope
For what value are our customers really willing to pay? For what do they currently pay?
How are they currently paying? How would they prefer to pay? How much does each Revenue
Stream contribute to overall revenues?
Types:Asset sale; Usage fee; Subscription Fees; Lending/Renting/Leasing; Licensing
Brokerage fees; Advertising
Fixed pricing: List Price; Product feature dependent; Customer segment dependent; Volume
dependent
Dynamic pricing: Negotiation( bargaining); Yield Management; Real-time-Market
Business Models Samples

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