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Business Model Generation


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Business Model Generation
- What is it
- How to create one

Published in: Business
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Business Model Generation

  1. 1. Disruptive new business models are emblematic of our generation. Yetthey remain poorly understood, even as they transform competitive landscapes across industries.
  2. 2. ?
  3. 3. What is it then? Why are we here?Def_Business Model A business model describes the rationale of how an organization creates, delivers, and captures value
  4. 4. Create Deliver Capture VALUE for companies, clients, customers and society
  5. 5. Challenge:simple, relevant, understandable Shared Language
  6. 6. 9 blocks – Customer Segments, Value Proposition, Channels, CustomerRelationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, Cost Structure Make Money Add Value
  7. 7. Customer Segments (CS) For whom are we creating value for? Who are our most important customers?- Core of any business model- Distinct segments with common needs, behaviours- Needs justify and require a distinct offer- Reached through different distribution channels- Require different type of relationships- Have substantially different profitabilities- Willing to pay for different aspects of the offer-Types:- Mass market (large group focus like consumer electronics)- Niche market (focused group/entity like car parts – supplier-buyer relation)- Segmented (slightly different needs and problems like banking)- Diversified (serving two unrelated customer segments with different needs and and problems like Amazon cloud)- Multi-sided markets (serving two or more interdependent customers like Credit card companies)
  8. 8. Customer Relationships (CR) What relation does each customer segment expect us to establish? How costly are they?- Types of relationships company establishes with customer segments- Motivation to have relationships (Acquisition, retention, sales)Categories of customer relationships:- Personal assistance- Dedicated personal assistance- Self service- Automated service- Communities/Boards- Co-creation content for consumption
  9. 9. Channels (CH) How do you want to reach out to your customers? How do we reach them now? Are our channels integrated? Which ones work best?- Interface to customers (communication, distribution, sales)- Raising awareness among customers about company’s products and services- providing post purchase support- Own channels (direct like website or indirect like retail stores), Partners (wholesale distribution, retail) or both- Partner channels have low margin but more reach- Own channels are costly but higher marginsChannel Phases:- Awareness – How do we tell the customer about our products- Evaluation – How do we evaluate customer satisfaction on our Value Proposition- Purchase – What purchase options do we present to the customer- Delivery - How do we deliver our service/product- After sales – How do we provide post purchase support
  10. 10. Value Proposition (VP) What do we deliver to our customer? What customer problem are we solving? What needs of theirs do we cater to?- Reason why one customer selects one company over another- Aggregation, or bundle, of benefits that a company offers to its customers- Can be quantitative (price, service delivery speed) or qualitative (design, experience)Factors that contribute to Value Proposition:- Newness (entirely new set of needs that customers previously didn’t perceive because there was no offering)- Performance (Improving existing service or product like in computing industry)- Customization (Tailoring product/service specific to individual customers like funds)- Getting the job done (helping customer to get certain job done like in airlines)- Design (innovative way of doing existing thing like electronic industry)- Brand/Status (simple act of using and displaying certain brand)- Price (Offering similar value for a lower price)- Cost reduction (reducing current cost of procurement or operation like cloud services)- Risk reduction (Reducing risks incured on buying products like guarantee )- Accessibility (Reaching customers with service or products that previously was not available like private jets)- Convenience/Usability (making things easier to use like digital content)
  11. 11. Key Activities (KA) What key activity our value proposition require? Distribution channels? Customer relationships?- Most important actions a company must take to operate successfullyDifferent categories:- Production (like in manufacturing)- Problem solving (consultancies, hospitals)- Platform Network (softwares, online platforms)
  12. 12. Key Resources (KR) What key resources do our Value Proposition require?- Assets that are required to make business workResources can be:- Physical (buildings, machines, vehicals, POS and distribution networks)- Intangible/Intellectual (brands, good will, proprietary knowledge, patents, customer database)- Human (knowledge intensive and creative industries like pharmaceutical companies)- Financial (financial guarantees, cash, credit, stock pool)
  13. 13. Key Partners (KP) Who are our key partners? Who are our suppliers? What do they do?- Network of suppliers and partners that make our business work- Alliance to expand, rediuce risk, optimize or acquire resourcesDifferent types:- Strategic alliances between non-competitors- Coopetition: Strategic partnerships between competitors- Joint ventures to develop or expand business- Buyer-Supplier relation to assure suppliesMotivation for partnership:- Optimization and economy of scale- Reduction of risk and uncertainty- Acquisition of particular resources and activities
  14. 14. Cost Structure (CoS) What are the costs inherent in our business? What is most expensive?- All costs incurred to operateClasses of cost structure:- Cost driven (minimizing costs where possible like easyJet)- Value driven (focus on value creation rather than reducing costs like luxury brands)Costs have following characteristics:- Fixed costs (the cost remains same despite the volume of service or product like rents , manufacturing facilities)- Variable costs (cost vary on volume of goods like in music festivals)- Economies of scale (as output expands, costs go down)- Economies of scope (cost advantages due to scope of operations – expansion)
  15. 15. Revenue Streams (RS) What value will our customers be willing to pay? What do they currently pay? How do they currently pay?- The cash company generates from each customer (ARPU)- Each revenue stream may have different pricing mechanism (fixed list, barganing, auctioning, market dependent, volumedependent, yield dependent)- Two types of streams (transaction revenues often one off and recurring revenues)Ways to generate:- Asset sale (selling ownership rights to physical products)- Usage fee (the more you use the more you pay like hotels, telecom operators)- Subscription fees (gym, online gaming, newspapers/magazines)- Lending/Renting/Leasing (granting temporary exclusive right of use like Hertz)- Licensing (giving customers permission to use IP rights like in media industry)- Brokage (intermediation services performed on behalf of two or more parties like rental agencies)- Advertising (fees from advertising particular service, product or brand like in-app adverts)Pricing ways:- Fixed menu pricing (based on static variables)- Dynamic pricing (changes due to market conditions)
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