Business Model Canvas
The Business Model Canvas is a strategic management template for developing new or documenting existing business models. It is a bisual chart with elements describing a firm's value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.
- Key Activities: The most important activity is executing a company's value proposition. An example for Bic would be creating and efficient supply chain to drive down costs.
- Key Resources: The resources that are necessary to create value for the customer. They are considered an asset to a company, which are needed in order to sustain and support the business. These resoruces could be human, financial, physical and intellectual.
- Partner Network: In order to optimize operations and reduce risks of a business model, organizations usually cultivate buyer-supplier relationships so they can focus on their core activity. Complementary business alliances also can be considered through joint ventures, strategic alliances between competitors or non-competitors.
- Value Proposition: The collection of products and services a business offers to meet the needs of its customers. According to Osterwalder (2004), a company's value proposition is what distinguishes itself from its competitors. The value proposition provides value through various elements such as newness, performance, customization, "getting the job done", design, brand/status, price, cost reduction, risk reduction, accessibility, and convenience/usability.
The value proposition can be: (a) quantitative - price and efficiency, (b) qualitative - overall customer experience and outcome
- Customer Segments: To build an effective business model, a company must identify which customers it tries to serve. Various sets of customers can be segmented based on the different needs and attributes to ensure that the appropriate implementation of corporate strategy meets the characteristics of selected groups of clients. The different types fo customer segments include:
(a) Mass Market: there is no specific segmentation for a company that follows the mass market element as the organization displays a wide view of potential clients.
(b) Nice Market: customer segmentation based on specialized needs and characteristics of its clients.
(c) Segmented Market: a company applies additional segmentation within existing customer segments. In the segmented situation, the business may further distinguish its clients based on gender, age, and/or income.
(d) Diversified Market: a business serves multiple customer segments with different needs and characteristics.
(e) Multi-sided Platform/Market: for a smooth day to day business operation, some companies will serve mutually dependent customer segmetns. A credit card company will provide services to credit card holders while simultaneously assisting merchants who accept those credit cards.
- Channels: a company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company's value proposition in ways that are fast, efficient and cost effective. An organization can reach its clients either through its own channels (store front), partner channels (major distributors), or a combination of both.
- Customer Relationship: to ensure the survival and success of any business, companies must identify the type of relationship they want to create with their customer segmetns. Various forms of customer relationships include:
(a) Personal Assistance: assistance in the form of a employee-customer interaction. Such assistance is peformed either during sales, after sales and/or both.
(b) Dedicated Personal Assistance: The most intimate and hands-on personal assistance where a sales representative is assigned to handle all the needs and questions of a special set of clients.
(c) Self Service: the type of relationship that translates from teh indirect interaction between the company and the clients. Here, an organization provides the tools needed for the customers to serve themselves easily and effectively.
(d) Automated Services: a system similar to self-service but more personalized as it has the ability to identify individual customers and his/her preferences. An example of this would be Amazon.com making book suggestions based on the characteristics of earlier purchases.
(e) Communities: creating a community allows for a direct interaction among different clients and the company. The community platform produces a scenario where knowledge can be shared and problems are solved between different clients.
(f) Co-Creation: a personal relationship is created through the customer's direct input in the final outcome of the company's products/service.
- Cost Structure: this describes the most important monetary consequences while operating under different business models. A company's DOC.
(a) Classes of business structures are:
Cost-Driven: this business model focuses on minimizing all costs and having no frills, i.e.SouthWest.
Vaue-Driven: less concerned with cost, this business model focuses on creating value for their products and services, i.e. Luis Vuitton, Rolex.
(b) Characteristics of cost structures are:
Fixed costs: costs are unchanged across different applications, i.e. salary, rent
Varialbe costs: these costs vary depending on the amount of production of goods or servies, i.e. music festivals
Economies of scale: costs go down as the amount of goods are ordered or produced
Economies of scope: costs go down due to incorporating other businesses which have a direct relation to the original product.
- Revenue Streams: the way a company makes income from each customer segment. Several ways to generate a revenue stream
(a) Asset Sale (most common type): selling ownership rights to a physical good, i.e. Wal-Mart
(b) Usage Fee: money generated from the sue of a particular service, i.e. UPS
(c) Subscription Fees: revenue generated by selling a continuous service, i.e. Netflix
(d) Lending/Leasing/Renting: giving exclusive right to an asset for a particular period of time, i.e. leasing a car
(e) Licensing: revenue generated from charging for the sue of a protected intellectual property.
(f) Brokerage Fees: revenue generated from an intermediate service between two parties, i.e. broker selling a house for commission
- Advertising: revenue generated from charging fees for product advertising.
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Learning Objectives To facilitate and educate about business modelling
|Level or Phase: Intermediate|
|Methods and Concepts: |
Tools The canvas, markers, (small post-its)
- Alexander Osterwalder: Business Model Generation: A Handbook for Visionaries, Game Changers, and Challangers
|Assessment Method: Presentation, investor pitch material|