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 segments 2.Value propositions 3.Channels 4.Customer relationships 5.Revenue streams 6.Key resources 7.Key activities 8.Key partnerships 9.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