Notes: Technopreneurship — Customer Segments and Value Propositions (Week 4)
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Course: Technopreneurship: Business Model Generation (Customer Segments and Value Propositions)
Context: Week 4, Senior High School: STEM-Engineering
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Key Concepts
Customer Segments
Topics
Value Propositions
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Key Concepts
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Key Concepts: Business Model Canvas Components/Building Blocks
Customer Segments
Value Propositions
Channels
Customer Relationships
Revenue Streams
Key Resources
Key Activities
Key Partnerships
Cost Structure
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Key Concepts
Business Model: A business model describes the rationale of how an organization creates, delivers, and captures value
Business Model Canvas: A tool that assists entrepreneurs to generate, describe, visualize, assess, and improve a business model
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Key Concepts
Customer Segments: The different groups of people or organizations an enterprise aims to reach and serve
Value Propositions: Describes the bundle of products and services that create value for a specific Customer Segment
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Customer Segments 2
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Customer Segments
To better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes
An organization must decide which segments to serve and which to ignore
Customers comprise the heart of any business model
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Key Questions
For whom are we creating value?
Who are our most important customers?
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Customer Segments
Customer groups represent separate 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
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Types of Customer Segments
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Mass Market
The Value Propositions, Distribution Channels, and Customer Relationships all focus on one large group of customers with broadly similar needs and problems
Business models focused on mass markets don’t distinguish between different Customer Segments
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Niche Market
The Value Propositions, Distribution Channels, and Customer Relationships are all tailored to the specific requirements of a niche market
Business models are often found in supplier-buyer relationships
Business models targeting niche markets cater to specific, specialized Customer Segments
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Segment Market (Segmented Market)
Example: Micro Precision Systems provides outsourced micromechanical design and manufacturing solutions
Serves three different Customer Segments: watch industry, medical industry, and industrial automation sector
Each segment is offered slightly different Value Propositions
Note: Some business models distinguish between market segments with slightly different needs and problems
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Diversified Market
Example: 2006 Amazon.com diversified its retail business by selling cloud computing services (online storage, on-demand server usage)
Result: Started catering to a totally different Customer Segment—Web companies—with a totally different Value Proposition
An organization with a diversified customer business model serves two unrelated Customer Segments with very different needs and problems
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Multi-Sided Market
A credit card company requires a large base of credit card holders and a large base of merchants who accept the cards
A free newspaper needs a large reader base and advertisers to finance production and distribution
Also referred to as Multi-sided Platforms
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Value Propositions
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Value Propositions
Values may be quantitative (e.g., price, speed of service) or qualitative (e.g., design, customer experience)
A Value Proposition creates value for a Customer Segment through a distinct mix of elements catering to that segment’s needs
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Key Questions
What value do we deliver to the customer?
Which one of our customer’s 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?
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Elements that Can Contribute to Customer Value Creation
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Newness
Examples:
Cell phones created a whole new industry around mobile telecommunications
Some Value Propositions satisfy an entirely new set of needs that customers previously didn’t perceive because there was no similar offering
Often technology-related, but not always
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Performance
Example: PC sector has traditionally relied on performance by bringing more powerful machines to market
Improving product or service performance is a common way to create value
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Customization
Concepts of mass customization and customer co-creation have gained importance
Tailoring products and services to the specific needs of individual customers or Customer Segments creates value
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Getting the Job Done
Rolls-Royce example: airline customers rely on Rolls-Royce to manufacture and service jet engines
Customers pay Rolls-Royce a fee for every hour an engine runs
Value can be created by helping a customer get certain jobs done
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Design
In fashion and consumer electronics, design can be a particularly important part of the Value Proposition
Design is important but difficult to measure; a product may stand out due to superior design
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Brand or Status
Example: Wearing a Rolex signifies wealth; skateboarders may wear “underground” brands to show they are “in”
Customers may find value in simply using and displaying a specific brand
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Price
Free offers are increasingly permeating various industries (free newspapers, free email, free mobile services, etc.)
Offering similar value at a lower price satisfies price-sensitive Customer Segments
Low-price Value Propositions have important implications for the rest of a business model
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Cost Reduction
Salesforce.com example: hosted CRM application relieves buyers from buying, installing, and managing CRM software themselves
Helping customers reduce costs is an important way to create value
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Risk Reduction
Example: used car buyer benefits from a one-year service guarantee to reduce the risk of post-purchase breakdowns
Customers value reducing the risks they incur when purchasing products or services
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Accessibility
NetJets popularized fractional private jet ownership
The model offers individuals and corporations access to private jets, a service previously unaffordable
Making products and services available to customers who previously lacked access can create value
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Convenience or Usability
Example: iPod and iTunes offered unprecedented convenience in searching, buying, downloading, and listening to digital music
This contributed to market dominance by making things more convenient or easier to use
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Reference
Osterwalder, A., Pigneur, Y. (2010). Business Model Generation. New Jersey, USA: John Wiley & Sons, Inc., Hoboken.
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