Lecture 6
The Business Model
Importance of Business Models
Business plans are necessary for developing a business.
Business models guide effectual thinking by:
Testing ideas and hunches.
Mapping out new territory.
Understanding available means.
Definitions
Business Plan: A specific plan detailing how a business idea is implemented to achieve goals.
Business Model: A generic plan describing how an organization creates, delivers, and captures value.
Business Plan vs. Business Model
Business Plan: Focus on specific action and goals.
Business Model: Focus on overarching value creation.
Value and Value Creation
Understanding Value
Customer Value (CV): Defined as CV = Benefits - Cost.
Customer Value Breakdown
Benefits: Advantages and qualities related to the product or service including brand image and overall user experience.
Cost: Encompasses not only the price paid (cash, financing, etc.) but also non-price terms like time, energy, and convenience issues.
The Value Proposition Canvas
Key Components
Jobs: Tasks or problems customers want to resolve in their lives.
Pains: Challenges or annoyances customers face in job completion.
Gains: Outcomes and benefits desired by customers, which can be required, expected, desired, or unexpected.
Offerings
List includes bundles of products and services aiding customers in task completion.
Pain Relievers: Methods designed to reduce or eliminate customer annoyances during job execution.
Business Model Canvas Analysis
Customer Segments
Determining customer segments involves looking at:
Needs justifying distinct offers.
Reaching customers through different distribution channels.
Establishing varied types of relationships and profitability.
Types of Customer Segments
Mass Market: Focuses on a broad, undifferentiated group.
Niche Market: Concentrates on specialized segments.
Segmented: Customization across different niches.
Diversified: Targets unrelated markets.
Multi-Sided Platforms: Acts as brokers among various parties.
Value Proposition
Key Aspects
Solves customer problems and addresses reasons for switching brands.
Different Types of Value Proposition
Disruptive vs Incremental: Focuses on new technologies or additional product features.
Cost-based: Reduces price as a focus area.
Performance-driven: Enhances functionality and appeal.
Customization: Tailors offerings to specific needs.
Newness: Addresses new, unmet needs.
Delivering Value Propositions
Channels: Distribution can be managed through:
Own operations
Partner involvement
Indirect sales via wholesalers or online platforms.
Customer Relations
Objectives
Motivation: Focuses on:
Customer acquisition.
Retention.
Boosting upselling opportunities.
Types of Customer Relationships
Personal: Direct interactions.
Self-service: Minimal relationships beyond transactions.
Co-creation: Customer involvement in product development.
Revenue Streams
Types of Revenue Generation
Recurring Revenue: Through usage fees and subscriptions.
Transaction Revenue: Sales from assets and services.
Third-party Revenue: Involves advertising and brokerage fees.
Pricing Models
Fixed pricing, menu pricing, dynamic pricing based on demand and negotiation.
Key Resources
Types of Resources
Physical: Facilities, buildings, technology.
Human/Intellectual: Skills, patents, and knowledge.
Financial: Access to funds or credit.
Production: Resources for product design and delivery.
Problem-solving capabilities: Service-oriented solutions.
Platform resources: Focused on web-based business operations.
Key Activities and Partnerships
Key Activities
Optimization: Enhancing scale and cost effectiveness while maintaining quality.
Risk-sharing: Collaborations for R&D and sharing knowledge in supply chains.
Control activities: Can include mergers to gain capabilities.
Key Partnerships
Diverse alliances for strategic enhancements.
Cost Structure
Important Cost Considerations
Identifying fixed vs. variable costs in the organization.