Unit 3 - Business model Flashcards
business model definition
“A business model describes of the rationale of how an organization creates, delivers and captures value”.
Business model - Is useful for:
- Analyzing competitors
- Defining the connection with the market
- Designing business
- Analyzing economic viability
Business model - Main component parts
- MARKET
- COMPANY
- FINANCIAL ACTIVITY
- OPERATIONS
Business model - CUSTOMER SEGMENTS
Different groups of people or organizations an enterprise aims to reach and serve
Customer groups represent separate segment if:
• Their needs require a distinct offer
• They are reached through a different distribution channel
• They require different types of relationships
• They are willing to pay for different aspects of the offer
CUSTOMER SEGMENTS - For whom are we creating value ?
- Mass Market
- Niche Market
- Segmented
- Diversified
- Multisided platforms (or multisided markets)
VALUE PROPOSITION - What solution are we offering?
- Newness
- Brand/Status
- Customization
- Convenience
- Design
- Performance
- Pricing / Costs
- Risk reduction
- Accessibility
- “Getting the job done”
Business model - Channels:
COMMUNICATION, DISTRIBUTION and SALES channels comprise a company’s interface with clients
Customer touch points play an important role in customer experience. Functions:
• Raising awareness about companies products
• Helping customer evaluate VP
• Allowing customers to purchase
• Delivering a VP to customers
• Providing post- purchase support
The challenge related to channels is to find the right mix of channels that contribute to create a great customer experience and maximize revenues
How do we communicate our proposition and reach customer segments?
Types. Phases.
Sales force ➡ Awareness Web sales ➡ Evaluation Own stores ➡ Purchase Partners stores ➡ Delivery Wholesalers. ➡ Post sale
Business model - Customer relationships:
How do we attract, retain and develop our customers?
Several categories (Can coexist): •Personal Assintance (standard/dedicated) •Self Service •Automated Services (simulation) •Communities •Collective co-creation
Business model - Revenue streams:
For what value are our customers truly willing to pay? How?
Asset sale Usage fee Subscription Lending/Leasing/Licesing/ Brokerage fees Advertising
REVENUE STREAMS - Pricing mechanisms (FIXED)
Price lists
Product features
Per segments
Per volume
REVENUE STREAMS - Pricing mechanisms (DYNAMICS)
Negotiation
Yield management
Real time
Auctions
Business model - key resources
What resources do we need for our value proposition, our channels, relationships and revenue streams?
TANGIBLE:
- physical
- financial
- people related
INTANGIBLE:
- intellectual (brands, partners)
- customer databases, patents
Business model - key activities
What key activities do we need for our value proposition, our channels, relationships and revenue streams?
Depend on business model type:
- Production (Dominates in manufacturing firms: design, manufacturing and delivery. )
- Problem solving (Typical in consultancies, hospitals: Coming up with new solutions.)
- Platform/network (Typical in platform based business models e.g. Alibaba, Ebay: management, expansion and maintenance.)
Business model - key partnerships
- Network of suppliers and partners that make the business model work
- foundation of many business models
Types of partnerships:
• Strategic alliances between non competitors
• Joint ventures to develop new business
• Buyer-supplier to assure reliable supplies
Business model - key partnerships
Which suppliers and partners do we choose?
Three motivations to create partnerships:
- Optimization & Economy of scale
- Reduction of risk & uncertainty
- Acquisition of resources and activities
Business model - cost structure
Costs driven by our business model?
- Cost VS Value driven business models
- Fixed and variable costs
- Economies of scale and scope
Business model - TYPES
- UNBUNDLING
- LONG TAIL
- MULTISIDED PLATFORMS
- FREE
- OPEN
UNBUNDLING - Customer Relationships, Innovation or Infrastructures?
- Classical business models combine: Customer relationship, Product innovation and Infrastructure management
- Costs are too high: each type of business is driven by different factors conflicts may arise resulting in undesirable trade offs within the company
- IT & management tool improvements allow separating and coordinating business models at lower cost, companies focus on ONE of the three business disciplines: Customer intimacy, product leadership or operational excellence
- Telecom industry and private banking have started unbundling their industries
LONG TAIL - To sell “less of more”
• Shift in some businesses from selling a small number of “hit” items in large volume to selling a very large number of niche items in relatively small quantities.
Triggers:
✔️ Democratization of tools of production (falling technology costs)
✔️ Democratization of distribution (through internet)
✔️ Falling search costs to match supply and demand (powerful search & recommendation engines, user ratings, communities)
• Specially relevant in multimedia content industries such as Netflix, publishing industry, (LEGO)
MULTISIDED PLATFORMS - Distinct but interdependent groups of customers
- This business phenomenon has increased rapidly with IT development
- The value of a platform for a given customer group depends on the presence of another customer group
- The platform creates value by facilitating interactions between groups
- Key: “Network effect”: The more users the more value generated
- Challenge: How to attract both types of customers?
- Air BnB, Visa, Wii game console, Apple
FREE - Some segments don’t pay
• At least one segment is able to continuously benefit from a free of charge model.
• This segment is subsidized by paying customers in order to attract maximum number of users
• Three patterns:
✔️ Free offer based on multi sided platforms
✔️ Freemium model: free basic services and Premium version
✔️ “Bait and hook”: free or inexpensive initial offer captures customers Free newspapers, Skype, Spotify, Nesspresso
OPEN - Profitability through cooperation
- Refers to companies that create value by collaborating with outside partners. Two ways:
- Outside/in: Bringing external ideas, technology and intellectual property into its development and commercialization processes.
- Inside/out: Licensing or selling intellectual property, technologies outside the company
- GSK patent pool and Procter & Gamble
