Unit 7: Business Models Flashcards
Explain the definition of a business model Identify and describe the 9 building blocks of the Business Model Canvas (BMC) Reflect on the stages of business and how decisions may change at each stage
what is a business model
Captures how a company creates and delivers value (by providing a product/service that meets the needs of their customers), and captures value (by being profitable)
what does a business model suggest about what a company plans to do? & what are some questions they would consider?
- suggests how they plan to make money
questions they would consider to make money:
- What is the company providing?; What are the efforts and resources involved to design a product/service they are offering?
- Who is the company providing the product/services to?; Who are the customers that would be interested in what the company has to offer?
- How do they survive and thrive as a company; How do they stay profitable to maintain and grow the business?
what is a freemium
When you can use a service for free but need to pay money if you want additional benefits
ex. spotify
what is the business model of a company that provides freemium
- Value is created and delivered by providing a fun experience
- Value is captured through in-app purchases and advertising revenue
what is the business model canvas (BMC)
- tool that helps new or existing businesses design and map out their business models
- Starts from the basis of understanding your customers, what they value, and how to manage relationships with them
- looks at how a company can create, deliver, and capture value
what is the importance of creating value for customers
can generate revenue
what are the sections that create value in a BMC
- customer segments
- value propositions (also delivers value)
- channels
- customer relationships
what does customer segments look at
- Who are the people & organizations you are creating value for?
- How to attract/retain customers?
- who you plan to reach and serve profitably; Who are they & what do they want to buy? One or more customer segments & can range in size
how are customers grouped into segments
- based on similar needs/interests, characteristics, or if they can be reached through a distinct channel
what are examples of different customer segments
- Business segment vs. consumer segment (individuals):
- Consider their jobs, pains, & gains
- Company employees would need a device for work
- Consumers use devices for personal communications with families & friends
- Can determine the different consumer segments through demographic factors (ex. Age, income, education)
- Geographic segments
- Looking at customers by city, country, or region
what is the purpose of determining customer segments
- can support decision-making in how to connect & engage with consumers
- Finds efficient & effective ways to meet their needs
what are customer segments for Apple & their iPhone
- business segment: targeting companies that may want their employees to use iPhones as company-issued communication devices
- consumer segment: consumers who are in the market for a personal smartphone with specific features
- geographic segments: customers in North America vs. Asia, and how needs may vary given the preferences and competing phones in these areas
what are customer segments for uber eats
- You as a customer
- Other restaurants/stores
- Drivers (delivery people)
what is a value proposition
- Features & benefits offered through products/services that customers will value
- Should be distinguishable from what is offered by competitors & be enticing to customers
- Answers the question: why would a customer purchase this product?
- Customers will determine whether they’re willing to pay the price for the features and benefits offered
- Or they will find another product/service (maybe from a competitor)
What do customers value?
- Product & packaging
- Quality of service
- Convenience
- Brand name
- Design
- Price
what is the value proposition for apple’s iphone
- Easy to use devices, where their phone is conveniently connected into an all-in-one ecosystem, letting you purchase apps, music, and connect your iPhone to other devices.
- Design of the product and packaging; Apple has been well known for their modern and stylish designs.
what is the value proposition for uber
- uber is a ridesharing service that competes with taxis & public transit
- value proposition includes:
- Convenience; can hail a ride through an app, track your ride, save time overall
- price; know what you pay in advance, and can choose cheaper fares if you ride with strangers
what is the value proposition for ubereats
- Finding what we want to eat
- The convenience
- Timely service
what are channels
- touchpoints you are interacting with customers in delivering the ‘value’?
- How a company can shape the customer experience from connecting to their customers through various channels
- Each channel serves a different purpose
what are the different channels
- Marketing channels; selected to create awareness about products/services
- Sales channels; how customers purchase their products/services
- Distribution channels; how to deliver products/services to customers
- Service channels; how to provide support to customers after a sale
they can be direct or indirect
what is a direct channel
When a company has its own stores (physical or online presence) and sales people
what is an indirect channel
When a company’s products/services are provided through an intermediary (like a retailer)
what are the benefits of distributing products through a retailer
- reach a larger consumer base
- Helpful for newer companies or those that want to take advantage of retailers that have more experience, reach, and previous success with distributing products
how do companies choose channels
choose those that have optimal reach based on how their customers want to interact; researched through the customer segments
What are some of the channels for Apple’s iPhone?
- marketing channels: ads on TV & online, or indirectly advertised through retailers
- sales channels: can buy at an Apple Store, through their website, or indirectly through retailers like Best Buy or through telecommunications service providers such as Rogers and Bell
- service channels: Customers can send in their iPhones to an Apple Repair Centre, connect with a technician at an Apple Store, or visit an Apple Authorized Service Provider (an indirect servicing channel that offers the same quality of service that you can get from visiting an Apple location)
what are the channels for Ubereats
- Through the apps/web portals for customers, drivers, and restaurants
- Customer places and order through the app; convenient sales channel
- UberEats driver picks up the meals & delivers it to the customers; distribution channels
what is customer relationships
- Outlines the type of relationship you are establishing with your customer
- How to attract customers AND keep them long-term
how to encourage customers to continue to buy from you
Can be through the same original product/service or related ones
what are some things to consider in customer relationships
- customer loyalty
- scalability
what are ways a company can interact with customers to develop relationships
- Customer support
- Timeliness of support
- convenience
how does apple manage its customer relationships
- Customer support is readily available online and through their various retail locations
- Customers can easily set up an appointment to connect with a technician at an Apple Store, or can walk in and have their problems solved
how does ubereats manage its customer relationships
- Asking for feedback
- Customer reviews
what are the sections in the BMC that delivers value
- value propositions
- key resources
- key activities
- key partners
what is does delivering value look at
what resources are acquired/used to perform activities
what are key resources
- Describing the infrastructure to create, deliver and capture value
- Shows which assets are indispensable in your business model
- Companies has tangible (physical) & intangible (not physical) assets
what are examples of company assets
- human resources
- physical resources
- financial resources
- intellectual property (intangible assets)
what are human resources
- The number of employees (tangible)
- Employee’s knowledge and skills (intangible)
what are physical resources
Inventory, equipment, buildings, etc.
what are financial resources
Cash, line of credit, etc.
what are intellectial property
- patents
- copyrights
- customer lists
what are patents
Prevents others from making, using, or selling someone’s new or improvements made to an existing invention for a period of time (usually 20 years)
what are copyrights
Provides an exclusive right to make, reproduce, publish, or perform artistic/literary works. Those that want to use the work have to buy it or get permission to use it (exists for the lifetime of the creator + 50 years after their death, then it becomes public domain)
are the resources needed the same for every company
- no, resource needs can vary by industry
- Manufacturing environments may need more physical resources (ex. Factory, equipment, inventory)
- Service companies like legal or consulting practices may need more intangible resources, focusing on recruiting the right human resources
what are some resources apple would rely on
- human resources: employees to work on the planning and design of the iPhone’s hardware and software. key employees as well, Steve Jobs, was viewed as a visionary for Apple to save it from bankruptcy and drive their innovations to the marketplace
- financial resources, having very strong operating cash flows, which can help them invest in future innovations and to grow their market share
- intellectual property: has various patents and copyrights in place to protect the value in their products and ideas from copycats (and thus their competitive advantage in the marketplace)
what are key activities
- Shows which things you actually need to perform well
- Activities to operate successfully and deliver value
- Companies should prioritize what activities to dedicate resources to & what could be outsourced
- Outsourcing resources that doesn’t directly help them deliver value
what would be key activities for an auto manufacturer
- Key operational activity would be quality production
- Have appropriate manufacturing facilities
- Careful supplier selection (for the car components)
- Quality control procedures
What are Apple’s key activities for their iPhone?
- quality design is a key activity: phones say “Designed by Apple in California
- Assembled in China”; phone assembly is outsourced, selecting quality suppliers and factories to assemble
- To capture and grow their market share, they have a large focus on advertising initiatives, especially during key times of the year (e.g., before the start of a new school term or before the holidays as people are looking for gift ideas)
what are key partners
- Show who can help you leverage your business model
- Since you are not always providing the key resources or doing the key activities
- Do companies collaborate with key partners to operate successfully and deliver value?
how/when can having key partners be beneficial
- When working in areas outside of their expertise
- To leverage from resources/expertise of others
- To find operating efficiencies
what are some scenarios to consider for key partners
- supply chain
- sales
- international expansion
where can there be key partners in a supply chain
- working collaboratively with another company in the supply chain
- ex. auto manufacturer; suppliers would be key partners, working hand in hand to obtain specific parts for a specific vehicle
where can there be key partners in a sales
- Relying on others to sell the products?
- If they do, they should establish relationships with key partners, like retailers
- Retailers are considered marketing intermediaries
- They help move products from the producer to the consumers
where can there be key partners in international expansion
Teaming up with another company through a joint venture or strategic alliance to do business internationally
what are apples’ key partners for their phones
- With their products assembled in China, they would need key suppliers (for required component parts like batteries and cameras) and factories that can assemble the iPhones
- While Apple makes their products available through their own stores and website, they also want to make it as convenient as possible for customers to buy their products at other locations. So, beyond their direct sales channels, they’ll connect with marketing intermediaries, including telecommunications companies and retailers like Best Buy, to help sell their iPhones.
what are the sections that capture value in the BMC
- revenue streams
- cost structure
what does capturing value include
- being profitable through the efforts to create and deliver value
- Profitability supports an entrepreneur in maintaining and growing their venture
- Helps large public companies please its shareholders
what do revenue streams look at
- How and through which pricing mechanism your business model is capturing value
- Examining the cash inflows from selling a product or service
- How does value propositions generate current + future revenue streams?
what are the 2 different types of revenue streams
- transactional (one time payments)
- recurring (ongoing payments, like monthly subscriptions)
what are examples of transactional revenue streams
- Product sale; ex. $ per unit sold (Apple)
- Usage fee; ex. $ per night at a hotel (Hilton)
- Advertising revenue; ex. $ per click (Google)
what are examples of recurring revenue streams
- Subscription fees; ex. $ per user/month (Netflix)
- Renting; ex. $ per sq. ft./month (apartment landlord)
- Licensing; ex. $ or % per user (Microsoft operating systems for businesses)
what are the revenue streams for Ubereats
- Transactional stream: people purchasing individual meals
- Recurring stream: Uber One (membership)
what pricing strategies are used in the revenue streams
- Each revenue stream can use different pricing strategies
- Companies should look at what their customer segments are willing to pay
- Making up for costs in creating/delivering their value proposition
- Having higher prices to signify higher quality goods/services
what are the revenue streams for apple’s iphone
- Transactional: sale of their iPhone devices and related accessories, purchase of their AppleCare warranty program, and the download of apps through their App Store.
- recurring: monthly subscription fee for their Apple Music service
what are the costs to operationalize the business model
- Costs to create & deliver value
- Make changes to products/services offering if constrained by resources
- Budget and managing costs accordingly
what does cost structure look at
Understanding the infrastructure provides an understanding of the cost structure
what is the most important step to support profitability
- manage costs
- Determine what the highest costs are, if they are one time or ongoing
what are cost types
Costs from a financial reporting perspective (ex. Salaries, cost of supplies)
what is cost behaviour
costs that change based on production levels (fixed costs and variable costs)
what are fixed costs
Costs that stay the same even if production increases (ex. salaries, rent)
what are variable costs
Costs that will change if production increases (ex. additional need for raw materials)
what is the cost structure for apple
- costs for some of their key resources (e.g., employees)
- costs for their key activities (e.g., marketing to build their brand and encourage sales)
what are costs for ubereats
salaries
what are some takeaways from the business model environment
consider the:
- Competitors; Potential threats (if they have a better business model)
- Customers; Needs will change (consider evolution of their jobs, pains, gains)
- Technology + legal trends; Will present opportunities & constraints
- Overall state of economy; Availability of funds and skilled people could impact feasibility; also consider the macroeconomic factors and impact on revenue and costs
why do business models fail & how to avoid it
- solving an irrelevant job
- “Right job?”
- Is it truly a task that a customer needs to accomplish - flawed business model (ex. Costs to acquire customer are higher than what you can earn from them over time)
- “Right model?”
- Profitable and scalable - External threats in business environment (ex. Competitors offering similar value proposition at a lower price, or new technologies undermining business model)
- “Right context?”
- Can business model thrive in today’s business environment - Poor execution (ex. Wrong team/leadership and lacking skills)
- “Right skills?”
- To execute business model and make it a reality
will decision-making differ depending on a company’s stage of business
yes
ex. How decisions for each area of business may differ in the introduction vs. maturity phase
review: what are the 3 business stages
- birth/introduction
- breakthrough/growth
- maturity/exit
what are business functions that would go into each section of the business model canvas
- create value: marketing
- deliver value: operations, human resources, finance
- capture value: accounting
