Table of Contents
Business Model Canvas (BMC)
It is a strategic management tool that provides a visual representation of a business’s plan for delivering value to its customers and making money. It is helpful for quickly conveying the key facets of a business on ONE page, instead of using an extensive traditional business plan across multiple pages.
BMC contains nine boxes that represent various components of a successful business. Mainly on two aspects: customer/market factors beyond the control of the company on the Right side, and internal features that are within the control of the company on the Left side. In between connected by VALUE PROPOSITIONS that bridge the gap between what customers expect and what the company offers.
BMC simplifies complicated elements into easily understandable pieces: Left/Company Internal Parts (Key Partners, Key Activities, Key Resouces, Cost Structure), Right/External Parts (Customer Relationships, Customer Segments, Channels, Revenue Streams), Middle (Value Propositions).
Benefits of BMC
It is Focused
It’s focused on the major goals and benchmarks of a business model, which makes it more effective and strong when compared with traditional models. With BMC, teams can concentrate energy and resources on the most important components that will have far-reaching effects on the entire plan.
The simplicity and direct approach of the BMC add to its effectiveness since there is no time wasted trying to sort out complex details. Its streamlined design means teams can start working quickly on setting up key objectives such as growth strategies, customer segments, channels, and resource allocation.
BMC is Clear and Concise
It helps entrepreneurs document their startup journey as they progress. BMC provides an outline of the business, allowing you to map out your vision and adjust it along the way. By clearly communicating your goals/objectives/strategies with key personnel/investors/essential partners, you can ensure everyone is on board with your vision from the start.
Targets Customers’ Needs
The biggest factor in startup success is the ability to effectively target customer needs. BMC helps entrepreneurs meet this requirement by forcing them to think beyond simply building their product and focusing their efforts on how to sell it. Entrepreneurs can clearly identify what resources they need, who their customers are, and what customer segments they should prioritize.
Reduce the Risk of Failure
Reducing the risk of failure by restructuring their value proposition, customer segments, and revenue streams into a concise yet comprehensive document. By using BMC, leaders can align their marketing strategy, positioning statement, and sales strategies with tangible data without having to invest in lengthy documents. Entrepreneurs can quickly spot weaknesses or take advantage of potential opportunities that may have yet to be noticed due to a lack of time or resources.
Scientific Framework
BMC is designed to provide a comprehensive overview of the business model, it allows companies to systematically analyze and identify problems, opportunities, and room for improvement.
Each of the nine blocks is essential for increasing visibility into different aspects of the business. Data from each block can be used together or independently to gain insights into what changes may need to be implemented for a company’s strategy or operations to become more effective and efficient.
Visual Format
It is designed to instantly present the key components and relationships in an easily understandable way, and it requires less time and effort to comprehend than a traditional model. It is particularly useful when presenting the model to someone else since they can quickly understand each component builds on other parts of the conceptual framework.
Accessibility
BMC is accessible from any location or device, it can be accessed by anyone involved with the project. Its broad availability allows stakeholders to easily reference potential strategies while making decisions and even edit them directly to improve their vision of the business model.
Flexibility
It can be used by almost any type of organization, it allows for a more standard approach that is applicable to most entities. It is easier to compare one organization’s model to another, which provides insight into the similarities and differences between them.
Deconstruct Nine Blocks of BMC
Customer Segment
It allows businesses to identify, analyze, and target specific groups of people as potential customers. It involves segmenting customers based on factors such as geography, gender, age, behavior, and interests to better understand their needs, and create tailored solutions for them.
Why Is Customer Segmentation Important?
[Most effective messaging: it is a pivotal tool for boosting the effectiveness of a company’s messaging.] [Improved products: it helps customers to better understand their audience and develop products and services that are tailored to their specific needs.] [Improved customer targeting: by analyzing customer segments and focusing their efforts on those with the highest ROI, businesses can maximize the efficiency of their campaigns while delivering tailored messaging that resonates with every customer group they target.] [Higher returns on marketing investments: by understanding which markets are generating higher ROI, marketers can shift their focus and begin to funnel a larger portion of their budget toward those markets that yield better results. In addition, it may be helpful to identify sub-segments within highly profitable market groups, as they may offer higher ROIs than other segments due to consumer preferences or behavior patterns that allow businesses to maximize revenue through creative strategies.]
Customer Segmentation Models
[Demographic: it is the practice of dividing people into groups based on their shared characteristics, such as age/gender/income/education level/marital status, etc. It is very useful for targeting consumers with similar interests and needs.] [Geographic: it is a popular way of categorizing them and targeting them with relevant messages. It breaks down the population into smaller sections based on where they are located, and opens up opportunities for personalization, such as offering localized deals or discounts depending upon location.] [Psychographic: it looks at the combination of customers’ attitudes, values, interests, and personalities, which impact the purchase decisions they make.] [Technographic: focuses on tech-based characteristics, such as mobile use, desktop use, app usage, etc. Including the way people access the internet PC/Mobile, what kind of apps are used, and which software is being utilized.] [Behavioral: it is an effective way to identify commonalities among customers based on behavior. It includes usage of products/features, purchasing history, and habits, so companies can see which groups of customers are most loyal, what products customers are using most often, or even spot areas for improvement in customer experiences.] [Needs-Based: it is used to identify customers who are in need of specific products or services. The model focuses on identifying the characteristics, needs, preferences, and behaviors of different groups. So marketers can better understand their target audience and create tailored strategies that meet the unique needs of each customer group.] [Value-based: it allows companies to focus resources and tailor marketing strategies on customers who bring more economic value to the business, such as high-value repeat customers or those with a long lifetime value.]
How to Determine Customer Segment?
[Depth of pain: it is used to gauge the customer’s need for a solution. The deeper the pain/their need for a solution to an issue, the higher the chance that they will be receptive to your solution.] [Budget: it is important to assess how much customers are willing to spend on a particular service or product, the greater the pain/need that the customer experiences, the more they are likely to spend.] [Reach: it involves assessing what channels you would use to get your product or service out to potential customers and at what cost. The goal is to create a great strategy that covers multiple ways of getting your message out without overspending on delivery. In Addition, take the geographic region and language barriers into consideration.] [Market Size: it refers to the total number of potential customers in a given market, and how much demand there is for certain products or services within that market. Make sure the market size is greater than 10% of your total market.] [Value: it is important to consider what benefits you can offer that particular group, how you can help them reach their goals, and how loyal they will be over time. What types of feedback do they provide on the experience with your company?]
Types of Customer Segments
Mass Market: refers to a business model geared towards selling products/services to a large part of the population, without segmenting different customer types. It strives to create attractive value propositions, distribution channels, and customer relationships that all potential customers can take advantage of and benefit from. The goal is typically to provide access to low-cost everyday products that regularly need replacing, for example, electronics/appliances, that appeal broadly across many different age groups, income levels, etc.
Niche Market: It focuses on a small, specialized segment of the population. The businesses are intended to service customers with unique and specific needs, for which there is generally no mass-market solution available. Niche markets often rely heavily on trade and distribution networks to reach their target audiences.
Segmented: refers to the division of customers based on very slight differences in their needs, interests, or any other characteristics. It is the process of dividing the market into smaller groups with distinct characteristics. The products/services with slight variations according to their needs and preferences.
Diversified: it is a business model where companies develop products/services that meet the needs of customers with different requirements, who don’t have many common traits. It is the opposite of segmented customer segmentation, which serves similar clients.
Multilateral Platform/Markets: it is a type of business model that serves two or more customer segments that are interdependent. Those platforms offer different products/services/experiences to each customer segment and operate by connecting the two segments to make it mutually beneficial for both sides.
Value Proposition
It is at the heart of the BMC, it represents a unique solution to an existing problem faced by a customer segment or creates value for that customer segment in some way. A successful value proposition has several components to make it stand out from competitors – Innovation/Disruption/Attractive Features, and Attributes.
Quantitatively, businesses can create quantitative value propositions through pricing and speed of service within their industry sector – including discounts, faster delivery services, adding complimentary services such as free installations, etc. All of which help create tangible benefits for their customers that are quantifiable.
Elements for Value Creation
Newness: it is an important element when it comes to creating a successful value proposition. Customers are always looking for something new and innovative, and tend to be more willing to pay more for products that offer them unique solutions and experiences, especially in the area of electronics and tech.
Performance: it works by improving the features of existing products, thus creating the overall performance of the existing products, new value, and making it attractive to consumers, especially on smartphones, cars, etc.
Personalization: it gained prominence in a market where people are increasingly looking for unique products that speak to their individual interests and tastes. It can be tailored across multiple aspects, such as design, packaging and labeling, materials, or the installation process.
Status: it can be created through the design of the product itself, with strong colors, logos, and styles that stand out from competitors, or through superior quality that emphasizes its exclusivity. It could involve special membership or VIP access to encourage potential buyers who may not have considered this option previously.
Price: it is an effective tactic to satisfy customers who are looking for a low-cost option. To make your value proposition successful, you must develop a business model that takes pricing strategy into account. It may involve rethinking production costs, adjusting your offering to include lower-quality materials/services, cutting staff, extending payment terms, etc. – all of the above should be tailored to fit your new prices. Don’t undervalue yourself by sacrificing profitability.
Cost Reduction: it is highly relevant in the tech industry. Through cost reduction with improved customer experience, companies can create tangible benefits for customers that can be felt directly in their pockets.
Risk Reduction: it relates to the needs of customers who are looking for peace of mind with their purchase. The risk-averse customers want assurance that the product/service serve them well without worrying about defect or repair cost. An extended warranty is an excellent solution.
Accessibility: it is a critical factor in value creation, it means making your product or service available to as many customers as possible. One way to increase accessibility is by leveraging existing infrastructure and resources and making them adaptable to different needs. Another way could be to use AI, it can help customize UX based on individual preferences and provide more tailored solutions that meet their needs.
Convenience/Usability: customers demand products that offer greater convenience and make complex tasks easier to perform. Usability plays an important role in the modern world when it comes to tech products such as computers/smartphones. Customers increasingly expect easy-to-use interfaces that allow them to integrate info into their workflows with minimal effort.
How to design a Value Proposition: [Tech: businesses must keep technological developments in mind when planning which product/service to offer their target market. They must know what type of tech consumers are looking for and make sure their product can provide what competitors can not provide. ] [Changes: markets become more competitive and customer expectations continue to rise, companies must strive to stay ahead of the curve by offering something truly distinctive within their sector that sets them apart from the rest.] [Segment: businesses need to identify who they are trying to target with their products/services and understand their needs/pains/wants, as well as their preferences.] [Pain Points: understanding people’s pain points, both emotional ‘desires’ and functional ‘needs’, using these insights to develop a solution that matches these points against the tangible benefits offered by your products/services creating an experience that resonates deeply with customers.]
Distribution Channels
It refers to various methods that a company uses to reach out to its customers and build a relationship with them. It is important to carefully consider which channels you plan to use, as they are responsible for delivering your value propositions to customers and also play a role in raising awareness of your products or services.
Another option could be brick-and-mortar stores if that suits the nature of your product better than selling online. It offers advantages such as being able to physically display the product and provide great customer service.
Advertising channels can be used to reach the target audience. Companies should research their target demographic to determine which type of ads would be most effective in communicating with potential customers.
Benefits of Distribution Channels
Timely Delivery of Products: [Customers expect timely service from businesses more than ever before, especially in the online shopping experience, distribution channels have enabled companies to provide this level of customer service by reducing inefficiencies.] [Distribution channels help ensure faster transport times by providing direct access between suppliers and consumers. It allows the goods to move rapidly, eliminating middlemen, and reducing turnaround time while still ensuring the safe and secure delivery of goods and services] [Distribution channels eliminate geographical challenges faced by businesses when delivering products across borders/internationally.] [Distribution channels play an essential role in helping companies provide timely delivery of their products without compromising quality or security standards during the overall journey.]
Maintain Stock of Products: warehousing and storing are important steps in the distribution channel process because storing large volumes of products close by reduces transportation costs. Having enough stock at warehouses allows for fast replenishment when needed, it ensures retailers never run out of certain items due to a lack of inventory levels.
Provides Market Information: businesses can learn about demand in the market – what people want, how much they are willing to pay, and where those needs are most prevalent. It also provides information on pricing trends, what the competitor is doing, the landscape of similar products, and any new entrants into the market that may affect the quality or pricing of goods. The data can be used to make decisions around marketing strategies, list prices, and promotion efforts.
Goods Promotion: companies use distribution channels as avenues through which they communicate with their customers and potential buyers about their product offerings.
Provide Finance: businesses can get financial assistance from the distribution channel, which helps them manage their cash flow and improve their profitability.
Generates Employment: businesses can bring their products/services to many marketplaces around the world, allowing for a greater number of people to be involved in making money from them.
Phases of the Distribution Channel
Awareness: it involves introducing potential consumers to your product or service and informing them of its features, benefits, and costs. At this stage, advertising plays a major role, organizations can reach potential customers with their message. The ads should be eye-catching and relevant content that encourages consumers to engage with the brand and gain more information about it. Email campaigns can be used to increase product/service familiarity amongst target audiences. Social media can also be beneficial by using targeted keywords when creating posts across different channels. Awareness provides an opportunity to share meaningful creative assets and outline company initiatives and unique problem-solving resources catered towards specific consumer needs with particular market segments.
Evaluation: customers will read up on and research different products to ascertain if their features meet their needs and justify their prices. They may also look for reviews from former buyers or test a sample of the product before making a commitment. Then customers form opinions about the value propositions during this period to determine if they should select your products.
Purchase: the purchase stage of the distribution channel involves the actual buying and selling of products. The stage is also known as the ‘point-of-purchase’.
Delivery: it is the final phase of the distribution channel, it refers to the service that transports products from warehouses or other stockpiles directly to customers. Commonly referred to as a ‘last-mile delivery service’, it ensures that customers receive their goods on time and are satisfied.
After-Sales: it involves providing customer support, troubleshooting, and answering any inquiries after the purchase. This type of support helps customers feel empowered by the brand and encourages their loyalty to it. Customer service during this phase builds trust in the brand, its products, and its services, as customers are aware that someone is available to help them if needed. This service can be Technical guidance, product warranties, troubleshooting, replacing parts, resolving refunds, etc.
Three Forms of Distribution Channels
Direct Distribution Channel: it enables manufacturers to sell goods straight to consumers. Manufacturers get significant benefits since they get an extra layer of control over product lifecycle, it allows for better pricing and increased profits.
Indirect Distribution Channel: manufacturers sell products through independent retailers and wholesalers. It enables manufacturers to expand their product offering and customer base while also allowing them to pass on the sales, marketing, and delivery costs associated with selling directly to consumers.
Hybrid Distribution Channel: they are designed to bridge the gap between direct and indirect distribution channels. By combining elements of each, manufacturers can reach customers in a more cost-effective and efficient manner. The most common type of hybrid distribution channel consists of both B2B and B2C elements as well as physical or online shops.
Types of Distribution Channels
Personal Sale: it involves selling directly to consumers in face-to-face transactions. It includes anything from door-to-door sales to personal demonstration sales, etc. It can be very convenient for clients coz it allows them to see and try the product before they buy it.
Internet: it is a digital alternative to traditional personal sales. It provides the same benefits without incurring the costs associated with face-to-face interaction, such as travel expenses and labor costs. It allows businesses to reach a much wider customer base on geographical restrictions.
Telephone: it is a cost-effective method of making direct contact with the customer and an efficient means of connecting with consumers in remote areas.
Direct and Electronic Mail: direct mail refers to physical postcards, or letters sent out through regular postal systems. Email can be finished by software/platform like Mailchimp. The channels are cheap and easily customizable depending on each customer segment.
Retailers: they are typically focused on selling a variety of products directly to consumers. It involves the presence of a physical store. Those stores have well-established infrastructures and strong marketing strategies, which enable them to increase visibility and reach more potential customers.
Representatives: they establish personal relationships with customers to sell products and services. They have a wide network of potential clients, which provides the company with easy access to different markets at a low cost, it is often considered cost-effective by many companies.
Distributors: they have a broad customer base and can focus on specific markets and demographics, taking on the risk of inventory stocking it in warehouses ready for sale. They also provide technical services, offering advice on how to install or use the products they sell.
How to Choose the Right Distribution Channel?
Consider your Company’s Goals
An ideal channel aligns with a company’s goals. It is important to consider those goals when deciding the distribution channel. If a company focuses on customer service, it will benefit from selecting a channel that offers multiple purchasing options, such as retail stores or online stores. If a company focuses on affordability, using simple methods like direct-to-consumer sales or drop shipping can reduce expenses by eliminating expensive intermediaries like wholesalers or retailers.
Be Practical
When deciding which channel to use, it is important to consider the practical elements of each one. The online store is a suitable option for products that possess a quick turnaround time. Items with a longer shelf life are better suited for a traditional physical store where customers have time to browse before making a purchase decision.
Look for Natural Partners
A natural partner would fit into the company’s existing market and audience. The manufacturer will save money on marketing and promotion to reach their target customer base, as well as transportation costs, by partnering with a retailer through a distribution channel.
Minimize Conflict
When seeking to maximize sales and profitability, avoiding internal conflict between the chosen channels is essential. You may choose to use multiple channels for sale, if so, it’s important to appropriately assign products to each of the channels to prevent competition between them.
Customer Relationship
It outlines how a company interacts with its customers and how this relationship will be maintained throughout their journey. A strong customer relationship can be established through various communication outlets depending on the target market. It’s important to identify what level of service each customer will receive to increase satisfaction rates.
Motivation for Customer Relationship
Customer Acquisition: it refers to the efforts a company takes to acquire new customers. It involves persuading potential consumers to choose a particular product or brand over its competitors. The most common techniques used for customer acquisition include: [Content Marketing] [Email Marketing] [SNS Marketing] [Customer Retention] [Defending a Point of View] [Invoking the Ego] [Reducing Pain] [Offer Extra Benefits]
Long Story Short: offering extra benefits is one surefire way companies can invest to pleasing their customers into sticking around with them: [Making Personal] [Maintain Quality] [Choosing the Communication Channel]
Sales Expansion: it focuses on convincing the customer to not only return to purchase additional items but also increase the number of items purchased at one time. It is critical for companies to thoroughly understand their consumer audience and what interests them to successfully expand their sales.
Customer Relationship Categories: of the many CRM categories, six stand out as being particularly crucial. They cover the majority of cases: [Self-Service] [Automated Services] [Communities] [Personal Assistance] [Dedicated Personal Assistance] [Co-Creation]
Importance of Customer Relationships
Establishing strong connections will help you acquire new customers, as people are more likely to use services from companies they trust. Also, having satisfied existing customers will also contribute highly towards acquiring new ones, referrals from existing customers are very persuasive.
Customer satisfaction should always be at the highest level when running a successful business. Keeping up regular communication makes sure the problem is addressed quickly and builds brand loyalty by increasing customer confidence. Knowing what your target audience wants would not only help sales but also aid in building goodwill with your brand or products, which would ultimately result in increased profit due to increased engagement and purchase frequency among current users.
Revenue Streams
It plays a vital role in BMC, serving as the fundamental source of income for any business. It refers to how a company generates money by offering its products or services to its customers. It includes Subscriptions [a steady stream of recurring income for companies that charge on a regular basis], Commissions [provide earnings for each customer action taken], Advertising Revenues [income generated from display ads on websites], Sponsorship Fees [payment from 3rd party in exchange for branding opportunities], and Sale of Products/Services [one-time payments when consumers purchase goods/services directly from the business].
How to Choose Revenue Streams
Accurate forecasting is key, it helps to predict future sales and other income sources, enabling you to make informed decisions about what revenue streams should be developed and pursued. Besides, other factors should be considered when selecting revenue streams:
Choose the Most Realistic Stream: it is crucial to select an income stream based on what you know you can achieve and sustain in the long term.
Extend Your Value: it is essential to find sth that adds value beyond your competitors.
Attract the Right Investors: it is crucial to analyze current market trends to attract reputable long-term investors who are suited to what you have to offer.
Be Flexible: you need to be open to altering/adjusting the streams since they may change as time goes on. If your goal is to become profitable, you must eliminate all possible sources of income and tweak them accordingly.
Different Ways to Generate Revenue Streams
Direct Sales: products/services are demonstrated directly to the customer by a sales. By cutting out some traditional middlemen like wholesalers/retailers, businesses can benefit from higher margins.
Freemium: it is widely used on the internet. One version is completely free with few options, and another with more advanced functions, for a fee.
Asset Sale: it is a common way to generate revenue streams since it involves selling a physical asset owned by the customer for money or other considerations. Asset sales involve exchanging the asset for cash.
Usage Fee: it involves customers paying for the frequency or amount of use of a particular service. This model is often employed in areas such as communications, transportation, and hospitality services.
Subscription Fee: if refers to an ongoing payment model where customers pay a fixed fee at periodic intervals in order to access a particular service. It is prevalent in media, entertainment, and fitness.
Leading, Renting, or Leasing: the client is entitled to have temporary utilization of a specified asset for a set frame of time.
Licensing: it grants customers permission to utilize commercially viable intellectual property by paying a royalty. It is common in the media and tech industries, where companies can grant exclusive rights to their products and services.
Brokerage Fee: it is a form of income derived from the charing of a certain percentage or commission based on the value of services or transactions.
Advertising: it involves selling space to companies that want to promote their brand, product, or service. It can be seen in many different places, like media platforms, events, software applications, and apps.
Pricing Mechanisms
It refers to how companies set prices for their products and services. It is an important tool when it comes to managing revenue streams, as it can directly affect the expected supply and demand of a product. It involves the following:
Fixed-Price System: businesses have a consistent price for goods/services due to their raw material costs and processes staying relatively static.
List Pricing: it is a system where prices are fixed and cannot be bargained. It is an attractive option for both sellers/buyers as it removes the need to haggle over cost, making sales processes much simpler and smoother.
Product Feature-Dependent Pricing: the pricing is based on the qualities or value propositions of a product. It is based on the principle that buyers are willing to pay more if a product has additional features.
Customer Segment Dependent: the prices of products/services based on the customer segment to which it is targeted. It can be used to incentivize certain customers to purchase from a business and helps businesses tailor products/services for different customer types so they are better equipped to satisfy their needs.
Volume Dependent: it is a fixed price system that uses the number of goods purchased in a single transaction to determine the cost per item. The more items that are purchased, the lower the cost associated with each item.
In the System of Dynamic Price: it is an increasingly popular mechanism for setting prices, particularly in the digital space. It involves variable pricing that changes according to market conditions and consumer demand. It works by monitoring customer behavior/market trends and then adjusting the prices according to customer demand or other influential data points like seasonality or special events.
Key Resources
It highlights the resources required to carry out the key activities to build an effective and profitable value proposition. This category includes resources such as physical, financial, human, intellectual, and technological. Its types can be Tangible, Intangible, Financial, or Human.
Tangible: it refers to the physical inputs/structures required for a company to deliver its value proposition, which means significant upfront investments, which are necessary for the functioning of any business.
Intangible: it is an invaluable type of key resource that lacks a physical form, making them difficult to quantify, such as trademarks/patents/copyrights/proprietary knowledge/Database, and other forms of intellectual property.
Financial: it may include cash, credit lines, and stock options for employees. Financial resources are essential to every organization as they provide the ability to acquire the necessary tools and materials while keeping operations running smoothly.
Human: HR is often the most critical element of any organization’s success, yet they are often overlooked or neglected. In industries that demand extensive creativity, knowledge, or interpersonal interaction, such as service, science, marketing, and sales, having skilled employees is the key to success. HR refers to the people people employed by a company for a variety of roles, such as management, admin support, production personnel, technical specialists, etc.
Key Resouces and Value Propositions
A resource is only considered key when it assists in delivering an aspect of the value proposition. Based on this, there are generally three types of business models: Product-Driven, Scope-Driven, and Infrastructure-Driven.
Product-Driven Business: companies are focused exclusively on creating, producing, and selling products. It emphasizes the importance of identifying a need in the marketplace and offering a solution in the form of a tangible product. The success relies heavily on the ability to identify and provide exactly what customers want.
Scope-Driven Business: companies are focused on providing a unique value proposition to a specific customer segment. This type of venture typically focuses on one specific service or set of services to satisfy a certain need or want for the target customer.
Infrastructure-Driven Business: they are dependent on existing infrastructure to achieve sustainable profitability over a long period. These entities need to make a large initial investment in infrastructure, such as hardware, software, and other necessary technology.
How To Determine Your Key Resources
You need to consider: [what resources are needed to ensure the successful delivery of your Value Proposition] [What resources must our marketing/distribution channels have access to?] [What assets are needed to maintain customer relationships?] [How can these resources contribute to our revenue generation?]
KEY ACTIVITIES
It refers to the working components of a business that ensure it remains competitive and profitable in the market. The core objectives are to deliver the product or service’s value proposition, reach customer segments, nurture customer relationships, and generate revenue. You need to think about what needs to be done for each part of your business model within its distinct categories: Key Partnerships, Value Propositions, Customer Relationships, Channels, etc.
Categories of Key Activities
Production: it encompasses all activities related to the conception, manufacture, and distribution of a product. The categories included in production are resource procurement, Production Planning, Storage, Distribution, Inventory Control and Management (QA), Customer Service, and Purchasing.
Problem Solving: it involves a set of skills such as researching, interpreting, and critically assessing data from multiple sources to synthesize an effective answer.
Platform/Network: the development and management of software, networks, combination platforms, and brands. Platforms are used to direct people toward a certain goal or provide service. The network includes stability, scalability, and performance.
Typical Activities engaged in by organizations include R&D, New Product Research, New Product Development, Updates of Existing Products, Quality Checks, and Innovation,.
Production: Product Selection/Design, Process Selection, Correct Production Capacity, Production Planning, Production Control, Quality and Cost Control, Inventory Control, Machine Maintenance and Replacement.
Marketing: [Strategy: goal setting, planning, implementing actions.] [Market Research: gathering info about the market] [Product Development: research – analyze – identify – work together – design product] [Communications: creation/distribution of messages to inform, influence, and persuade target audiences] [Sales Support: it ensures that the sales team has the tools to generate leads and maximize their sales potential. It also involves providing valuable info about customers.] [Events: event planning involves researching, selecting, and booking, etc.]
Sales and Customer Service: they proactively communicate the company’s core values, objectives, and differentiators to their customers. Key activities include registering and managing client accounts.
Which Key Activities are critical to the value proposition?
Brainstorm and Interview: B allows you to generate ideas quickly, which can be explored deeply in interviews with leaders in the company. Through interviews, teams can gain a better understanding of the truce differentiating strengths and assets and identifying opportunities to differentiate their value propositions. Conducting market research also provides insight into consumer needs as well as an understanding of how your customers use your services.
Work with a Capability Map: it is a good way to gain deeper insights into key activities that are necessary for value proposition. It helps to clearly identify and visualize which activities and processes are necessary to deliver the desired outcome, and quickly identify gaps in capability/process that may exist in the organization.
Work with an Operating Model: it is a powerful tool for a company to understand its operating model and identify which activities are essential for the success of its value proposition. It can be used to visualize the value chain, key resources, and partnerships that a company has. With this visualization, companies can better understand how they operate and where they can differentiate themselves from other competitors, and leverage their unique assets and capabilities.
KEY PARTNERS
It refers to external companies and suppliers that assist a business in performing its core operations/key activities. It plays an essential role in Reducing Risks, Increasing Opportunities, and Gaining Resources. It can bring specific assets to the table that can be vital to the success of your business model.
In addition to sourcing resources from key partners, businesses also need access to certain channels to reach different customers and markets. It involves strategic alliance agreements with distributions/retailers who can expand their market presence with the target audience.
Types of Key Partners
Suppliers: a supplier partnership involves a Supplier and a Buyer.
Non-Competitors: the businesses that partner with one another, but are not in competition with each other. They form an agreement that benefits both sides. Businesses can benefit in many ways: gaining access to new techs, growing market share through a large pool of customers, forming a global supply chain, enhancing efficiency and service level, and improving employee morale.
Joint Ventures: it proves beneficial when developing a new business, as they offer access to novel markets/geographical areas. The businesses can enjoy the other party’s resources and share the risks together.
Co-Opetition: it is a strategic approach that sees two competing companies working together for mutual benefit. It allows them to leverage each other’s strengths and resources while minimizing risks.
Motivations for Partnerships: successful partnerships require considerable negotiation and trustworthiness. Still, there are several different motivations: [Optimization and Economy of Scale: the 2 key reasons why businesses choose to partner up with other companies. They can optimize the resources more effectively, as well as benefit from economies of scale.] [Reduction of Risk and Uncertainty: partnerships are essential for minimizing risk and enhancing stability in rapidly changing, fiercely competitive markets.] [Acquisition of Particular Resources and Activities: a partnership provides the convenience and cost-effectiveness of sharing resources as opposed to investing in them individually.]
Observations when Selecting Key Partnerships: Which partners are essential to your business? Which partners do you require for business growth? How each new partner impacts your customers and make sure it enhances their experience. Risk assessment ‘legal, financial, and operational aspects are taken into consideration’.
COST STRUCTURE
It encompasses all the expenditures in running your business model. The cost includes costs related to producing/delivering value propositions, developing revenue streams, and maintaining customer relationships. The approach businesses take to their cost structure can vary significantly between cost-focused (striving for the lowest costs) and value-oriented (striving to offer customers the most benefit).
Cost Structure Types
Value-Driven Structure: it focuses on maximizing customer value at all costs. The product/service is tailored to an individual’s needs, preferences, and desires to create the highest possible satisfaction for them. The cost of achieving this will inevitably be high cost, but it has been proven to drive loyalty and generate repeat customers.
Cost-Driven Structure: it prioritizes cost minimization to maximize efficiency and maintain competitive, affordable pricing. It requires businesses to evaluate each aspect of their production process and identify where can be saved or removed completely. It involves automation or eliminating certain steps in the process altogether to streamline production.
Cost Structure Characteristics
Fixed Costs: the general expenses of a business that remain constant regardless of changes in product or service output. Those costs do not vary with increases/decreases in production.
Variable Costs: the costs that increase/decrease according to the volume of production. Normally the change in production levels has an almost direct correlation with the degree of variation in costs.
Economies of Scale: it is derived from increasing production, when more is produced, the costs are spread out over a larger amount thus reducing the average cost per unit.
Economies of Scope: they are cost savings that arise from producing different products/services with the same resources, rather than producing each product/service separately.
Importance of Cost Structures: it allows businesses to keep track of expenses, enabling them to analyze their performance and make necessary decisions. By analyzing costs periodically and focusing on innovation and value proposition development, businesses can achieve both cost reduction & profit growth.
What To Ask When Creating a Cost Structure: [what baseline costs need to be factored in to get your business off the ground.] [What key resources will require hefty investments] [How those expenses could balloon over time.]