The document discusses the components and concepts of an effective business model. It defines a business model and its key elements, including core strategy, strategic resources, partnership network, and customer interface. It also describes the most common types of business models and provides an example of using a business model canvas.
The document discusses the components and concepts of an effective business model. It defines a business model and its key elements, including core strategy, strategic resources, partnership network, and customer interface. It also describes the most common types of business models and provides an example of using a business model canvas.
The document discusses the components and concepts of an effective business model. It defines a business model and its key elements, including core strategy, strategic resources, partnership network, and customer interface. It also describes the most common types of business models and provides an example of using a business model canvas.
The document discusses the components and concepts of an effective business model. It defines a business model and its key elements, including core strategy, strategic resources, partnership network, and customer interface. It also describes the most common types of business models and provides an example of using a business model canvas.
❑ Is a firm’s plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it earns. ❑ An outline of how a company plans to make money with its product and customer base in a specific market. ❑ The challenge for all firms is to create or develop a sensible business model and then effectively implement it. Business Model ❑A business model explains four things: • What product or service a company will sell? • How it intends to market that product or service? • What kind of expenses it will face? • How it expects to turn a profit? Example: Components of an Effective Business Model • Core strategy (how a firm competes) • Strategic resources (how a firm acquires and uses its resources) • Partnership network (how a firm structures and nurtures its partnerships) • Customer interface (how a firm interfaces with its customers) Components of an Effective Business Model • Core Strategy Describes how a firm competes relative to its competitors. The primary elements of a core strategy are the firm’s mission statement, the product/market scope, and the basis for differentiation.
Mission Statement Describes why it exists and what its business model is supposed to accomplish.
Product/Market Scope Defines the products and markets on which it will concentrate.
Basis for Differentiation
A new venture should differentiate itself from its competitors in some way that is important to its customers and is not easy to copy. Components of an Effective Business Model • Strategic Resources A firm is not able to implement a strategy without adequate resources. This reality means that a firm’s resources substantially affect how its business model is used.
Core Competencies Is a resource or capability that serves as a source of a firm’s competitive advantage over its rivals.
Strategic Assets Are anything rare and valuable that a firm owns. They include plant and equipment, location, brands, patents, customer data, a highly qualified staff, and distinctive partnerships.
Companies ultimately try to combine their core competencies and strategic assets to create a sustainable competitive advantage. This factor is one to which investors pay close attention when evaluating a business. Components of an Effective Business Model • Partnership Network New ventures, in particular, typically do not have the resources to perform all the tasks required to make their businesses work, so they rely on partners to perform key roles.
Suppliers Is a company that provides parts or services to another company. A supply chain is the network of all the companies that participate in the production of a product, from the acquisition of raw materials to the final sale.
Partners A partnership is a way of structuring a business that involves two or more individuals (the partners)
Other Key Relationship
Along with its suppliers, firms partner with other companies to make their business models work. Components of an Effective Business Model • Other Key Relationships Components of an Effective Business Model • Customer Interface How a firm interacts with its customers—is the fourth component of a business model. The type of customer interaction depends on how a firm chooses to compete.
Target Market Is a group of potential customers that you identify to sell products/ services.
Fulfillment and Support
It describes the way a firm’s product or service “goes to market,” or how it reaches its customers.
Pricing Structure Pricing structures vary, depending on a firm’s target market and its pricing philosophy. Most Common Type of Business Model • Retailer Model A retailer is the last link in the supply chain. These businesses purchase goods from manufacturers or distributors and then sell them to customers for a price that will both cover expenses and turn a profit.
• Manufacturer Model A manufacturer converts raw materials into products. Then, they sell those products to distributors, retailers or directly to consumers. Most Common Type of Business Model • Fee for service Model A business charges a set fee for a specific product or service. A business set up on this model can increase its earnings by doing work for additional clients or by raising its rates.
• Subscription Model The customer makes a recurring payment for ongoing access to a service or product. A company may directly ship its product in the mail, or you may pay a fee to use its services. Most Common Type of Business Model • Bundling Model Involves companies selling two or more products together as a single unit, often for a lower price than they would charge selling the products separately.
• Product as a Service Model
Companies that follow this type of business model allow customers to purchase a result rather than the equipment that delivers that result. Most Common Type of Business Model • Leasing Model Under a leasing business model, a company buys a product from a seller. That company then allows another company to use the product they purchased for a recurring fee. • Franchise Model A franchise is an established business blueprint that a franchisee purchases and reproduces. • Distribution Model A company operating as a distributor is responsible for taking manufactured goods to the market. To make a profit, distributors buy the product in bulk and sell it to retailers at a higher price. Most Common Type of Business Model • Freemium Model Customers can use parts of a product or service for free but must pay for access to more advanced features. • Advertising or Affiliate Marketing Model The advertising and affiliate marketing business models leverage a business’s audience as an asset. With advertising, a business sell its audience’s attention while in affiliate marketing, a business earns a commission when a member of its audience buys a product or service it recommends. • Razor Blades Model Strategic positioning of one product as free or complimentary in order to boost the sales of the actual revenue generating product. Business Model Canvas Is a strategic management tool to quickly and easily define and communicate a business idea or concept. It is a one-page document that works through the fundamental elements of a business or product, structuring an idea in a coherent way. Why do we use it? •To quickly draw a picture of what the idea entails. •It allows us to get an understanding of your business and to go through the process of making connections between what your idea is and how to make it into a business. •It looks at what kinds of customer decisions influence the use of your systems. •It allows everyone to get a clear idea of what the business will likely be. Components of Business Model Canvas ➢ Customer Segments The first block of the Business Canvas Model is about understanding who is the most important customer(s) you’re delivering value to. Or, in other words, who are they? What do they do? And why would they buy your product or service? Components of Business Model Canvas ➢ Customer Relationship Customer Relationships is defined as how a business interacts with its customers. Once you have acquired customers, you will need to think about how you can build, nurture, and grow those relationships. Components of Business Model Canvas ➢ Channels The next step is to ask yourself how you are reaching your customers, and through which channels? This includes both the channels that customers want to communicate with you as well as how they’ll receive your products or services. Components of Business Model Canvas ➢ Value Proposition Is about figuring out your company’s value propositions, and importantly, your USP (unique selling proposition). The “what” that makes customers turn to you, over your competitors? Which of their problems are you best at solving? Components of Business Model Canvas ➢ Key Activities The Key Activities of your business/product are the actions that your business undertakes to achieve the value proposition for your customers. Components of Business Model Canvas ➢ Key Resources The key resources are all things you need to have, or the assets required to create that value for customers. This could be anything from intellectual property (patents, trademarks, copyrights, etc.) to physical holdings (factories, offices, delivery vans, etc.) right down to finances (the initial cash flow perhaps needed to start your brand), and human capital. Are you going to need highly specialized software engineers? Or field-based sales teams? Components of Business Model Canvas ➢ Key Partners Key Partners are a list of other external companies/suppliers/parties you may need to achieve your key activities and deliver value to the customer. This moves into the realm of ‘if my business cannot achieve the value proposition alone, who else do I need to rely on to do it?’. Components of Business Model Canvas ➢ Revenue Streams Revenue Streams are defined as the way by which your business converts your Value Proposition or solution to the customer’s problem into financial gain. It is also important to understand pricing your business accordingly to pain of purchase in exchange for the pain of solving the problem for your customer. Components of Business Model Canvas ➢ Cost Structure The final step of the Business Model Canvas is to ask yourself, how much is it going to cost to run this model? This includes some of the more obvious needs such as manufacturing costs, physical space, rent, payroll, but also areas such as marketing activities. Example of Business Model Canvas: McDonald’s Example of Business Model Canvas: Netflix
