Business model

Chapter 6

A.Y. 2024/2025

Chapter 6 Business model A.Y. 2024/2025 1 / 37

Table of contents

1 Introduction

2 Building blocks

3 The business model Canvas

Chapter 6 Business model A.Y. 2024/2025 2 / 37

 Introduction

Definition

A business model describes the rationale of how an organization creates,

delivers, and captures value.

Chapter 6 Business model A.Y. 2024/2025 3 / 37

 Introduction

The business model Canvas

A business model can best be described through nine basic building blocks
that show how a company intends to make money.

The nine blocks cover the four areas of a business: customers, o↵er,
infrastructure, and financial viability.

Chapter 6 Business model A.Y. 2024/2025 4 / 37

 Building blocks

The nine building blocks

1 Customer segments
2 Value propositions
3 Channels
4 Customer relationships
5 Revenue streams
6 Key resources
7 Key activities
8 Key partnerships
9 Key structure

Chapter 6 Business model A.Y. 2024/2025 5 / 37

 Building blocks Customer segment

1. Customer segments

The customer segments building block defines the di↵erent groups of

people or organizations an enterprise aims to reach and serve.

A business model may define one or several large or small customer

segments.

Chapter 6 Business model A.Y. 2024/2025 6 / 37

 Building blocks Customer segment

Examples

Mass market
Business models focused on mass markets don’t distinguish between
di↵erent customer segments.
The value propositions, distribution channels, and customer relationships
all focus on one large group of customers.

Niche market
Business models targeting niche markets cater to specific, specialized
customer segments.
The value propositions, distribution channels, and customer relationships
are all tailored to the specific requirements of a niche market.

Chapter 6 Business model A.Y. 2024/2025 7 / 37

 Building blocks Customer segment

Segmented
Some business models distinguish between market segments with slightly
di↵erent needs.

Diversified
An organization with a diversified customer business model serves two
unrelated customer segments with very di↵erent needs.

Multi-sided platforms
Some organizations serve two or more interdependent customer segments.
Both segments are required to make the business model work.

Chapter 6 Business model A.Y. 2024/2025 8 / 37

 Building blocks Value proposition

2. Value propositions

It describes the bundle of products and services that create value for a
specific customer segment.

The value proposition is the reason why customers turn to one company
over another.

Chapter 6 Business model A.Y. 2024/2025 9 / 37

 Building blocks Value proposition

Value

A value proposition creates value for a customer segment through a

distinct mix of elements catering to that segment’s needs. Elements are:

Newness: an entirely new set of needs that customers previously

didn’t perceive.

Performance: improving product or service performance.

Customization: tailoring products and services to the specific needs of

individual customers.

Chapter 6 Business model A.Y. 2024/2025 10 / 37

 Building blocks Value proposition

Getting the job done: value can be created by helping a customer get
certain jobs done.

Design: is an important but difficult element to measure, in fact a

product may stand out because of superior design.

Brand: customers may find value in the simple act of using and
displaying a specific brand.

Price: o↵ering similar value at a lower price is a common way to

satisfy the needs of price-sensitive customer segments.

Chapter 6 Business model A.Y. 2024/2025 11 / 37

 Building blocks Value proposition

Cost reduction: helping customers reduce costs is an important way

to create value.

Risk reduction: customers value reducing the risks they incur when
purchasing products or services.

Accessibility: making products and services available to customers

who previously lacked access to them is another way to create value.

Convenience: making things more convenient or easier to use can

create substantial value.

Chapter 6 Business model A.Y. 2024/2025 12 / 37

 Building blocks Channels

3. Channels

It describes how a company communicates with and reaches its customer

segments to deliver value proposition.

Communication, distribution, and sales channels comprise a company’s

interface with customers.

Chapter 6 Business model A.Y. 2024/2025 13 / 37

 Building blocks Channels

Functions

Channels serve several functions, including:

Raising awareness among customers about a company’s products and

services
Helping customers evaluate a company’s value proposition
Allowing customers to purchase specific products and services
Delivering a value proposition to customers
Providing post-purchase customer support

Chapter 6 Business model A.Y. 2024/2025 14 / 37

 Building blocks Channels

Channel types

Own Partner

Direct Indirect

Sales forces Web sales Own stores Partner stores Wholesaler

Chapter 6 Business model A.Y. 2024/2025 15 / 37

 Building blocks Channels

Channel phases

Awareness

Evaluation

Purchase

Delivery

After sales

Chapter 6 Business model A.Y. 2024/2025 16 / 37

 Building blocks Customer relationship

4. Customer relationship

The customer relationship building block describes the types of

relationship e company establishes with specific customer segments.

The customer relationships called for by a company’s business model

deeply influence the overall customer experience.

Chapter 6 Business model A.Y. 2024/2025 17 / 37

 Building blocks Customer relationship

Motivations

Customer acquisition
Customer retention
Boosting sales

Chapter 6 Business model A.Y. 2024/2025 18 / 37

 Building blocks Customer relationship

Categories of customer relationship

Personal assistance: this relationship is based on human interaction.

Dedicated personal assistance: this relationship involves dedicating a

customer representative specifically to an individual client.

Self-service: in this type of relationship, a company maintains no

direct relationship with customers.

Chapter 6 Business model A.Y. 2024/2025 19 / 37

 Building blocks Customer relationship

Automated services: this type of relationship mixes a more

sophisticated form of customer self-service with automated processes.

Communities: companies are utilizing user communities to become

more involved with customers and to facilitate connections between
community members.

Co-creation: more companies are going beyond the traditional

customer-vendor relationship to co-create value with customers.

Chapter 6 Business model A.Y. 2024/2025 20 / 37

 Building blocks Revenue streams

5. Revenue streams

The revenue streams building block represents the cash a company

generates from each customer segment.

Each revenue stream may have di↵erent pricing mechanisms, such as fixed
list prices, bargaining, auctioning, market dependent, volume dependent,
or yield management.

Chapter 6 Business model A.Y. 2024/2025 21 / 37

 Building blocks Revenue streams

Types

A business model can involve two di↵erent types of revenue streams:

Transaction revenues resulting from one-time customer payments

Recurring revenues resulting from ongoing payments to either deliver

a value proposition to customers or provide post-purchase customer
support

Chapter 6 Business model A.Y. 2024/2025 22 / 37

 Building blocks Revenue streams

Ways to generate revenue streams

Asset sale: the most widely understood revenue stream derives from
selling ownership rights to a physical product.

Usage fee: this revenue stream is generated by the use of a particular

service. The more a service is used, the more a customer pays.

Subscription fees: this revenue stream is generated by selling

continuous access to a service.

Lending/Rending/Leasing: this revenue stream is created by

temporarily granting someone the exclusive right to use a particular
asset for a fixed period in return for a fee.

Chapter 6 Business model A.Y. 2024/2025 23 / 37

 Building blocks Revenue streams

Licensing: this revenue stream is generated by giving customers

permission to use protected intellectual property in exchange for
licensing fee.

Brokerage fees: this revenue stream derives from intermediation

services performed on behalf of two or more parties.

Advertising: this revenue stream results from fees for advertising a

particular product, service, or brand.

Chapter 6 Business model A.Y. 2024/2025 24 / 37

 Building blocks Revenue streams

Pricing mechanisms

Each revenue stream might have di↵erent pricing mechanisms.

The type of pricing mechanism chosen can make a big di↵erence in terms
of revenues generated.

Chapter 6 Business model A.Y. 2024/2025 25 / 37

 Building blocks Revenue streams

Type of price mechanism

1 Fixed menu pricing: predefined prices are based on static variables

List price
Product feature dependent
Customer segment dependent
Volume dependent

2 Dynamic pricing: prices change based on market conditions

Negotiation
Yield management
Real-time-market
Auctions

Chapter 6 Business model A.Y. 2024/2025 26 / 37

 Building blocks Key resources

6. Key resources

The key resourcing building blocks describes the most important assets
required to make a business model work.

These resources allow an enterprise to create and o↵er a value proposition,

reach markets, maintain relationships with customer segments, and earn
revenues.

Key resources can be physical, financial, intellectual, or human. Key

resources can be owned or leased by the company or acquired from key
partners.

Chapter 6 Business model A.Y. 2024/2025 27 / 37

 Building blocks Key resources

Type of key resources

Physical: it includes physical assets such as manufacturing facilities,

buildings, vehicles, machines, systems, point of sales systems, and
distribution networks.

Intellectual: such as brands, proprietary knowledge, patents and

copyrights, partnerships, and customer databases are increasingly
important components of a strong business model.

Human: every enterprise requires human resources, but people are

particularly prominent in certain business models.

Financial: some business models call for financial resources and

financial guarantees, such as cash, lines of credit, or a stock option
pool for hiring key employees.
Chapter 6 Business model A.Y. 2024/2025 28 / 37
 Building blocks Key activities

7. Key activities

The key activities building block describes the most important things a
company must do to make its business model work.

Like key resources, they are required to create and o↵er a value
proposition, reach markets, maintain customer relationships, and earn
revenues. And like key resources key activities di↵er depending on business
model type.

Chapter 6 Business model A.Y. 2024/2025 29 / 37

 Building blocks Key activities

Type of key activities

Production: these activities relate to designing, making, and

delivering a product in substantial quantities and superior quality.

Problem solving: key activities of this type relate to coming up with

new solutions to individual customer needs.

Platform/Network: business model designed with a platform as a key

resource are dominated by platform or networked key activities.

Chapter 6 Business model A.Y. 2024/2025 30 / 37

 Building blocks Key partnerships

8. Key partnerships

The key partnerships building block describes the network of supplies and
partners that make the business model work.

Companies forge partnerships for many reasons. Companies create

alliances to optimize their business models, reduce risk, or acquire
resources.

Chapter 6 Business model A.Y. 2024/2025 31 / 37

 Building blocks Key partnerships

Types of partnerships

Strategic alliances between non-competitors

Coopetition: strategic partnerships between competitors

Joint ventures to develop new businesses

Buyer-supplier relationships to assure reliable supplies

Chapter 6 Business model A.Y. 2024/2025 32 / 37

 Building blocks Key partnerships

Motivations

Optimization and economy of scale: the most basic form of

partnership or buyer-supplier relationship is designed to optimize the
allocation of resources and activities.

Reduction of risk and uncertainty: partnerships can help reduce risk in

a competitive environment characterized by uncertainty.

Acquisition of particular resources and activities: companies extend

their own capabilities by relying on other firms to furnish particular
resources to acquire knowledge, licenses, or access to customers.

Chapter 6 Business model A.Y. 2024/2025 33 / 37

 Building blocks Cost structure

9. Cost structure

The cost structure describes all costs incurred to operate a business model.

Creating and delivering value, maintaining customer relationships, and

generating revenue all incur costs. Such costs can be calculated easily
after defining key resources, key activities, and key partnerships.

Chapter 6 Business model A.Y. 2024/2025 34 / 37

 Building blocks Cost structure

Classes of business model cost structures

Cost-driven
Cost-driven business models focus on minimizing costs wherever possible.
This approach aims at creating and maintaining the leanest possible cost
structure, using low price value propositions, maximum automation, and
extensive outsourcing.

Value-driven
Some companies are less concerned with the cost implications of a
particular business model design, and instead focus on value creation.
Premium value propositions and a high degree of personalized service
usually characterize value-driven business models.

Chapter 6 Business model A.Y. 2024/2025 35 / 37

 Building blocks Cost structure

Characteristics of cost structures

Fixed costs: that remain the same despite the volume of goods or
services produced.

Variable costs: that vary proportionally with the volume of goods or

services produced.

Economies of scale: cost advantages that a business enjoys as its

output expands.

Economies of scope: cost advantages that a business enjoys due to a

larger scope of operations.

Chapter 6 Business model A.Y. 2024/2025 36 / 37

 The business model Canvas

The business model Canvas

Chapter 6 Business model A.Y. 2024/2025 37 / 37