What is Canvas Business Model?

Business model Canvas (BMC) is a value framework used in a wide variety of organizations of all sizes around the world. With a simple and flexible application, you can generate greater revenue streams, improve existing businesses, create new and develop better strategies in the future. Now we will together Johnson's Blog learn about Canvas Business Model What is in the following article.

Business Model Canvas ?

Business Modeling describes the rationale for how an organization creates, delivers, and captures value.

BMC is a Business Model that provides one of the most holistic approaches that create a system from the most essential aspects of the business and shows the interdependence and interdependence of each pillar.

BMC helps us answer the most important questions about our business (eg: Who are the customers? What is the value? How does it make money? Who and what does it take to make it happen? ) 

BMC consists of 9 pillars, divided into 2 areas. On the right, are all the important aspects related to the customer, showing the value delivered to the target group.

While on the left, is the entire core (backend) being defined, showing all efforts to how to reach customers and deliver value. Both sides mirror and complement each other to create a cohesive system in all volumes.

Who uses BMC

BMC is used by businesses of all levels to improve current business, create new and develop better strategies in the future.

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Why use BMC

A lot of startups fail because entrepreneurs put all their faith in the concept of the business product or service they created. When they put all their energy into creating this product or service, they didn't look deeply into the business model their company would follow. 

Successful new businesses often don't go to market with the original idea, instead products and services go through many iterations of development until the final version. Organizations are more sustainable if they consider business models before deciding on a particular model.

BMC is a way for companies to visualize and position their business models for organizational growth and innovation.

BMC helps the innovation process from theory to planning.

BMC helps define ideas and engage all stakeholders.

BMC helps generate a suitable idea.

BMC helps business innovation

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How is BMC used?

BMC assists in the entire phase – from the very beginning of the ideation process, to the very end including implementation and implementation.

BMC consists of 9 pillars:

• Customer Segment – CS An organization serving one or more Customer Segments
• Value Proposition – VP It seeks to solve customer problems and satisfy customer needs with value propositions.
• Distribution Channel – ONLY Value Propositions are delivered to customers through Communication, Distribution and Sales Channels.
• Customer Relationship – CR Customer Relationships established and maintained with each Customer Segment.
• Revenue Stream – R$ Revenue streams are the result of Value Propositions successfully delivered to customers.
• Key Resources – KR Key Resources are the assets required to propose and deliver the elements described earlier…
• Main Action – KA… by doing some Key Activity
• Main Partner – KPSome activities are outsourced and some resources are obtained from outside the business.
• Cost Structure – C$Elements of the business model that drive the Cost Structure.

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Customer Segment – CS

Definition: A group of people or organizations that a business aims to reach and serve.

Customers are at the heart of any business model. Without customers (that is, no profit), no company can last long. To better satisfy customers, a company can group them into distinct segments with common needs, common behaviors, or other attributes. The business model can define one or several large or small Customer Segments.

An organization must make a conscious decision about which segments to serve and which to ignore. Once this decision is made, a business model can be carefully designed based on a deep understanding of the specific needs of the customer.

Need to answer 2 questions:

• Who are we creating value for?
• Who are our most important customers?

Customer groups represent distinct segments if:

• Their needs require and justify a different claim.
• They are reached through different Distribution Channels.
• They require different types of relationships.
• They have different underlying profitability.
• They are willing to pay for different aspects.

There are different Customer Segments. Here are some examples:

mass market

This business model focuses on the mass market, regardless of Customer Segments. Customer Value, Channels, and Customer Relationships all focus on a large set of customers with similar needs and problems. This business model is commonly found in the consumer electronics industry.

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Niche market

Business models targeting niche markets serve Customer Segmentg specific, specialized. The Value Proposition, Channels of Distribution, and Customer Relationships are all tailored to the specific requirements of the niche.

Such business models are often found in supplier-buyer relationships. For example, many auto parts manufacturers depend almost entirely on major auto manufacturers.

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Segmented market

Some business models distinguish between market segment by dividing slightly different needs and problems into different segments.

For example, the retail branch of a bank like Credit Suisse can distinguish between a large group of customers, each with assets up to $100,000, and a smaller group of affluent customers, each with assets of up to $100,000. goods with a net worth exceeding $500,000. Both segments have similar needs and problems but are located in two different segments. 

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Multi-industry market

An organization with a multidisciplinary business model serving two unrelated Customer Segments with very different needs and problems. For example, in 2006, Amazon.com decided to diversify its retail business by selling "cloud computing" services: online storage space and on-demand server usage. .

As such it began to cater to a completely different Customer Segment – web companies – with a completely different Value Proposition. The strategic rationale behind this diversification can be found in Amazon.com's robust IT infrastructure, which can be shared by retail operations and cloud services units. cloud.

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Mixed market

Some organizations serve two or more different Customer Segments. For example, a credit card company needs a large number of credit cardholders and a large number of merchants that accept those credit cards.

Similarly, a business that offers a free newsletter needs a large readership to attract advertisers. On the other hand, it also needs advertisers to finance the production and distribution. Both segments are required to make the business model work.

>>>For more information: Business Model Canvas Template

Value Proposition – VP

Definition: Bundle of products and services that create value for a specific Customer Segment 

The Value Proposition is why customers switch from one company to another. It solves a customer problem or fulfills a customer need. Each Value Proposition consists of a selected bundle of products and/or services that meet the requirements of a specific Customer Segment.

In this sense, a Value Proposition is a set, or package, of benefits that a company offers to its customers. Some Value Propositions can be innovative and represent a new or groundbreaking offering. Others may be similar to existing offerings in the market, but with added features and attributes.

Four questions need to be answered:

• What value do we bring to customers?
• What customer problem are we helping them solve?
• What needs are we satisfying the customer?
• What bundles of products and services are we offering to each Customer Segment?

The Value Proposition creates value for a Customer Segment through a unique combination of elements that meet the needs of that segment. Values can be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). Elements from the following non-exhaustive list can contribute to customer value creation:

Novelty

Some Value Propositions fill an entirely new set of needs that were previously unrecognized by the customer because there was no similar response. This is often, but not always, technology related. For example, mobile phones have created a whole new industry around mobile telecommunications. 

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Efficiency

Improving product or service performance has traditionally been a popular way to create value. The PC sector has historically relied on this factor by bringing more powerful machines to market. But improved performance has its limits. For example, in recent years, faster PCs, more storage space and better graphics have not generated a corresponding growth in customer demand.

Customization

Customize products and services to the specific needs of each customer or Value-Creating Customer Segments. In recent years, the concepts of mass customization and customer co-creation have become important. This approach allows for the creation of customized products and services, while still taking advantage of economies of scale.

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Complete the work

Value can be created simply by helping customers complete certain tasks. Rolls-Royce understands this very well: airline customers rely entirely on Rolls-Royce for the production and maintenance of their jet engines.

This arrangement allows customers to focus on running their airlines. In return, airlines pay Rolls-Royce a fee for every hour the engine runs.

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Design

Design is an important but difficult factor to measure. A product can stand out because of its premium design. In the fashion and consumer electronics industries, design can be a particularly important part of the Value Proposition.

Brand/status

Customers can find value in the simple act of using and displaying a trademark specifically. For example, wearing a Rolex watch signifies wealth. At the end of each round, in the limelight, skaters can wear the latest "crazy" brands to show that they are "present".

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Price

Offering the same value at a lower price is a popular way to meet the needs of a price-sensitive Customer Segment. More and more freebies are starting to spill over into different industries. Free offers range from free newspapers to free emails, free cell phone service, etc.

Cut the cost

Helping customers reduce costs is an important way to create value. 

Risk reduction

Customers value minimizing the risk they take when purchasing a product or service. For used car buyers, a one-year service warranty reduces the risk of damage and repairs after purchase. 

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Accessibility

Offering products and services to customers who previously had no access to them is another way to create value. This could be the result of business model innovation, new technology, or a combination of the two. 

Convenience/usability

Making things more convenient or easier to use can create significant value. 

Distribution Channel – ONLY

Definition: How a company communicates and approaches its Customer Segment to deliver a value proposition

Communication, distribution, and sales channels cover a company's interface with its customers. Channels are customer touchpoints that play an important role in the customer experience.

Answer the following six questions:

• Which channels do our customers want to reach?
• How do we reach them?
• How are our channels integrated?
• Which channel works best?
• Which channel is the most cost-effective?
• How are we integrating the channel with our customers' daily work?

Channels serve several functions, including:

• Increase customer awareness of the company's products and services.
• Help clients evaluate a company's Value Proposition.
• Allow customers to purchase specific products and services.
• Deliver a Value Proposition to the customer.
• Provide customer support after purchase.

The channel has five distinct stages. Each channel may include some or all of these stages. We can distinguish between Direct and Indirect Channels, and between Ownership and Partner Channels.

Finding the right combination of channels to meet a customer's accessibility needs is critical in bringing the Value Proposition to market.

An organization can choose between reaching its customers through its own channels, through partner Channels, or through a combination of the two. Their own channels can be direct, such as an internal sales force, a website, or they can be indirect, such as retail stores owned or operated by the organization.

A partner channel is an indirect channel and includes a variety of options, such as wholesale distribution, retail, or partner-owned websites.

Partner channels lead to lower profits, but they allow an organization to expand its reach and benefit from a partner's strengths. Owned channels and especially direct channels have higher margins, but can be expensive to put into use and operate.

The trick is to find the right balance between the different types of Channels, to integrate them in a way that creates a great customer experience and maximizes revenue.

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Customer Relationship – CR

Definition: Types of relationships a company establishes with specific Customer Segments

A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automatic. Customer Relationships can be driven by the following drivers:

• Win customers
• Customer retention
• Drive sales (additional sales)

For example, in the early days, mobile network operators promoted Customer Relationships with aggressive customer acquisition strategies by issuing free, discounted mobile sim cards. …

As the market becomes saturated, operators turn to focus on maintaining and increasing average revenue per customer. The relationship with the customer according to the company's business model profoundly affects the overall customer experience.

Answer the following three questions:

• What relationship does each Customer Segment expect us to establish and maintain with them?
• What relationship have we established? What are they worth?
• How are relationships integrated with the rest of our business model?

We can distinguish between several Customer Relationship categories, which can coexist in a company's relationship with a specific Customer Segment:

Personal support

This relationship is based on human interaction.

Customers can contact a real customer representative for help during the sales process or after a purchase is completed. This can happen on-site at the point of sale, via a call center, by email, or by other means.

Dedicated personal support

This relationship involves dedicating a specific customer representative to an individual customer. It represents the deepest and most intimate type of relationship and usually develops over a long period of time.

In private banking, for example, deductible bankers serve high net worth individuals. Similar relationships can be found in other businesses in the form of key account managers who maintain personal relationships with key customers.

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Self service

In this type of relationship, a company does not maintain a direct relationship with its customers. It provides all the necessary facilities for customers to help themselves.

Auto Service

This type of relationship combines a more complex form of customer self-service with automated processes. For example, personal online profiles allow customers access to customized services.

Automated services can recognize each customer and their characteristics and provide information related to an order or transaction. At their best, automated services can stimulate personal relationships (for example, making book or movie recommendations).

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Community

Increasingly, companies are leveraging user communities to engage more with customers/potential customers and facilitate connections among community members. Many companies maintain online communities that allow users to exchange knowledge and solve each other's problems.

Communities can also help companies better understand their customers. Pharmaceutical giant GlaxoSmithKline launched its own online community when it introduced alli, a new over-the-counter weight loss product. GlaxoSmithKline wants to increase its understanding of the challenges facing overweight adults, and thereby learn how to better manage client expectations.

Co-creation

Many companies are moving beyond the traditional Customer-Supplier Relationship to co-create value with customers. Amazon.com invites customers to write reviews and thus create value for other book lovers.

Some companies engage customers to assist in the design of new and innovative products. Others, such as YouTube.com, engage customers to create content for the public.

Definition: money the company generates from each Customer Segment (costs must be subtracted from revenue to generate income)

If the customer is at the heart of the business model, then the Revenue Flow is its artery. A company must ask itself, what is each Customer Segment really willing to pay? Successfully answering that question allows the company to generate one or more Revenue Streams from each Customer Segment.

Each Revenue Stream can have different pricing mechanisms, such as fixed list price, negotiation, auction, market dependent, volume dependent, etc.

Each Revenue Stream can have different pricing mechanisms. The type of pricing mechanism chosen can make a big difference in terms of revenue. There are two main types of pricing mechanisms: fixed pricing and dynamic pricing. 

A business model can involve two different types of Revenue Streams:

• Transaction revenue is paid by the customer once.
• Recurring revenue arises from ongoing payments to provide a Value Proposition to a customer or provide post-purchase customer support.

Answer the following five questions:

• What value are our customers really willing to pay?
• What does the customer have to pay for now? 
• How is the customer currently paying? 
• How would they rather pay? 
• How much does each Revenue Stream contribute to overall revenue?

There are several ways to create a Revenue Stream:

Sale of property

The Revenue Stream is most widely understood to originate from the sale of title rights to a physical product. Amazon.com sells books, music, consumer electronics, etc online. Fiat sells cars that buyers are free to drive and resell.

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Using fee

This Revenue Stream is generated using a particular service. The more services used, the more customers pay. A telecom operator may charge customers for minutes of phone use. The hotel charges the customer for the number of nights the room is used. 

Subscription fee

This Revenue Stream is generated by selling ongoing access to a service. A gym sells its members monthly or yearly subscriptions in exchange for the right to use its exercise equipment. Carriers charge a monthly subscription fee per customer. 

Lending / 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. For lenders, this offers the advantage of recurring revenue. On the other hand, the lessee or lessee only benefits from incurring expenses for a certain period of time, but does not bear the full cost of ownership.

Copyright Licensing

This Revenue Stream is generated by allowing customers to use protected intellectual property in exchange for licensing fees. Licensing allows rights holders to generate revenue from their property without having to manufacture a product or commercialize a service.

Licensing is common in the media industry, where content owners retain copyright while selling usage licenses to third parties. Similarly, in the areas of technology, patent holders grant other companies the right to use patented technology in exchange for licensing fees.

Brokerage fees

This Revenue Stream comes from intermediary services performed on behalf of two or more parties. For example, a credit card provider earns revenue by taking a percentage of the value of each sale made between the credit card merchant and the customer. Real estate brokers and agents earn a commission every time they successfully match a buyer and a seller.

Advertisement

This Revenue Stream is the result of a fee to advertise a particular product, service or brand. Traditionally, the media and events industry has relied heavily on advertising revenue. In recent years, other sectors, including software and services, have begun to rely more heavily on advertising revenue.

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Key Resource – KR

Definition: the most important assets required to make a business model work.

Every business model requires a Key Resource. These resources enable businesses to create and deliver a Value Proposition, go to market, maintain relationships with Customer Segments, and earn revenue. Different Key Resources are needed depending on the type of business model.

An IC manufacturer has capital intensive production facilities, while an IC designer focuses more on human resources. Key Resources can be physical, financial, intellectual or human. Key Resources may be company owned or leased or appropriated from Key Partners.

Answer the following four questions:

• What Key Resources does our Value Proposition require?
• What are our Distribution Channels?
• Our Customer Relationship?
• What revenue streams?

Key Resources can be grouped under the following categories:

Physics

This category includes physical assets such as manufacturing facilities, buildings, vehicles, machines, systems, points of sale, and distribution networks.

Retailers like Wal-Mart and Amazon.com rely heavily on physical resources, which are capital intensive. The first requires a huge global store network and related logistics infrastructure. The latter has an IT infrastructure, warehouse and logistics widespread.

Wisdom

Intellectual resources such as trademark, proprietary knowledge, patents and copyrights, partnerships and customer databases are increasingly becoming critical components of a robust business model. Intellectual resources are difficult to develop, but when created successfully, they can deliver considerable value.

Consumer goods companies like Nike and Sony rely heavily on branding as a Key Resource. Microsoft and SAP depend on software and related intellectual property developed over many years.

People

Every business requires human resources, but people are especially prominent in certain business models. For example, human resources are important in knowledge-intensive and innovative industries.

For example, a law firm like Novartis relies heavily on human capital: its business model is based on an army of experienced scientists and a large and skilled sales force. high profession.

Finance

Some business models require financial resources and/or financial security, such as cash, lines of credit, or stock options to hire key employees.

Ericsson, the telecommunications manufacturer, provides an example of financial leverage in a business model. Ericsson may choose to borrow funds from banks and capital markets, and then use a portion of the proceeds to provide supplier financing to equipment customers, thus ensuring that orders are received. booked with Ericsson and not competitor.

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Main Action – KA

Definition: the most important things a company must do for its business model to work.

Every business model requires some Key Activity. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and deliver a Value Proposition, go to market, maintain customer relationships, and earn revenue. Core activities will vary depending on the type of business model.

For software maker Microsoft, Principal activities include software development. For PC maker Dell, Main Activity includes supply chain management. 

Answer the following four questions:

• What Key Actions does our Value Proposition require?
• What are our Distribution Channels?
• Our Customer Relationship?
• What revenue streams?

Key Actions can be grouped under the following categories:

Manufacturing

These actions involve the design, manufacture, and delivery of a product in substantial quantities and/or superior quality. Manufacturing activities govern the business models of manufacturing enterprises.

Problem solving

Key Activities of this type involve the creation of new solutions to individual customer problems.

The activities of consulting units, hospitals, and other service organizations are often dominated by problem-solving activities. Their business model calls for activities such as knowledge management and continuous training.

Platform/network

Business models designed with a platform as Key Resource are governed by Key Activities related to the platform or network. eBay's business model requires the company to continually develop and maintain its platform: the website at eBay.com.

Visa's business model requires operations related to the Visa® credit card transaction platform for merchants, customers and banks. Microsoft's business model requires managing the interface between another vendor's software and their Windows® operating system platform. The Key Activities in this category involve platform management, service provision, and platform promotion.

Main Partner – KP

Definition: the network of suppliers and partners that make the business model work.

Companies form partnerships for a variety of reasons, and partnerships are becoming the foundation of many business models. Companies create alliances to optimize their business models, reduce risk, or gain resources.

We can distinguish between four different types of partnerships:

• Strategic alliances between non-competitive parties.
• Cooperation: a strategic partnership between competitors.
• Joint ventures to develop new businesses.
• Relationship between buyers and suppliers to ensure reliable supply

Answer 04 questions:

• Who are our Key Partners?
• Who are our main suppliers?
• What Key Resources are we taking from our partners?
• What Key Activities does the Partner perform?

It can be helpful to distinguish between three motivations for creating partnerships:

Optimize and save

The most basic form of a partnership or buyer-supplier relationship is designed to optimize the allocation of resources and operations. It is illogical for a company to own all the resources or perform all activities on its own.

Optimization and economies of scale partnerships are often formed to reduce costs and often involve outsourcing or sharing infrastructure.

Reduce risk and uncertainty

Partnerships can help reduce risk in a competitive environment characterized by uncertainty. It is not uncommon for competitors to form a strategic alliance in one area while competing in another. For example, Blu-ray is an optical disc format jointly developed by a group of the world's leading manufacturers of media, personal computers, and consumer electronics.

The group worked together to bring Blu-ray technology to market, but individual members competed in selling their own Blu-ray products.

Occupy specific resources and activities 

Very few companies own all the resources or perform all the activities described by their business model. Instead, they expand their capabilities by relying on other companies to provide specific resources or perform certain activities.

Such partnerships may be driven by a need to acquire knowledge, licenses or access to customers.

For example, a mobile phone manufacturer might license an operating system for its handset instead of developing an operating system of its own. An insurer may choose to rely on independent brokers to sell its policies rather than develop its own sales force.

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Cost Structure – C$

Definition: all the costs incurred to operate a business model.

The Cost Structure describes the most important costs incurred when operating under a particular business model. Creating and delivering value, maintaining Customer Relationships, and generating revenue all come at a cost.

Those costs can be calculated relatively easily after identifying the Key Resources, Key Activities, and Key Partnerships. However, some business models are more cost-oriented than others.

Answer 3 questions:

• What are the most important costs inherent in our business model? 
• Which primary resource is the most expensive? 
• Which main activity is the most expensive?

Naturally, costs should be minimized in every business model. The Low Cost Structure is more important in some business models than in others. 

Therefore, it can be helpful to distinguish between two types of Cost Structures in business models: cost-oriented and value-oriented (many business models fall between these two extremes):

Cost Orientation

Cost-oriented business models focus on minimizing costs where possible. This approach aims to create and maintain the leanest Cost Structure possible, using a low Value Proposition, maximum automation, and extensive outsourcing.

Value Orientation

Some companies are less concerned with the cost impacts of a particular business model design, focusing instead on value creation. High-end Value Propositions and highly personalized service levels typically characterize value-driven business models.

Luxury hotels, with lavish facilities and exclusive services, fall into this category.

The Cost Structure may have the following characteristics:

Fixed costs

Costs remain the same despite the volume of goods or services produced. Examples include wages, rent, and physical production facilities. Some businesses, such as manufacturing companies, are characterized by a high proportion of fixed costs.

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Variable cost

Costs vary proportionally to the volume of goods or services produced. Some businesses, such as music festivals, are characterized by high variable expense ratios.

Savings of scale

Cost advantage that a firm enjoys when expanding its output. This causes the average cost per unit to decrease as output increases.

Savings by scope

The cost advantage that a business enjoys due to a larger range of operations. For example, in a large enterprise, the same marketing or Distribution Channel may support multiple products.

>> See more Canvas Business Model (part 2)

Epilogue

The above is just the most complete concept of Canvas Business Model. If you are looking for a way to build the right business model for your business, contact Johnson's Blog to get the most suitable solution.

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