Introduction
Business Modeling: Why, what how?
Why
→ Value Creation
o Benefit that product provides to customers
o Measured by satisfaction
→ Value capture
o Turning value into profit
o Pricing strategy and market positioning
What
→ Business Model
o Operate profitably and provide value to customers
o Customer value proposition and pricing strategy
o Definition
▪ Describes the rationale of how an organization…
• Creates value
• Delivers value
• Preserves value (= keeping the value that you got)
▪ Different types of innovation:
• Product innovation
o How can you make something that people want?
o How do you make a product better?
• Servive innovation
o How do you deliver it in a way that ensures that you get
paid and continue to be paid for it?
o Trough which channels are you getting paid?
o Ex. Apple Itunes asks a low price to download music, a lot of
people use this instead of downloading free music
• Process innovation
o How do you improve the execution?
→ Business Plan
o Outline business goals and strategy to achieve them
,→ Business model components
o Technology and services
▪ Technology makes processes faster, cheaper and more scalable
▪ Services such as customer support and user-friendly tools ensure satisfied
customers and loyalty
o Production, marketing and distribution channels
▪ Reaching customers and delivering value
▪ Using channels to get their products/services to customers
▪ E.g. direct sales, partnerships, e-commerce, digital marketing, ...
o Production and marketing partners
▪ Development cost model
• Costs you make to develop a product or service
• E.g. research, testing, design...
▪ Operational cost model
• These are the recurring costs to keep your business running
• E.g. personnel, rent, distribution, maintenance....
• Marginal costs
o The cost added by producing one additional unit of a
product or service
• Economies of scale
o Cost advantages realized by companies when production
becomes more efficient
• Critical mass
o The point at which you have enough customers or
production to be profitable
o Before then, you are often running at a loss
o Value proposition
▪ Products/services and benefits offered by a company
▪ Why should customers choose your brand over competitors?
▪ Focus on customer needs
o Customer segments
▪ Analyze market
▪ Understand characteristics, needs and preferences of target audience
▪ Segment markets to tailor their offerings to specific customer groups
o Payment channels
▪ Resources a customer uses to contact an organization and make a payment
▪ E.g. phone, web, chat, social media, ...
o Revenu models
▪ Income for a business
▪ Eg. product sales, subscription, licensing, advertising, ....
, ▪ Audience development (user value, critical mass, community)
• Building a group of users or customers
• You need people using your product (user value), enough people to
be profitable (critical mass), and preferably a real community that is
engaged and keeps coming back
▪ Readiness to pay (direct and indirect)
• How willing your target audience is to pay. They can:
o Directly: they pay for the product themselves (Netflix sub)
o Indirect: someone else pays (like advertisers on a free app)
▪ Ease of payment
• How easy it is to pay
• Eg. clear pricing, few steps, secure and fast payment methods
▪ Loyalty
• Loyal customers provide stable revenue, word of mouth and are
cheaper to retain than seeking new customers
How
→ 3 core challenges
1. Thinking outside industry locig
2. Thinking in entire business models not only technology or products
3. The lack of systematic tools
→ 1. Thinking outside industry logic
o Disruptive innovation
o A specific term indicating the seemingly unnoticed creaping in of fundamental
market innovation
o 2 paths
▪ Low-end disruption
• Start focusing on the less profitable customers of the company
, • Operators want to provide most profitable and demanding
customers with better products and services but lose sight of less
profitable customers
• Inconspicuous competitor can be successful with lower-end products
• Examples
o RyanAir focusses on people who cant affort expensive flights
-> 2nd hand models, not newer planes
o Kodak thought digital cameras weren’t going tob e popular.
But smartphone cameras got better and you can edit and
share it, you can’t do that with digital cameras
Systaining innovation Disruptive innovation Yellow star
- Outperforming - Starting simple and Red line - Where disruptive
what most cheap innovations break through
- Targets customers - Ex. I want to have
customers want. In clean pictures with into the mainstream market.
the beginning its not served by They then have sufficient
expensive high-end good quality
bad, but it improves quality and are more
products attractive than the
expensive existing
alternatives
Business Modeling: Why, what how?
Why
→ Value Creation
o Benefit that product provides to customers
o Measured by satisfaction
→ Value capture
o Turning value into profit
o Pricing strategy and market positioning
What
→ Business Model
o Operate profitably and provide value to customers
o Customer value proposition and pricing strategy
o Definition
▪ Describes the rationale of how an organization…
• Creates value
• Delivers value
• Preserves value (= keeping the value that you got)
▪ Different types of innovation:
• Product innovation
o How can you make something that people want?
o How do you make a product better?
• Servive innovation
o How do you deliver it in a way that ensures that you get
paid and continue to be paid for it?
o Trough which channels are you getting paid?
o Ex. Apple Itunes asks a low price to download music, a lot of
people use this instead of downloading free music
• Process innovation
o How do you improve the execution?
→ Business Plan
o Outline business goals and strategy to achieve them
,→ Business model components
o Technology and services
▪ Technology makes processes faster, cheaper and more scalable
▪ Services such as customer support and user-friendly tools ensure satisfied
customers and loyalty
o Production, marketing and distribution channels
▪ Reaching customers and delivering value
▪ Using channels to get their products/services to customers
▪ E.g. direct sales, partnerships, e-commerce, digital marketing, ...
o Production and marketing partners
▪ Development cost model
• Costs you make to develop a product or service
• E.g. research, testing, design...
▪ Operational cost model
• These are the recurring costs to keep your business running
• E.g. personnel, rent, distribution, maintenance....
• Marginal costs
o The cost added by producing one additional unit of a
product or service
• Economies of scale
o Cost advantages realized by companies when production
becomes more efficient
• Critical mass
o The point at which you have enough customers or
production to be profitable
o Before then, you are often running at a loss
o Value proposition
▪ Products/services and benefits offered by a company
▪ Why should customers choose your brand over competitors?
▪ Focus on customer needs
o Customer segments
▪ Analyze market
▪ Understand characteristics, needs and preferences of target audience
▪ Segment markets to tailor their offerings to specific customer groups
o Payment channels
▪ Resources a customer uses to contact an organization and make a payment
▪ E.g. phone, web, chat, social media, ...
o Revenu models
▪ Income for a business
▪ Eg. product sales, subscription, licensing, advertising, ....
, ▪ Audience development (user value, critical mass, community)
• Building a group of users or customers
• You need people using your product (user value), enough people to
be profitable (critical mass), and preferably a real community that is
engaged and keeps coming back
▪ Readiness to pay (direct and indirect)
• How willing your target audience is to pay. They can:
o Directly: they pay for the product themselves (Netflix sub)
o Indirect: someone else pays (like advertisers on a free app)
▪ Ease of payment
• How easy it is to pay
• Eg. clear pricing, few steps, secure and fast payment methods
▪ Loyalty
• Loyal customers provide stable revenue, word of mouth and are
cheaper to retain than seeking new customers
How
→ 3 core challenges
1. Thinking outside industry locig
2. Thinking in entire business models not only technology or products
3. The lack of systematic tools
→ 1. Thinking outside industry logic
o Disruptive innovation
o A specific term indicating the seemingly unnoticed creaping in of fundamental
market innovation
o 2 paths
▪ Low-end disruption
• Start focusing on the less profitable customers of the company
, • Operators want to provide most profitable and demanding
customers with better products and services but lose sight of less
profitable customers
• Inconspicuous competitor can be successful with lower-end products
• Examples
o RyanAir focusses on people who cant affort expensive flights
-> 2nd hand models, not newer planes
o Kodak thought digital cameras weren’t going tob e popular.
But smartphone cameras got better and you can edit and
share it, you can’t do that with digital cameras
Systaining innovation Disruptive innovation Yellow star
- Outperforming - Starting simple and Red line - Where disruptive
what most cheap innovations break through
- Targets customers - Ex. I want to have
customers want. In clean pictures with into the mainstream market.
the beginning its not served by They then have sufficient
expensive high-end good quality
bad, but it improves quality and are more
products attractive than the
expensive existing
alternatives
