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Using a business model canvas to model a digital and online business

in Business growth
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More online and digital businesses surface daily than any form of other businesses. However, unfortunately, many of these businesses and initiatives fail because the founders fail to craft a successful business model. They fail to take into account all aspects of doing a business appropriately when planning their early strategies. One of the popular tools that can help businesses of all types (online or others) is to use a Business Model Canvas to identify all the elements of a business model. This post summarizes the Business Model Canvas and its nine components.

A Business Model Canvas is a graphical representation of new and existing business models employed by strategic managers to describe how a business entity manages the four core areas of a business which are the value proposition, its customers, finances and its infrastructure. It helps online and other forms of companies to compare different investment options and their effects on the four branches of the business’ operations.

The Business Model Canvas separates the building blocks of a business into nine different categories of activities and processes. The nine different categories will be listed and discussed below.

  1. Customer Segments

To develop a market winning strategy, a company must first identify its customer base and their preferences. These customers can be online or offline. The company needs to differentiate its customers into distinct groups and determine the specific needs and attributes of each group. This will guide the company in tailoring its products and services to meet the needs of each customer segment. The different types of customer segments are listed below;

  • Mass Market: This customer segment is used by a business whose products have a broad base of prospective consumers because of its general usage in their daily lives. For example automobile or food products.
  • Niche Market: A company that uses this type of customer segmentation has products targeting a particular set of customers. The product can be gender specific, for example, maternity wears.
  • Segmented: This approach is used by companies to create more variability in their original customer segment to better reflect the needs of different groups in the segment. For example to better serve the needs of old male and female customers.
  • Diversify: the business caters for various customer segments with different preferences.
  • Multi –Sided Platform/ Market: Here the company serves customers who are dependent on each other.
  1. Channels

The medium through which a company delivers its value propositions to its customer segments is known as channels. A company will choose the fastest, most cost effective and efficient channel from the multiple channels available to it. A company can decide to use its own channel, e.g., a company owned store or an online website, or it can choose to use a channel provided by a partner, e.g., a distributing agent. The business can also combine both if it gives the best results. Channels can also be used to build more customer segments.

  1. Value Proposition

The products and services through which an organisation satisfies the needs and expectations of its customer segments are called value proposition. Value proposition is an organization’s expressed statement about the value that it will deliver to its customers and other stakeholders. An organization could create business value for its customers through the products and services that it provides, status it confers on the client, accessibility, customization, reduced cost and risk and so on.

A company’s value proposition should be distinct from its competitors. There are two categories of value proposition;

  1. Quantitative: This emphasizes the price and efficiency.
  2. Qualitative: This emphasizes the total customer satisfaction of the product or service.
  1. Customer Relationships

The organisation must form and maintain a cordial relationship with every segment of its customers. Healthy relationships between a business and its customers are essential for the success of the business. A business can take different approaches to customer relationships. These include:

  • Personal Assistance: An employee offers assistance to the customers usually during pre-sales, sales and after sales of products and services.
  • Dedicated Personal Assistance: A set of customers have a company employee dedicated to providing them assistance on any issues arising from their use of the company’s products and services.
  • Self Service: Here customers are provided with manuals and tools to solve product related issues by themselves.
  • Automated Services: In this case, a service is tailor made for a customer.
  • Communities: A company creates an environment where customers can meet and share ideas about the company’s products and services.
  • Co-Creation: here the company introduces new products with the input of the customers.
  1. Revenue Streams

It describes the strategy an organisation will employ to generate income from each identified customer segment. These include;

  • Usage Fee: The organisation is paid an amount of money when online or other types of customers use the organization’s products and services.
  • Subscription use: Customers pay the company for regular or consistent use of their products and services e.g., telephone subscription or subscription to an online newspaper. Many online businesses use subscriptions as a key part of their business model.
  • Lending/Leasing/Renting: Here a customer is given exclusive rights to a product or service for a specified period at a given price e.g., leasing a house.
  • Licensing: Cash realized from the use of a company patented property, e,g a technology.
  • Brokerage Fees: Revenue gotten from serving the role of an intermediary between two or more parties.
  • Advertising: Financial gains from advertising products and services. Online advertising is one of the primary forms of a business model for online businesses.
  1. Key Resources

These refers to the various types of resources that are the important factors of need to produce a firm’s deliverables. Resources can be in the form of human capital, financial resources, intellectual properties and physical resources. The human capital of a business are the individuals and teams that turn organisational strategy into real life products. They are the factory hands, the foremen, the managers and the engineers. The financial resources are the capital, money that is used to run the organisation. It is used to buy raw materials, buy machinery, pay salaries and wages and settle credit commitments of the business. Intellectual properties are ways of doing things that a company has developed and which gives them an edge in their industry.

  1. Key Activities

These are the major activities a business must engage in to satisfy the needs of its customer segments. These activities can be geared towards creating products and services for every segment of customers, building the most efficient channels of delivering their products, creating better customer relations, sales and marketing, and leveraging other business functions that contribute toward achieving a business’s goals and objectives.

  1. Key Partners

These form the network of partners who assist the primary business in delivering business value to its customer segments. They may include suppliers, distributors, wholesalers and retailers. Partnerships help a business achieve its objectives by bringing together complementary parties who work together to achieve the same goal. Partnerships can be in the form of:

  • Strategic Partnership between two companies in the same industry
  • Joint Ventures
  • Partnership between sellers and buyers
  1. Cost Structure

Determines the cost implication of running a particular business template. A company can use a cost that minimizes or customer satisfaction business model. Some of the properties of cost structures in business are:

  • Fixed Cost: Costs that are recurring and essential to the running of the business, e.g., wages
  • Variable Cost: these costs vary according to the volume of production.
  • Economies of Scale: a type of cost that decreases with increase in production
  • Economies of Scope: Cost reduction as a result of investment in another area related to the manufacture of the primary goods and services of an organisation.

References

 

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