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Business Model Generation, Prof. Tucker MGMT*1000

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MGMT 1000
Trent Tucker

Canvas December 8, 2013 7:23 PM Business Model - Describes the rationale of how an organization creates, delivers and captures value The 9 Building Blocks 1. Customer Segments  Organization serves one or more customersegments 2. Value Propositions  Seeks to solve customer problems and satisfy needs 3. Channels  Value propositions delivered through communication,distribution, sales channels 4. Customer Relationships  Established and Maintained 5. Revenue Streams  Value propositions successfully offered to customers 6. Key Resources  Assets needed to offer and deliver other building blocks 7. Key Activities  Activities needed to offer and deliver other building blocks 8. Key Partnerships  Activities outsourced, resourcesacquired outside enterprise 9. Cost Structure  Business model elements result in cost structure Customer Segments 1. Mass Market  Don't distinguish between different customersegments  Value propositions, distribution channels, and customer relationships all focus on one group with similar needs 2. Niche Market  Cater to specific, specialized consumer segments  Value propositions, distribution channels and customer relations all tailored to specific requirements of niche market 3. Segmented  Distinguish between market segments with slightly different needs and problems. Similar but different 4. Diversified  Serves two unrelated customersegments with very different needs and problems 5. Multi-Sided Platforms  Two or more interdependent customersegments Value Propositions 1. Newness  Satisfy an entirely new set of needs, previously no similar offering 2. Performance  Improving product or service performance 3. Customization  Tailoring products and services to specific needs of individual customers 4. Getting the job done  Helping a customerget certain jobs done  Helping a customerget certain jobs done 5. Design  A product may stand out because of superior design 6. Brand/Status  Find value in using a specific brand 7. Price  Offer similar value at a lower price 8. Cost Reduction  Helping customersreduce cost 9. Risk Reduction  Reducing risk involved with purchase (warranty etc.) 10. Accessibility  Making products & services available to customers who previously lacked access 11. Convenience/Usability  Making things easier or more convenient to use Channels 1. Awareness about product and services 2. Customerevaluation results 3. Purchase 4. Deliver a value proposition to customers 5. Provide post-purchase customersupport Customer Relationships 1. Personal Assistance  Based on human interaction, eg. Customer with customerrepresentative 2. Dedicated Personal Assistance  Dedicating customerrepresentative to individual client 3. Self-Service  No direct relationship, provides tools to help themselves 4. Automated Services  Sophisticated automated processesfor recommendations 5. Communities  Online communities,allows other users to share knowledge and solve each other's problems 6. Co-Creation  Creates value from other customers,eg. Reviews Revenue Streams 1. Asset Sale  Selling ownership rights to a physical product 2. Usage Fee  Use of a service,the morethe service is used, the more has to be paid 3. Subscription Fees  Sells continuous access to a service 4. Lending/Renting/Leasing  Temporarilygrants someoneexclusive rights to use an asset 5. Licencing  Give customersright to use intellectual property in return for licensing fees 6. Brokerage Fees  Intermediationservices performed on behalf of 2 or more parties 7. Advertising  Fees for advertising a specific product, service, or brand Types of Pricing 1. Fixed Menu Pricing  Predefined prices based on static variables 2. Dynamic Pricing  Prices change based on market conditions Key Resources 1. Physical  Physical assets such as manufacturing facilities, buildings, vehicles, machines, systems, point-of-sale systems,distribution networks 2. Intellectual  Intellectual resourcessuch as brands, proprietary knowledge, patents, copyrights, partnerships and customer databases 3. Human  People with skills 4. Financial  Financial Resourcessuch as cash, lines of credit, or a stock option pool Key Activities 1. Production  Designing, making, and delivering a product in substantial quantities or superior quality 2. Problem Solving  New solutions to individual consumer problems 3. Platform/Network  Have a platform, network, matchmakingplatform, software, etc. Key Partnerships Types of Partnerships 1. Strategic alliance between non-competitors 2. Cooperation:strategic partnerships between competitors 3. Joint Ventures to develop new businesses 4. Buyer-supplier relationships to assure reliable supplies Motivations behind partnerships 1. Optimization and economyof scale 2. Reduction of risk and uncertainty 3. Acquisition of particular resources and activities Cost Structure A firm is either: 1. Cost Driven  Focusing on minimizing costs whenever possible 2. Value Driven  Focusing on creation of value, care less about costs Cost structure characteristics 1. Fixed Costs  Remain same despite volumeof goods or services 2. Variable Costs  Costs that vary proportionallywith volumeof goods or servicesproduced 3. Economies of Scale  Cost advantages from output expanding (eg. Buying in bulk) 4. Economies of Scope  Cost advantages due to a larger scope of operations Patterns September 5, 2013 12:30 PM Unbundling Business Models The concept of the "unbundled" corporationholds that there are three fundamentally different types of businesses: CustomerRelationship businesses, product innovation businesses, and infrastructure businesses. Each type has different economic,competitive,and cultural imperatives. The three types may co-exist within a single corporation,but ideally they are "unbundled" into separate entities in order to avoid conflicts or undesirable trade-offs. Three value disciplines: operational excellence, product leadership, or customerintimacy. Product Innovation Customer Relationship Infrastructure Management Management Economics Early market entry enables High cost of customer High fixed costs make charging premium prices acquisition, makes it large volumes essential to and acquiring large market imperativeto gain large achieve low unit costs; share; speed is key wallet share; economiesof economiesof scale are key scope are key Competition Battle for talent; low Battle for scope; rapid Battle for scale; rapid barriers to entry; many consolidation;a few big consolidation;a few big small players thrive players dominate players dominate Culture EmployeeCentered; Highly service oriented; Cost focused; stresses coddling the creativestars customer-comesfirst standardization, mentality predictability and efficiency The Long Tail Long Tail Business Models are about selling less of more: They focus on offering a large number of niche products, each of which dells relatively infrequently. Aggregate sales of niche items can be as lucrative as the traditional model whereby a small number of bestsellers account for mostrevenues. Long Tail business models require low inventory costs and strong platforms to make niche content readily available to interested buyers Lulu.com and Lego's customizable lego kits are examples. Multi-Sided Platforms Multi-Sided Platformsbring together two or more distinct but interdependent groups of customers. Such Platformsare of value to one group of customers only if the other groups of customersare also present The platform creates value by facilitating interactions between the different groups A multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the network effect. Example: Google hosts a free web search in order to attract web surfers, which it can then show its advertisementsto. Without web surfers, advertisers would not invest in Google's services. Example: Video game consoles were sold below-costin order to reach as many customersas possible, to attract as many game developers as possible. FREE As a Business Model In the free business model at least one substantial CustomerSegment is able to continuously benefit from a free-of-charge offer. Different patterns make the free offer possible Non-paying customers are financed by another part of the business model or by another customer segment Examples:Metro (free paper), Flickr, Open Source, Skype, Google, Free Mobile Phones Metro Distributed its paper for free to achieve broad circulation Metro Distributed its paper for free to achieve broad circulation Freemium: Get the basics for free, Pay for more Example: Flickr, basic users get limited st
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