BUSINESS MODEL CANVAS LECTURE NOTES
BUSINESS MODEL CANVAS LECTURE NOTES
(Mixing Alexander Osterwalder's, Steve Blank's, etc.)
I. Customer Segment
A. Be specific and clear as to who your target market is. Making a customer archetype helps clarify your target market.
-You need to determine the market that brings the most profit. Hence, you have to understand the CAC (customer acquisition cost) and the spending habits of your customers.
*Customer Acquisition Cost, or CAC, measures how much an organization spends to acquire new customers. CAC – an important business metric – is the total cost of sales and marketing efforts, as well as property or equipment, needed to convince a customer to buy a product or service.
B. It is not cost-efficient/ strategic to target everyone. You need to ignore some segments and have a strong understanding of specific customer needs of your target market.
1. Not all customers are profitable because some have high customer acquisition cost (CAC).
- Illustration: You have a Php 1,000 advertising budget to promote a Php 3,000 bag that you are selling on Instagram.
Scenario A: You targeted women in Makati aged 18-30 and you were able to get 10 inquiries. Out of the 10 inquiries, only 1 bought. Hence, based on that experiment, your CAC for that woman in Makati is Php 1,000.
Scenario B: You targeted women in BGC aged 18-30 and you were able to get 10 inquiries. Out of the 10 inquiries, 2 women bought. Hence, based on that experiment, your CAC for the 2 customers in BGC is Php 500.
In scenario A, your gross profit (without considering the cost of goods) is Php 2,000 (i.e., Php 3,000 minus the CAC of Php 1,000), while in scenario B, the gross profit is Php 2,500 (i.e., Php 3,000 minus the CAC of Php 500).
Question: Which customer archetype should you focus on? The women in BGC or the women in Makati?
2. The messaging for one customer is different from another because they have different needs and wants. Hence, if you have limited budget it is better to focus on one clear message than two half-baked messages, which neither will get.
For example: You are an interior decorator and you can tailor and market your services to either the high-end home owner looking for an expensive make-over or the senior citizen looking to downsize while still retaining some of their prized possessions.
Because their needs are very different so each marketing message must be crafted to reflect how each need will be met.
C. Assess the overall attractiveness of your market based on the following criteria: urgency, market size, pricing potential, cost of customer acquisition, cost of value delivery, uniqueness of offer, speed to market, up-front investment, up-sell potential, and evergreen potential.
Here’s a good method to identify the attractiveness of a market: https://personalmba.com/10-ways-to-evaluate-a-market/
D. I suggest that you look for a beachhead market.
A beachhead market is a tight market segment of ideal target customers for a new product. Marketers may build a beachhead market based on a specific demographic or a subset of customers interested in a similar product. The goal of a beachhead market is to encourage customer loyalty and give the product or service a competitive advantage before it enters larger markets. After securing this segment of the market, the company will pursue other market opportunities to reach more potential customers.
Read more about it here: https://www.masterclass.com/articles/beachhead-market
II. Value Proposition
-Since different customer segments/ archetypes have different needs and wants, it is good practice to have a different set of value proposition per customer segment/ archetype.
-The following is a non-exhaustive list of values that you can create for your customers:
- “Getting the Jobe Done”
- Brand/ Status
- Cost reduction
- Risk reduction
- Convenience/ usability
The channels block in the BMC is how a company communicates with and reaches its Customer Segments to deliver a Value Proposition. These are touch points that play an important role in the experience of your target market.
It has several functions, such as:
- Raising awareness among customers about a company’s products and services
- Helping customers evaluate a company’s Value Proposition
- Allowing customers to purchase specic products and services
- Delivering a Value Proposition to customers
Providing post-purchase customer support
In the course of crafting your Channels strategy, you may go over the following channel types:
Source: Business Model Generation by Alexander Osterwalder
IV. Customer Relationships
Customer relationship management can be broken down into 3 sections based on Steve Blank’s customer relationship funnel: get, keep, grow.
- GET. How you acquire customers and get them to purchase products.
- KEEP. Keeping customers for long periods rather than losing customers you've spent time, money, and resources acquiring. It’s a lot more expensive to get customers than to keep and grow them.
- GROW. Sell existing customers more products and gain more engagement.
To understand this, it is vital to refer back to the value proposition canvas (defining the problem you are solving), and your customer archetype.
Customer lifetime value (LTV) is a key concept in customer relationships. To effectively calculate how much you can spend on customer acquisition, you need to understand the customer lifetime value. This refers to how much customers will purchase from you from the beginning to the end of the relationship. Customer LTV can be increased by reducing churn and growing sales with existing customers.
When you're considering your Get, Keep, Grow strategy, there is a balancing act between CAC and LTV. It’s about determining how much more lifetime value is than acquisition costs (CAC<LTV).
Read about Customer Lifetime Value here: https://www.cyberclick.net/numericalblogen/whats-customer-lifetime-value
V. Revenue Streams
The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings)
If customers comprise the heart of a business model, Revenue Streams are its arteries. A company must ask itself, For what value is each Customer Segment truly willing to pay? Successfully answering that question allows the rm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.
These are some example of generating Revenue Streams:
- Asset sale
- Usage fee
- Subscription fees
- Lending/ Renting/ Leasing
- Brokerage fees
VI. Key Resources
Key Resources can be categorized as follows:
VII. Key Activities
These activities relate to designing, making, and delivering a product in substantial quantities and/or of superior quality. Production activity dominates the business models of manufacturing rms.
Key Activities of this type relate to coming up with new solutions to individual customer problems.
The operations of consultancies, hospitals, and other service organizations are typically dominated by problem solving activities. Their business models call for activities such as knowledge management and continuous training.
Business models designed with a platform as a Key Resource are dominated by platform or network- related Key Activities. Networks, matchmaking platforms, software, and even brands can function as a platform. eBay’s business model requires that the company continually develop and maintain its plat- form: the Web site at eBay.com. Visa’s business model requires activities related to its Visa® credit card transaction platform for merchants, customers, and banks. Microsoft’s business model requires managing the interface between other vendors’ software and its Windows® operating system platform. Key Activities in this category relate to platform management, service provisioning, and platform promotion.
VIII. Key Partnerships
We can distinguish between four different 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
IX. Cost Structure
The Cost Structure describes all costs incurred to operate a business model
This building block describes the most important costs incurred while operating under a particular business model. Creating and delivering value, maintaining Customer Relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining Key Resources, Key Activities, and Key Partnerships.
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