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Introduction to Business
Model Canvas
11
Synopsis

This chapter introduces the Business Model Canvas


as a tool to discuss and generate business
strategies on key critical business areas.

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Objectives

The objectives of this chapter are:


To introduce students to the various tools
available in the Business Model Canvas to
facilitate development of effective business
strategies.
To develop skills in using a Business Model
Canvas to work on business opportunities which
can then be used to develop a viable business
model.
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Learning Outcomes

At the end of this chapter, students should be able


to:
Develop generic analytical skills (identifying,
analyzing and capturing of opportunities).
Apply the tools (i.e. SWOT and Business Model
Canvas) in analyzing and developing new
business models and strategies.

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List of Topics

Business Model Canvas Components

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Introduction

The Business Model Canvas, introduced by


Osterwalder (2008) is a method of analyzing,
designing, strategizing and testing a business
model based on nine business areas. The
strategies are put up on a board so that the
entire model can be seen at once. This will allow
the entrepreneur to understand each of the
strategies and relate it easily to the other
strategies on display.

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Introduction (cont.)

The Business Model Canvas is a canvas or a chart


which includes at least nine areas or elements in a
business model.

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Introduction (cont.)

1 Customer segments
2 Value propositions
3 Marketing channels
4 Customer
relationships
5 Key partners
6 Key activities
7 Key resources
8 Cost structure
9 Revenue streams

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Business Model Canvas
Components

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Business Model Canvas
Components (cont.)
Customer segments
Customer segments refer to the target people and/or
organizations you are offering value proposition. They
can be divided into groups of individuals or
organizations that have similar demographics,
psychographics, behaviour, geographical
characteristics or other multidimensional combinations.

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Business Model Canvas
Components (cont.)
Companies that identify underserved segments can
then outperform the competition by developing
uniquely appealing products and services. Customer
segmentation is most effective when a companys
offerings are tailor-made to segments that are the
most profitable and serve them with distinct
competitive advantages. This prioritization can help
companies develop marketing campaigns and
pricing strategies to extract maximum value from
both high- and low profit customers.
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Firms Value Propositions

According to Osterwalder (2008), a companys value


proposition is what distinguishes itself from its
competitors. Value is provided through various
elements such as newness, performance,
customization, reliability in getting the job done,
design, brand, price, cost reduction, risk reduction,
accessibility, and convenience. The value
propositions may be quantitative, e.g. price and
efficiency; or qualitative, e.g. overall customer
experience and outcome.

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Firms Value Propositions (cont.)

The following are examples of value proposition


concepts and techniques:
Unique Selling Proposition (USP)focuses on what
makes a product better than the competition.
FeatureAdvantageBenefit (FAB)a process that
helps an entrepreneur figure out what each of the
products features means to customers, which
enables the entrepreneur to address their concerns,
desires, wants, and needs. Start by listing the
products features, then consider the advantages it
creates (e.g. a knife that would not corrode).
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Firms Value Propositions (cont.)

Finally turn that into the practical benefit (e.g there is


no need to buy a new knife every year).
Points of ParityPoints of Difference (POPPOD)
POPPOD is a process used to find differentiating
factors between businesses. Start by finding points of
paritythe factors in common with competitors, then
find the points of differencethe business aspects
that is different to competitors.

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Firms Value Propositions (cont.)

Unique Value Proposition (UVP)


UVP has a strong focus on uniqueness, which makes it less
useful for the general market but it is useful to specific
target market due to its unique features.
Some value propositions involve innovative technology.
Some simply deliver better service. Others are a mix of
better goods and services. Indeed, there are many
different types, some of which are quantifiable, e.g. price,
speed of service; and some of which remain qualitative,
e.g. design, status, customer experience.

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Marketing Channels

A company can deliver its value proposition to its


targeted customers through different channels.
Effective channels will distribute a companys value
proposition in ways that are fast, efficient and cost-
effective.
The first decision to be made when trying to sell
products or services to the target market is whether
to sell directly to that target market, or to use
intermediary services.

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Marketing Channels (cont.)

The most common methods of direct marketing


include direct selling, Internet marketing and
catalogues. Although direct marketing involves a
simple and straightforward process, it does not
always move goods from producers to consumers
efficiently, due to the lack of expertise, experience
and economies of scale. In order to be more efficient,
many companies rely on marketing intermediaries to
market their products.

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Marketing Channels (cont.)

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Customer Relationships

Customer relationships are the types of relationships a


company establishes with specific customer segments.
Customer relationships may be driven by one or more of
these three motivations:
Customer acquisition
Customer retention
Increased sales (upscaling)
Studies show that it costs four to six times as much to get
a new customer as it does to keep a customer loyal,
hence, it is imperative for companies to build brand
loyalty.
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Customer Relationships (cont.)

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Key Partners

Key partners are the network of suppliers and


partners that make the business model work.
Companies forge partnerships to optimize business
models, reduce risk, and acquire resources.

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Key Activities

Key activities are activities that a company must do


in order to make its business model work.
For example, at a computer software company, the
key activities include software development and
marketing. A consultancy company will concentrate
on problem solving. Key activities are important in
any business building block. These activities will
depend on the nature of the business.

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Key Resources

Key resources are the most important assets needed


to make a business model work. Every business
model requires them, and it is only through them that
companies generate value propositions and
revenues. Key resources can be physical, financial,
intellectual, or human. A microchip manufacturer
needs capital-intensive production facilities, whereas
a microchip designer depends more on human
resources.

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Cost Structure

The entrepreneur should strategize the best and


appropriate cost structure to suit the project concept.
The opted cost structured model will have to be
aligned with the other activities in the business
model to match the total products and services
concept offered to customers. For example, the Air
Asia model is a low-cost model where customers are
charged for products and service items that they
choose when they purchase their ticket.

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Revenue Streams

Revenue streams represent the cash a company


generates from each customer/product segment. An
entrepreneur will have to strategize and modify his
products and services to create attractive values for
target customers. An entrepreneur may explore
additional revenue streams through export markets
or online marketing, or for example, lease idle assets
to generate additional revenue.

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Revenue Streams (cont.)

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Summary

The Business Model Canvas has been accepted and


used widely for developing business strategies, both
by start-up businesses as well as established large
corporations.
The Business Model Canvas methodology will
enable students to learn how to work out an effective
business strategy in a systematic, orderly and
comprehensive manner.

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