The Business Model Canvas

A business model describes the rationale of how an organization creates, delivers, and captures value.

The nine building blocks

The Business Model canvas contains 9 building blocks:

Business Model Canvas diagram

  1. Customer Segments: an organization serves one or several Customer Segments.

    Defines the different groups of people or organizations an enterprise aims to reach and serve.

    Customer groups represent separate segments if:
    Their needs require a different offer
    Are accessible through different distribution Channels
    Require different types of relationships
    Have substantially different profitabilities
    Are willing to apy for different aspects of the offer

    From whom are we creating value?
    Who are our most important Customers?

    Types of Customer Segments

    1. Mass market: there is no distinction between different Customer Segments. Same Value Propositions, Distribution Channels and Customer Relationships for a large group of customers with similar needs and problems.

    2. Niche market: specific / specialized Customer Segments. The VP, DC and CR are all tailored to the specific requirements of the niche market.

    3. Segmented: similar Customer Segments with slightly different needs and problems. The VP, DC, and Revenue Streams are slightly different for each segment.

    4. Diversified: different group of customers with very different needs and problems. Totally different VP, DC and CR are required.

    5. Multi-sided markets: two or more interdependent Customer Segments

  2. Value Propositions: it seeks to solve customer problems and satisfy customer needs with value propositions.

    Describe the bundle of products and services that create value for a specific Customer Segment. It is an aggregation of benefits taht a company offers customers.

    What value do we deliver to the Customer?
    Which one of our customer’s problems are we helping to solve?
    Which Customer needs are we satisfying?
    What bundles of products and services are we offering to each Customer Segment?

    A Value Proposition creates value for a Customer Segment through a distinct mix of elements which may be quantitative (e.g. price, speed of service) or qualitative (e.g. design, customer experience). The following elements can contribute to customer value creation:

    • Newness
    • Performance
    • Customization
    • “Getting the job done”
    • Design
    • Brand / status
    • Price
    • Cost reduction
    • Risk reduction
    • Accessibility
    • Convenience / usability
  3. Channels: value propositions are delivered to customers through communication, distribution and sales channels.

    Describe how a company communicates with and reaches its Customer Segments to deliver a Value Proposition.

    Channels serve several functions:

    • Raise awareness among customers among a company’s products and services
    • Help customers evaluate a company’s Value Proposition
    • Allow customers to purchase specific products and services
    • Deliver a Value Proposition to customers
    • Provide post-purchase customer support

    Through with Channels do our Customer Segments want to be reached?
    How are we reaching them now?
    How are our Channels integrated?
    Which ones work best?
    Which ones are most cost-efficient?
    How are we integrating them with customer routines?

    Channels have five different phases (each channel can cover some or all these phases). We distinguish between direct / indirect channels and between owned / partner channels.

    Channel phases

    1. Awareness: how do we raise awareness of our products / services?
    2. Evaluation: how do we help customers evaluate our organization’s Value Propostion?
    3. Purchase: how do we allow customers to purchase specific products / services?
    4. Delivery: how do we deliver a Value Proposition to customers?
    5. After sales: how do we provide post-purchase customer support?
  4. Customer Relationships: customer relationships are established and maintained with each Customer Segment

    Describes the type of relationships a company establishes with specific Customer Segments

    Customer relationships may be driven by the following motivations:

    • Customer acquisition
    • Customer retention
    • Boosting sales (upselling)

    What type of relationship does each of our Customer Segments expect us to establish and maintain with them?
    Which ones have we established?
    How costly are they?
    How are tehy integrated with the rest of our business model?

    There are several categories of Customer Relationships:

    • Personal assistance: communication with a real customer representative to help during the sales process or after the purchase
    • Dedicated personal assistance: a customer representative specifically dedicated to an individual customer
    • Self-service: no direct relationship with customer (all necessary means for customers to help themselves are provided)
    • Automated services: simulate a personal relationship by recognizing individual customers or characteristics
    • Communities: use of user communites to facility the communication between community members
    • Co-creation: value is created also by users (e.g. youtube)
  5. Revenue Streams: revenue streams result from value propositions sucessfully offered to Customers

    Represents the cash a company generates from each Customer Segment

    Two different types of Revenue Streams:

    • Transaction Revenues resulting from one-time customer payments
    • Recurring Revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

    For what value are our customers really willing to pay?
    For what do they currently pay?
    How are they currently paying?
    How would they prefer to pay?
    How much does each Revenue Stream contribute to overall revenues?

    There are several ways to generate Revenue Streams:

    • Asset sale: selling ownership rights to a physical product
    • Usage fee: the more a service is used, the more the customer pays
    • Subscription fee: revenue is generated by providing access to a service
    • Lending/renting/leasing: revenue is generated by temporarily granting someone exclusive right to use a particular asset for a fixed period of time in return for a fee
    • Licensing: revenue is generated by giving customers permission to use protected intellectual property in exchange for licensing fees
    • Brokerage fees: revenue derives from the intermediation services performed on behalf of two or more parties
    • Advertising: revenues result from fees for advertising a product, service or brand

    Each revenue stream may have a different pricing mechanism:

    • Fixed: prededfined prices based on static variables
    • List price
    • Product feature dependent
    • Customer segment dependent
    • Volume dependent
    • Dynamic: prices change based on market conditions:
    • Negotiation (price is negotiated betwee tow or more parties)
    • Yield management (price depends on inventory and time of purchase)
    • Real-time market (established based on supply / demand)
    • Auctions (determine by the outcome of competitive bidding)
  6. Key Resources: key resources are the assets required to offer and deliver the previously described elements…

  7. Key Activities: … by performing a number of Key Activities

  8. Key Parternships: some activities are outsourced and some resources are acquired outside the enterprise

  9. Cost Structure: the business model element result in the cost structure

Further reading