Business model
Chapter 6
A.Y. 2024/2025
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Table of contents
1 Introduction
2 Building blocks
3 The business model Canvas
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Introduction
Definition
A business model describes the rationale of how an organization creates,
delivers, and captures value.
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Introduction
The business model Canvas
A business model can best be described through nine basic building blocks
that show how a company intends to make money.
The nine blocks cover the four areas of a business: customers, o↵er,
infrastructure, and financial viability.
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Building blocks
The nine building blocks
1 Customer segments
2 Value propositions
3 Channels
4 Customer relationships
5 Revenue streams
6 Key resources
7 Key activities
8 Key partnerships
9 Key structure
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Building blocks Customer segment
1. Customer segments
The customer segments building block defines the di↵erent groups of
people or organizations an enterprise aims to reach and serve.
A business model may define one or several large or small customer
segments.
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Building blocks Customer segment
Examples
Mass market
Business models focused on mass markets don’t distinguish between
di↵erent customer segments.
The value propositions, distribution channels, and customer relationships
all focus on one large group of customers.
Niche market
Business models targeting niche markets cater to specific, specialized
customer segments.
The value propositions, distribution channels, and customer relationships
are all tailored to the specific requirements of a niche market.
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Building blocks Customer segment
Segmented
Some business models distinguish between market segments with slightly
di↵erent needs.
Diversified
An organization with a diversified customer business model serves two
unrelated customer segments with very di↵erent needs.
Multi-sided platforms
Some organizations serve two or more interdependent customer segments.
Both segments are required to make the business model work.
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Building blocks Value proposition
2. Value propositions
It describes the bundle of products and services that create value for a
specific customer segment.
The value proposition is the reason why customers turn to one company
over another.
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Building blocks Value proposition
Value
A value proposition creates value for a customer segment through a
distinct mix of elements catering to that segment’s needs. Elements are:
Newness: an entirely new set of needs that customers previously
didn’t perceive.
Performance: improving product or service performance.
Customization: tailoring products and services to the specific needs of
individual customers.
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Building blocks Value proposition
Getting the job done: value can be created by helping a customer get
certain jobs done.
Design: is an important but difficult element to measure, in fact a
product may stand out because of superior design.
Brand: customers may find value in the simple act of using and
displaying a specific brand.
Price: o↵ering similar value at a lower price is a common way to
satisfy the needs of price-sensitive customer segments.
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Building blocks Value proposition
Cost reduction: helping customers reduce costs is an important way
to create value.
Risk reduction: customers value reducing the risks they incur when
purchasing products or services.
Accessibility: making products and services available to customers
who previously lacked access to them is another way to create value.
Convenience: making things more convenient or easier to use can
create substantial value.
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Building blocks Channels
3. Channels
It describes how a company communicates with and reaches its customer
segments to deliver value proposition.
Communication, distribution, and sales channels comprise a company’s
interface with customers.
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Building blocks Channels
Functions
Channels serve several functions, including:
Raising awareness among customers about a company’s products and
services
Helping customers evaluate a company’s value proposition
Allowing customers to purchase specific products and services
Delivering a value proposition to customers
Providing post-purchase customer support
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Building blocks Channels
Channel types
Own Partner
Direct Indirect
Sales forces Web sales Own stores Partner stores Wholesaler
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Building blocks Channels
Channel phases
Awareness
Evaluation
Purchase
Delivery
After sales
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Building blocks Customer relationship
4. Customer relationship
The customer relationship building block describes the types of
relationship e company establishes with specific customer segments.
The customer relationships called for by a company’s business model
deeply influence the overall customer experience.
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Building blocks Customer relationship
Motivations
Customer acquisition
Customer retention
Boosting sales
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Building blocks Customer relationship
Categories of customer relationship
Personal assistance: this relationship is based on human interaction.
Dedicated personal assistance: this relationship involves dedicating a
customer representative specifically to an individual client.
Self-service: in this type of relationship, a company maintains no
direct relationship with customers.
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Building blocks Customer relationship
Automated services: this type of relationship mixes a more
sophisticated form of customer self-service with automated processes.
Communities: companies are utilizing user communities to become
more involved with customers and to facilitate connections between
community members.
Co-creation: more companies are going beyond the traditional
customer-vendor relationship to co-create value with customers.
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Building blocks Revenue streams
5. Revenue streams
The revenue streams building block represents the cash a company
generates from each customer segment.
Each revenue stream may have di↵erent pricing mechanisms, such as fixed
list prices, bargaining, auctioning, market dependent, volume dependent,
or yield management.
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Building blocks Revenue streams
Types
A business model can involve two di↵erent 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
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Building blocks Revenue streams
Ways to generate revenue streams
Asset sale: the most widely understood revenue stream derives from
selling ownership rights to a physical product.
Usage fee: this revenue stream is generated by the use of a particular
service. The more a service is used, the more a customer pays.
Subscription fees: this revenue stream is generated by selling
continuous access to a service.
Lending/Rending/Leasing: this revenue stream is created by
temporarily granting someone the exclusive right to use a particular
asset for a fixed period in return for a fee.
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Building blocks Revenue streams
Licensing: this revenue stream is generated by giving customers
permission to use protected intellectual property in exchange for
licensing fee.
Brokerage fees: this revenue stream derives from intermediation
services performed on behalf of two or more parties.
Advertising: this revenue stream results from fees for advertising a
particular product, service, or brand.
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Building blocks Revenue streams
Pricing mechanisms
Each revenue stream might have di↵erent pricing mechanisms.
The type of pricing mechanism chosen can make a big di↵erence in terms
of revenues generated.
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Building blocks Revenue streams
Type of price mechanism
1 Fixed menu pricing: predefined prices are based on static variables
List price
Product feature dependent
Customer segment dependent
Volume dependent
2 Dynamic pricing: prices change based on market conditions
Negotiation
Yield management
Real-time-market
Auctions
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Building blocks Key resources
6. Key resources
The key resourcing building blocks describes the most important assets
required to make a business model work.
These resources allow an enterprise to create and o↵er a value proposition,
reach markets, maintain relationships with customer segments, and earn
revenues.
Key resources can be physical, financial, intellectual, or human. Key
resources can be owned or leased by the company or acquired from key
partners.
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Building blocks Key resources
Type of key resources
Physical: it includes physical assets such as manufacturing facilities,
buildings, vehicles, machines, systems, point of sales systems, and
distribution networks.
Intellectual: such as brands, proprietary knowledge, patents and
copyrights, partnerships, and customer databases are increasingly
important components of a strong business model.
Human: every enterprise requires human resources, but people are
particularly prominent in certain business models.
Financial: some business models call for financial resources and
financial guarantees, such as cash, lines of credit, or a stock option
pool for hiring key employees.
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Building blocks Key activities
7. Key activities
The key activities building block describes the most important things a
company must do to make its business model work.
Like key resources, they are required to create and o↵er a value
proposition, reach markets, maintain customer relationships, and earn
revenues. And like key resources key activities di↵er depending on business
model type.
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Building blocks Key activities
Type of key activities
Production: these activities relate to designing, making, and
delivering a product in substantial quantities and superior quality.
Problem solving: key activities of this type relate to coming up with
new solutions to individual customer needs.
Platform/Network: business model designed with a platform as a key
resource are dominated by platform or networked key activities.
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Building blocks Key partnerships
8. Key partnerships
The key partnerships building block describes the network of supplies and
partners that make the business model work.
Companies forge partnerships for many reasons. Companies create
alliances to optimize their business models, reduce risk, or acquire
resources.
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Building blocks Key partnerships
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
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Building blocks Key partnerships
Motivations
Optimization and economy of scale: the most basic form of
partnership or buyer-supplier relationship is designed to optimize the
allocation of resources and activities.
Reduction of risk and uncertainty: partnerships can help reduce risk in
a competitive environment characterized by uncertainty.
Acquisition of particular resources and activities: companies extend
their own capabilities by relying on other firms to furnish particular
resources to acquire knowledge, licenses, or access to customers.
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Building blocks Cost structure
9. Cost structure
The cost structure describes all costs incurred to operate a business model.
Creating and delivering value, maintaining customer relationships, and
generating revenue all incur costs. Such costs can be calculated easily
after defining key resources, key activities, and key partnerships.
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Building blocks Cost structure
Classes of business model cost structures
Cost-driven
Cost-driven business models focus on minimizing costs wherever possible.
This approach aims at creating and maintaining the leanest possible cost
structure, using low price value propositions, maximum automation, and
extensive outsourcing.
Value-driven
Some companies are less concerned with the cost implications of a
particular business model design, and instead focus on value creation.
Premium value propositions and a high degree of personalized service
usually characterize value-driven business models.
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Building blocks Cost structure
Characteristics of cost structures
Fixed costs: that remain the same despite the volume of goods or
services produced.
Variable costs: that vary proportionally with the volume of goods or
services produced.
Economies of scale: cost advantages that a business enjoys as its
output expands.
Economies of scope: cost advantages that a business enjoys due to a
larger scope of operations.
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The business model Canvas
The business model Canvas
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