Business Model Canvas Definitions

The collection of products and services a business offers to meet the needs of its customers. According to Alexander Osterwalder (2004), a company's value proposition is what distinguishes it from its competitors. The value proposition provides value through various elements such as newness, performance, customization, "getting the job done", design, brand/status, price, cost reduction, risk
reduction, accessibility, and convenience/usability.

The nine (9) boxes / categories of the Business Model Canvas are:
  1. Value Propositions
  2. Customer Segments
  3. Key Activities
  4. Key Resources
  5. Partners
  6. Channels
  7. Customer Relationships
  8. Cost Structures
  9. ​Revenue Streams

Value Propositions

The Value Propositions may be:
(1) Quantitative – financial / price and increased efficiency / percentage; and/or:
(2) Qualitative - overall customer experience, market insights and outcomes

Value Propositions are tied to Customer Segments below, and may be continuously iterated and refined.

Customer Segments

To build an effective business model, a company must identify which customers it tries to serve. Various sets of customers can be segmented based on their different needs and attributes to ensure appropriate implementation of corporate strategy to meet the characteristics of selected groups of clients. The different types of customer segments include:

●  Mass Market: There is no specific segmentation for a company that follows the Mass Market element as the organization displays a wide view of potential clients. e.g. Car
●  Niche Market: Customer segmentation based on specialized needs and characteristics of its clients. e.g. Rolex
●  Segmented: A company applies additional segmentation within existing customer segment. The business may further distinguish its clients based on gender, age, and/or income.
●  Diversify: A business serves multiple customer segments with different needs and characteristics.
●  Multi-Sided Platform / Market: For a smooth day-to-day business operation, some companies will serve mutually dependent customer segments. A credit card company will provide services to credit card holders while simultaneously assisting merchants who accept those credit cards. 

Key Activities

The most important activities in executing a company's value proposition. For Bic, the pen manufacturer, this would be to create an efficient supply chain to drive down costs.
  • Sales
  • Marketing: marketing, communications, advertising
  • Production: Designing, quality control, producing, assembly
  • Distribution: Transportation, supply-chain, logistics
  • Problem solving: Training, studying metrics, improving.
  • Platforms: Website updating, promotion, IT.
  • Networks: Primarily people networks
  • Financial: Securing a merchant account, shop management, e-commerce.​

Key Resources

The resources that are necessary to create value for the customer. They are considered assets to a company that are needed to sustain and support the business. 
  • Physical – Buildings, vehicles, machines, raw goods, etc.
  • Intellectual – Brand, proprietary knowledge, patents, partnerships, etc.
  • Human – Creativity, experience, etc.
  • Financial – Cash, credit, stock, etc.

Partners

To optimize operations and reduce risks of a business model, organizations usually cultivate buyer-supplier relationships so they can focus on their core activity. Complementary business alliances also can be considered through joint
ventures or strategic alliances between competitors or non-competitors.

Channels

A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company's value proposition in ways that are fast, efficient and cost-effective. An organization can reach its clients through:
  • its own channels (i.e., website, store front)
  • partner channels (major distributors / resellers, affiliates)
  • a combination of all of the above.

Customer Relationships

To ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments. Various forms of customer relationships include:

  • Personal Assistance
  • Dedicated Personal Assistance
  • Self-Service
  • Automated Services
  • Communities
  • Co-Creation

Cost Structures

Cost Structures: This describes the most important monetary consequences while operating under different business models.
  • Cost-Driven – This business model focuses on minimizing all costs and having no frills. e.g. Low-cost airlines
  • Value-Driven – Less concerned with cost, this business model focuses on creating value for products and services. e.g. Louis Vuitton, Rolex

● Classes of Business Structures:
  • Fixed Costs – Costs are unchanged across different applications. e.g. salary, rent
  • Variable Costs – Costs vary depending on the amount of production of goods or services. e.g. music festivals
  • Economies of Scale – Costs go down as the amount of goods are ordered or produced.
  • Economies of Scope – Costs go down due to incorporating other businesses which have a direct relation to the original product.​

Revenue Streams

Revenue Streams: The way a company makes income from each customer segment. Several ways to generate a revenue stream:
  • Asset Sale – (the most common type) Selling ownership rights to a physical good. e.g. retail corporations
  • Usage Fee – Money generated from the use of a particular service. e.g. UPS
  • Subscription Fees – Revenue generated by selling access to a continuous service. e.g. Netflix
  • Lending/Leasing/Renting – Giving exclusive right to an asset for a particular period of time. e.g. Leasing a Car
  • Licensing – Revenue generated from charging for the use of a protected intellectual property (e.g., software)
  • Brokerage Fees – Revenue generated from an intermediate service between two (2) parties. e.g. Broker selling a house for commission
  • Advertising – Revenue generated from charging fees for product advertising.
  • Access to Data – Revenue generated from charging fees for access to data.

Important Note - PRICING:

Pricing decisions require much experimentation, user interviewing, observation and calculated guesses. ​Your first pricing decision will NOT be the last - you will continuously tinker with it to find the right models / packages. Pricing will vary according to customer segment or market (i.e., B2B, B2C).

Videos: Business Model Canvas
& Customer Development

For each of the 'boxes' in the Business Model Canvas, there are additional explainer videos. Contact us for details.
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