THE ENTREPRENEURIAL MIND

-Module 4-

Prepared by:
IAN KRIS R. TOLENTINO
Course Instructor
 Learning Objectives:

The learners shall be able to:

• Understand the concept of a business model;

• Design a business model canvas for a startup;
• Select the network of key partners;
• Choose key activities essential to the value proposition;
• Formulate a good customer value proposition;
• Recommend the relationship the startup should form with the customer segments;
• Select the customer segment/s to serve;
• Propose for the channels to use to communicates with customer segments; and,
• Prepare a lean canvas for a startup.

INTRODUCTION

A good product and/or service does not automatically turn into a commercial success. A
business model makes the difference between success in the laboratory and success in the
marketplace. Having a business model will also define the foundation of a business operations.
The business model involves the product or service offering, the targeted customers, and the
economic engine that will enable a business to meet its profitability and growth objectives.
Business model assessment is essential for startups, new and recognized businesses which
need to discover, preserve or advance their business models.

What is a Business Model?

Basically, when management is asked about its model, the question only says “how does
it plan to generate money". According to management guru Peter Drucker: "a business model is
supposed to answer who your customer is, what value you can create/add for the customer and
how you can do that at reasonable costs". Simply, a business model defines the foundation of its
company's core value proposition, targeting customers, key resources, and assumed revenue
streams. Eventually, a business model offers a framework for success and overcoming
challenges.
Different Types of Business Models
There are different types of business models meant for different businesses, some of
there are traditional and some are in contemporary times. Here are the business models that
are used traditionally:
1. Manufacturer - A manufacturer is a person or registered company which makes finished
products from raw materials in an effort to make a profit. The goods are later distributed to
wholesalers and retailers who then sell them directly to customers. The retailers exhibit
the products via brick-and-mortar stores or on 3rd party E-commerce platforms. In the
 manufacturing industry, products are made in big-scale so as to meet the irresistible
demand coming from consumers. Examples of manufacturers in the Philippines are
Ajinomoto Philippines, Alaska Milk and Century Pacific Foods among others.

2. Distributor - A distributor is an entity or a company that purchases non-competing

products or product lines, stores them in warehouses, and resells them to retailers or
directly to the customers. Auto dealers are examples of distributors. Unilever spends its
major part of revenue in maintaining a proper distribution.
3. Retailer - A retailer is a person or business that purchases goods from the wholesaler or
directly from the manufacturer. Retailers normally do not produce their own items. They
purchase goods to sell those goods in small quantities to end consumers. Online retailer
giants include Best Buy, Wal-Mart and Target.

4. Franchise - A franchise can be a manufacturer, distributor or retailer. It is a method

distributing products or services involving a franchisor. A franchisor provides access to his
business' proprietary knowledge, processes, business system and a brand's trademark or
trade name in order to let the franchisee to sell a product or provide a service under his
business's name. A franchisee pays a royalty and often an initial fee for the right to do
business under the franchisor's name and system. In the Philippines, Jollibee,
McDonald's and Pizza Hut are some examples of retailing businesses. McDonalds's
though is the best example which has 93% of its franchised restaurants worldwide.

5. Brick-and-mortar - It is a model that refers to the old-fashioned street-side business that

sells products and services to its customers face-to-face in an office or store that the
business owns or rents. Grocery stores, dentists, gas stations, local grocery and walk-in
banks are examples of brick-and-mortar businesses.
6. Bricks-and-clicks - It is a model where a company combines its online and a physical
presence. Customers may place their orders online and then pick up the products from
the physical stores. This model provides the advantage of flexibility because it can show
its products to customers who live in places where brick-and-mortar stores are not
present. These days, most businesses selling apparel and shoes items in Divisoria use
this model.
7. Direct Sales - In this model, products are directly sold to the customers. Selling could be
in the form of a face-to-face conversation or small gathering. The former Tupperware
used to have house parties to sell its products. The salesperson gets a commission of
every sale. Even in this age of technology, there are still companies that make use of
direct selling such as Avon, technology, Boardwalk, Dakki, Fern and Forever Living.
These companies choose to always be in personal touch with its customers

8. High Touch – This model uses a lot of human interaction ad involvement in order to the
experience highly personalized. This type of business operates on trust and credibility to
earn revenues for the company. Here the highest involvement of the customer with the
business the more pay they give and the more loyal they become. Hair salons and auto
dealers make use of this model.

9. Family-owned - This is a family that is owned and operated by a family. The decision-
making is controlled by family members. Some examples of this type of model are the
National Bookstore, ShoeMart, Jollibee and Robinsons.
Some of the basic types of modern business models are explained here:

1. Nickel-and-dime - This model makes use of the lowest price strategy in selling basic product
or service to the customers. Since the basic price is low, additional charges for the other
perks and services that are offered are required. Here in the country, Cebu Pacific is the
low-cost carrier which offers the lowest possible price for the flight tickets and charges fee.
However, it charges fees over extra services such as meal/snack, beverage and other
services.
2. Freemium - This model is a combination of free and paid services normally used by tech
companies in the Software as a Service (SaaS) or apps business model. Usually, the basic
services are free but for a limited time or with limited features. The basic service comes with
app advertisements and storage restrictions but the premium plans do not have. In order to
unlock the upgraded features, the customer has to choose for paid services. Zoom, Spotify
and Dropbox are examples of this model.
3. E-Commerce - This model is an upgradation of the old-style brick-and-mortar business
model. It focuses on buying and selling of goods or services creating a web-store using the
internet. The transactions of transfer of money and data are executed via the Internet.
Online stores like Amazon, Flipkart, Shopifv, Myntra, Ebay, Quikr, Olx and Alibaba are
examples of E-commerce businesses.
4. Subscription - This model offers a long-term contract to customers by paying a fixed amount
every month or year. The company needs to provide enough value to its customers for
repeat purchases by visiting the website over and over again. Netflix, LinkedIn, Amazon
Prime, Dollar Shave Club, are few of its examples.
5. Aggregator - This is a network model which the company acts as a middleman between two
individual parties. Under this business model, most companies provide information and
sources on a single industry. The company sells its own brand by creating value for both
demand and supply side. It makes profit by through commissions. Airbnb, Zillow and Oyo for
Hotels; Uber for taxi service; and Yodlee for financial service are the right examples for this
model.
6. Online Marketplace - In the online marketplace, there is a collection of different sellers into
one platform. These sellers compete with each other to deliver similar product/service at
competitive prices. Good brand built from factors such as trust, free and/or on-time home
delivery and quality sellers is vital in an online marketplace. The online marketplace earns
commission on every sale carried on its platform. Examples of well-known companies using
this model are Amazon and Alibaba.
7. Hidden Revenue - In this model the company offers its services for free. The company earns
revenue streams from advertisements which are paid for by identified sponsors when
information is shared. Users of Google, Facebook, Instagram and Twitter don't pay for the
search engine, but these companies earn from advertising money spent by businesses.
8. Data Licensing / Data Selling - The Internet has given rise to the importance of data. Data is
the major element in the web technology where companies need vital information to perform
its operations and gain profit. Twitter sells real-time data to third party users for analysis,
advertising, customer insight and other uses.
9. Agency-Based - This is a partner company that has specialization in doing non-core
business activities such as advertising, digital marketing, PR, even janitorial and security.
Usually, businesses that has no internal know-how hire agencies to acquire a customizable
 solution for their needs. Leo Burnett Company is an agency that services United Airlines,
McDonald's, Kellogg's and some of their notable clients.
10. Affiliate Marketing - This is a commission-based model where companies make profit by
promoting a partner's product and convince its followers and users to buy the same. In
return, the affiliate gains a commission for every sales opportunity it referred to their vendor
companies. The affiliate website oftentimes provides product review. NerdWallet, Capterra,
MoneySavingExpert and the Wirecutter are examples of businesses that are into affiliate
marketing.
11. Dropshipping - In a drop-shipping business, the owner has no ownership of the product or
hold any inventory but he has an E-store. He has many different suppliers/ wholesalers to
sell their product on the website. When an order is placed on a business owner's website,
the partner sellers then deliver the products directly to the customer. Few examples of this
nature include Doba, Oberlo, Dropship Direct, and Wholesale 2B.
12. Network Marketing - Often called multi-level marketing, this model works on direct marketing
and direct selling philosophy. There are no retail shops here but the offerings are sold to the
target market directly by the participants. The more people that become part of the pyramid
structure, more money is gained by selling more goods and getting more people on board.
This is a commission-based model where participants earn income through selling and
recruitment of members. Avon, H and Mary Kay are good examples of network marketing.
13. Crowdsourcing - This is a model that solicits intellectual information of users on what value-
added concepts be inputted in the product and or service offering. Here there is an open call
for contributions to help solve the problem. In some instances, the contributor of the solution
is given monetary or recognition as rewards. Wikipedia, YouTube, Kickstarter, LEGO ideas,
Unilever, Coca Cola (new flavor of beverage) make use of crowdsourcing.
14. Blockchain - This is a digital ledger that is irreversible and decentralized. No one owns and
monitors this digital but anyone can contribute to it. This model works on peer-to-peer
interactions and document all on a digital decentralized ledger. Many crypto-currencies such
Bitcoin, Ethereum, and Litecoin use Blockchain technology-based business model in their
operations.
15. Low Touch - In this model there is minimum human assistance or intervention in selling a
product or service. There is no need to keep a big salesforce although companies may focus
on improving technology to further lessen human involvement and make the customer
experience better. Ikea and SurveyMonkey are good examples.
16. Razor and Blade - It is a business model in which one item is sold at a low price or even
given for free in order to intensify the sales of a complementary good, such as consumable
supplies. A good example is the Razor that is sold at a low price and its partner, the blade is
sold at a premium price. The same situation holds in a printer and cartridge. This model is
advisable if the business has a loyal customer base and has the ability to create some sort
of lock-in situation with customers.
17. Consulting - The consulting business is composed of experienced and qualified
professionals that offers services based on their line of expertise. Most consulting firms
charge their clients by the number of hours they have rendered service or a percentage of
share once a project is completed. Mostly accountants, lawyers, educators and
businessmen form their own consulting companies. The most popular consulting firms are
Mckinsey, Deloitte and Boston Consulting Group, software or website development firms
18. Social Enterprise - This model aims to put up a business more for creating a positive change
but with profit. The profit though is intended to be used for humanitarian works to improve
human living conditions. Some of the social enterprises in the Philippines are Bayani Brew,
Coffee for Peace, First Harvest and Liter of Light.

The Business Model Canvas

In his earlier book "Business Model Ontology" Alexander Osterwalder, the Business Model
Canvas consisting of nine segments for its building blocks. This business model can be written
in a one-page canvas. Later he wrote a come comprehensive description of this business model
in his bestselling book "Business Model Generation"
An entrepreneur may focus on every segment or blocks of the business model
systematically until he is able to close the gaps. Every block describes the factor that a startup
business needs to study. The thoughts and ideas of the entrepreneur are kept intact and
focused although he may modify each block as the need arises. Each block is very much
interconnected. As one block is change, the other blocks are required to be revisited because
they may need to be changed.
Here is a sample business canvass model for a small bakery that intends to sell
organically baked breads:
Key Partners Activities Key Propositions Customer Customer Segments
1. Vendors of 1. Introduce 1. Freshly baked Relationships 1. Neighborhood
organic raw organically breads 1. Hotline number communities
materials 2. Specialized in 2. E-mail for 2. Healthy life stylist
produced bread
2. Packaging organic bread 3. Neighborhood
2. Marketing and questions supermarkets
suppliers sales 3. Breads of 3. Facebook page 4. Neighborhood
3. Retail partners 3. Branding constant quality 4. Loyalty discounts bakeries
4. Consumer 4. Breads are
education served quickly
5. Competitive
Key Resources priced breads Channels
6. Halal certified 1. social media
1. team cooperation 7. The “Finsbury 2. rider delivery
2. raw materials bread” of Manila 3. on-call delivery
3. social media 4. direct selling
4. retail network using own
website
5. physical store
6. events planner
Cost Structure Revenue Streams
1. equipment and facilities 1. volume sales from supermarkets
2. staff salaries 2. sales to customers
3. product ingredients 3. sales to events such as weddings, birthdays,
anniversaries, etc.
Figure of Business Model Canvas of a Bakery
Basically, there are four major parts of the Business Canvass model which are the
infrastructure, offering, customers and finances. Infrastructure includes key partners, key
activities and key resources. Offering consists of the value proposition. The part of the
customer comprises customer segments, channels and customer relationships. Finance
takes into account cost structure and revenue streams.

Here is the template of the business model canvas of Osterwalder.

Key Partners Key Activities Key Propositions Customer Customer
 Identify your  What specific Relationships Segments
company's key key activities are  Identify the core  What type  Identify who is
partners. This necessary to value of the of your value
can consist of deliver your company relationship proposition
important value provides to s do you targets.
suppliers in your proposition? have with  Who are you
customers.
supply chain.  What activities your creating value
 What exactly is
 What key set your the company customers? for?
resources company apart  How do you
does the from others?
trying to give to  What are they
customers? interact with
company Consider how like?
What problem is customers and
receive from your company's how does this  What do they
your company
these unique differ amongst need?
trying to solve
partners? differences in and what needs customer  What do they
 What key its revenue segments? Do enjoy?
are your
activities are streams. company you  What is the
performed by distribution communicate
satisfying? customer
channels, or with your
these partners? customer  How do you market like?
customers?
Think about why relationships. offer something Are you
 How much
your company  Do you need to different that targeting a
support does
works with these procure specific satisfies the your company small niche
key partners and niche demands of provide? community or
the motivations resources? Do your customer a small
behind them. you need to segments (like market?
keep costs and price, quality.
prices low? design. status)?
Key Resources Channels
 How do you
 What specific deliver your value
key resources or proposition?
 How do you
assets are reach your
necessary to customer
segments?.
deliver your  What channels
value are used?
 Consider your
propositions? supply,
 Consider What distribution,
marketing and
resources your communication
distribution chnnn019,
 Are they well-
channels and integrated and
revenue streams cost efficient?
 Are they boing
may requite to
utilized
function. effectively?
Additionally,
think about What
resources are
needed to
maintain
customer
 relationships.
 Does your
company require
a lot of capital or
human
resources?
Cost Structure Revenue Streams
 Identify they key costs in your company's  Identify the ways your value proposition generates
business model. money for your business.
 What are the major drivers of costs?  Does your company have multiple methods of
 How do your key activities and key resources generating revenue?
contribute to the cost structure?  What is the pricing strategy for the products offered by
 How do your costs relate to your revenue your company?
streams? Are you properly utilizing economies  Through what channels do your customer pay?
of scale?  Does your company offer multiple forms of payment?
 What proportion of costs are fixed and variable?
 Is your company focused on cost optimization or
value?

Figure of Business Model Canvas

Source: https://corporatefinanceinstitute.com/resources/knowledge/strategy/business-model-canvas-examples/

Key Partners
Key partners are the network of suppliers and partners that may provide the business model
more effective. The entrepreneur could partner with other business, governmental, or non-
consumer entities that can help the business model works. Strong partnerships could be a tool to
a business success. There are a lot of reasons in partnering with various companies particularly
for startups. Partnering can be for optimizing the use of resources, forming new resource streams
or lessening risks on important business decisions.
As the business lifecycle changes, so are the types of partnership that the business may be
needing. Simply, partners of a startup business would differ from those partners when the
business is already five years in operation. Here are the four different types of partnerships:

1. Strategic alliances - This partnership is an arrangement between noncompetitors to help

each other do an equally advantageous task but retaining their independence. For instance,
a new cafeteria business could with several suppliers of coffee beans.
2. Coopetition - This partnership is an agreement between competitors. to help share the risk
that these companies may take. Companies could be partners in forming awareness for
their shared industry, to gain new users.'
3. Joint-ventures - This is when two businesses because of their mutual interest agreed to for
a completely different company. A new market or a new geographic area could be the
reasons for combining their resources in a joint venture. For example, a cheese company
may opt to form a joint venture with a milk manufacturer for a cheese manufacturing in
another place.
 4. Buyer-supplier relationships - These are the most usual type of partnerships in businesses.
Such relationships take certain that there will be a dependable spring of supplies coming in.
On the part of the supplier this means a stable established customer for their product.

Key Activities
Key activities are the most essential activities in achieving a company's value
proposition and to operate successfully. The key activities are mostly a bridge between the value
proposition and the customer segment, certainly, the entrepreneur has to consider his channels
and customer relationships when coming up with the key activities for the business model. This
portion is reliant on business model type. Here are the categories of key activities:

1. Marketing - Adding value by promoting products and/or services such as advertising a

product to create awareness and hence demand.
2. Sales - This concerns selling a product and/or service. For instance, personal selling
includes creating customer relationships, discovering solutions to the customer's problem
and closing sales.
3. Design - This is about forming designs of various items. For example, an apparel
company creates design of its lines of clothing for presentation to the outsourced
manufacturers.

4. Development - This is adding value through developing products and services. In the
case of software company, it develops a software product which could probably be
customized based on the need of the customer.
5. Operations - The manufacturing of products and delivery of services. Designing,
manufacturing, and delivering a product in big quantities and certainly of highest quality
are some of the activities under this. Most companies are under this activity, particularly
because a lot of business models are in manufacturing.
6. Distribution - This is about reaching out to the customers to sell to them and delivering the
items to them. To illustrate, a repair shop provides warranty services of an item bought by
a customer.
7. Customer experience - Customer service, consulting and customer support are some of
the activities involve here.

Key Resources

Key resources describe the most important assets required to make a business model work.
These are the resources that allow an enterprise to create and offer a value proposition, reach
target markets, maintain good relationships with customer segments, and gain revenues. These
four blocks must be considered when developing the key resources segment. Here the four
categories of resources, namely;
 1. Physical — These are physical assets which are considered tangible resources that a
company make use of to form its value proposition. These could include equipment,
machines, inventory, buildings, vehicles, manufacturing plants and distribution networks
that allow the business to function.
2. Intellectual — These are non-physical, intangible resources such as brand, patents,
proprietary knowledge, copyrights, and even partnerships. Customer lists, customer
knowledge, and even the company’s own people, are also form of intellectual resources.
3. Human — Employees are the biggest and most vital resources of any company but are
often overlooked. In service-oriented companies which require great deal of creativity and
extensive knowledge, human resource is very vital. Customer service representatives,
software engineers or scientists are good examples.
4. Financial — All businesses have key resources in finance; however, some will have
stronger financial resources compared to others. Cash, lines of credit and the ability to
have stock option plans for employees are some examples of financial resources.

Customer Value Proposition

Customer value proposition (CVP) is a business's way of generating value in their product
or service when targeting potential customers. A value proposition is a statement consisting of
the reason/s someone should do business with the company. This is computed through adding
all the benefits that the product could provide to the customers. CVP is a description of the
user's experiences that he will come to realize upon buying and using of a product. Without
customer value propositions, companies are walking blindly in the market. Basically, there are
factors considered in the development of the customer value proposition which are:

1. Functional value - The product and or service offers the solution to a particular problem.
Said solution is convenient, better version, easier to use and more complete compared to
others. Examples of functional benefits consist of the phone competence offered by an
iPhone, the thirst-quenching benefit by a bottle of water and the warmness given by a wool
sweater.
2. Emotional value - The product and or service is pleasant to look at or attractive. Here the
customer is fond of this offering because of sentimental reasons, based from tradition or the
advice of people attached to the customer, Nowadays, purchasing locally produced or
organic brands carries emotional benefits especially for those enthusiasts.
3. Economic value - The product and or service offers a financial advantage, promotes energy
conservation, saves time or is innovative.
4. Symbolic value - For the customer the product and or service is valuable because of a
certain type of status given to the customer. This status can be a social responsibility
orientation or based from the brand. It may include the sophistication and the feeling of
being casual coming from Apple products, the manliness projected by the Italian Ducati
motorcycle brand or the extravagance exhibited when carrying a cup of Starbucks coffee.

Different Types of CVPs

By matching the customer segment to the value proposition, a company can gain more
profit. Therefore, it is basic for the company to know exactly the trade-off amongst different
customer segments and then choose which one to target and serve. Then, the company should
form its customer value proposition and adopt the best business model that could best serve of
the needs of the selected segment.

There are various CVPs for every customer segment for all businesses. The reason for
this is because each segment has its own way of the needs of its customers. Types of CVPs
include all-benefits, points of difference, and resonating focus.
Value Favorable point of Resonating
All Benefits
proposition difference focus
Consists of All benefits All favorable points The key point of
customers of difference a difference
receive from a market offering has whose
market relative to the next improvement will
offering best alternative deliver the
greatest value to
the customer for
the foreseeable
future
Answers the "why should "why should our "What is the
customer our firm form purchase most
question purchase your your offering worthwhile for
offering?" instead of your our firm to keep
competitors?"
in mind about
your offering?'
Requires Knowledge Knowledge of our Knowledge of
of own own market how own market
market offering and next offering delivers
offering best alternative superior value
to customers
compared with
next bet
alternative
Has the Benefit assertion Value presumption Requires
potential pitfall customer value
research
Table of Types of CVPs
Source: https://en.wikipedia.org/wiki/Customer_value_proposition

1. All Benefits -The company in this type of CVP just list all the benefits or solutions that a
product and/or service offering can deliver and serve to target customers The more
benefits that can be listed down, the better. This approach needs only small knowledge
about customers and competitors from the company but its disadvantageous. This may
lead to managers claiming entitlement to advantages for solution features that in reality
offer little actual benefits to target customers.
2. Favorable Points of Difference – The company using this CVP tries to differentiate their
solution by conveying its point of difference compared to the customer’s next-best
alternative. Here, there must be a complete understanding of customer’s requirements
 and preferences, and what it is worth to fulfill them. Sometimes, the points of difference
that has been emphasized could be of little importance to the target customer.
3. Resonating Focus – The company making use of this CVP identifies the one or two
points of difference between the its solution and its competitors that provide the best
value to the target customers. Companies that use resonating focus value propositions
are able to create tailored-fit value propositions for different customer segments. The
elements of value that are important may vary from customer to customer, hence,
tailor-fitting is necessary.

Customer Relationships
Customer relationships are the types of relationship a company forms with its particular
customer segments. These relationships are essential in order to gain customers, keep them and
grow sales with them. Here are some types of customer relationships:
1. Personal assistance – founded on human collaboration, the customer can communicate
with real salesperson to provide help during and after the sales process. Ways of
communication may include on-site at the point of sale, using call centers and even
emails, among others.
2. Dedicated personal assistance – This is the deepest and most intimate type of relationship
that involves assigning a salesperson to an individual customer. This kind of relationship
usually develops over an extended period of time. For instance, in the banking industry,
each big account is provided of an individual banker.
3. Self-service – Basically, there is no direct relationship that exist here, although all the
essential things to assist customers help themselves are given.
4. Automated services – This is a combination of customer self-service and automated
processes. For instance, automated services are able to identify individual customers and
their characteristics, hence, they can be given information about their orders. Said
relationships can even kindle a personal relationship such that a customer could be
proposed of a book or movie.
5. Communities – User communities can be used by companies to be closer and more
connected with their current and potential customers. It is a trend now to keep online
communities to exchange information and help solve each other’s problems. Tsikot.com is
the leading automotive website and community in the Philippines. It offers auto classifieds,
forums, reviews, galleries and a lot more. It has a user-friendly interface, location-based
search with map and mobile responsiveness. Tsikot is the most popular car user’s
community in the country.
6. Co-creation - Basically, this is an extension of the traditional customer-vendor relationship.
Here customers have the chance to co-create value with the company such as in
designing and innovating products. Writing reviews and soliciting ideas from customers
are examples of engaging customers to become co-creators. A good example is IKEA, a
Swedish furniture and home goods retailer. In 2018, it launched "Co-Create IKEA", a
digital platform that promotes the participation of customers and fans to design new
products. There are even cash rewards ideas are chosen. IKEA also opted to provide test
labs and prototype shops so that customers may hone their suggestions.

Customer Segments
Shared needs, behaviors and other traits can be the bases for customer segmentation. A
customer segment refers to demographics such as age, ethnicity, profession and/or gender; or
psychographic factors which include spending behavior, interests, and motivations. A company
may select a single group or several groups to target with its products and services.

Here are the various types of customer segments:

1. Mass - This is basically an unsegmented market in which products with mass appeal
products such as aspirin, orange juice, soft drinks, paperback romances, and the like are
offered to every customer. The customer value proposition for this segment must be for a bi
number of people who has similar problem or need requirements. Refrigerator
manufacturers should target the mass market because there is little differentiation needed
by customers who are interested to buy a refrigerator.
2. Niche - This market speaks of a customer segment with very distinct characteristics and
extremely specific needs. This segment necessitates a highly customized product, custom
made to fit their needs. Hence, the customer value proposition for this segment should be
strictly defined based on the preferences of this specific customer segment. This type of
market is common amongst automobile parts suppliers who are really reliant on automobile
manufacturers for sale of their products.
3. Segmented - There are businesses that select to offer products and/or services to customer
segments that have very small differences in their need requirements. In this segment, the
company forms various customer value propositions based on these small differences in
the customer segments. In retail banking for instance, the distinction lies on the net worth of
customers, which is small yet substantial. This type of bank finds it profitable to make
investment in forming distinct customer value proposition for every type of customer
segment it has.
4. Diversified - Some companies often select differentiated customer segments. Basically,
these customer segments have very diverse needs and wants. Although there may be
some overlaps among the profiles of customers, the company still see it is profitable to
invest in attracting these customers. One of the diversified companies in the Philippines is
San Miguel Corporation.
5. Multi-sided platforms - This type of customer segment is used when customer segments
are reliant with each other, which makes it a necessity to serve both sides of the balance.
This is true with credit cards. It is vital for customers to use their credit cards. At the same
time, it is also important that stores accept these credit cards of customers for transaction. If
one end of the equation fails, the other one shall have the fate.

Channels
Channels are the touch points through which a company communicates with its target
customers. Hence, they play big role in defining the customer experience and providing value.
An entrepreneur should understand which channel is appropriate to reach his target
consumers. There are five phases that a channel may pass through but it may cover than one
of these phases at a time.

1. Awareness - This is the marketing and advertising phase. Said phase entails educating
the target customers about the features of the products and/or services and how these
offerings shall be of value to them. Google and other search engines plus YouTube,
Instagram, Facebook are good examples.
 2. Evaluation - In this phase, the customer evaluates, read about or uses the product or avail
of the service in order to formulate an honest opinion about it. In order to form a good
evaluation of the offering, it is best for the entrepreneur to educate the customers also
about the company's competitors. This way the customers are assisted in evaluating their
options. Similarly, customers are able to see clearly why the product and/or service of the
entrepreneur's company is the best choice. Google My Business, Social Media accounts
and the company's website may be used for evaluation.
3. Purchase - This phase is the actual sales process. Here the customers buy their chosen
product and/or service. The sales process represents the exchange of a particular product
and/or service for money. Stripe and Paypal can be used for purchase.
4. Delivery - Also known as the fulfillment stage of the process, this is the phase when the
promised value proposition has reached the customers. Simply, the way the offerings shall
reach the customers to solve their problems. Postage/ Mail such as UPS, FedEx and
USPS are good examples.
5. After Sales - This phase centers in giving customer care and support after purchase. It
offers the customers to call when they have a problem or make queries about the product.
Email service providers and Chat platforms like Facebook messenger can be utilized.

There are also different channel types, which are:

1. Direct channels - Direct channels are those that the entrepreneur owns or has control over.
This could be his physical store, website, or salesforce. Owning the channel could mean
added costs but may provide a direct and strong relationship with the customer and could
give higher profit margins.
2. Indirect channel - Also known as partner channels, the company makes use of
intermediary and places its products or makes the service obtainable at the partner store.
Wholesalers are considered partner channels. Winegrowers partner with wholesalers in
various countries to sell their wines. Quick to reach the market and less investment in
infrastructure are some of the advantages of an indirect channel. However, it is expected
that there will be lower margin on the product.

Value Proposition Canvas

It was Alexander Osterwalder who developed this value proposition canvas. His aim is to
guarantee proper fit of the product and the market. Simply, the value proposition canvas
makes certain that a product and/or service takes into consideration the values and needs of
the customers. The canvas appears to be a detailed relationship of the customer segments
and value propositions. This canvas can be a tool also to upgrade a product and/or service
offering or to develop an entirely new offering. The value proposition canvas consists of two
building blocks namely the customer’s profile and a company’s value proposition.

Customer Profile
The customer profile points to the customer segment that the company shall serve its product
and/or service offering. A customer profile should be created for each customer segment, as
each segment has distinct gains, pains and jobs. The company needs to understand the
customer’s jobs and make an assessment as to their pains and gains. Before making a
customer profile, the various archetypes customers typically fall into must be evaluated.
Customer archetypes also known as personas are those dry demographic portrayals of
customers transformed into living, breathing people which the audience can comprehend.
Customer archetype is an idea of Steve Blank which he popularized in his Lean Launchpad.

Figure of Value Proposition

Source: https://www.b2binternational.com/research/methods/faq/what-is-the-value-proposition-canvas/

Customer Gains

Customer gains include all the expectations and needs of customers, things that may delight
them and other stuffs that may intensify the possibility of these customers embracing a value
proposition. Upon buying a product or being provided by a service, some gains are given less
attention by the customer. Although, there are cases that customers are delighted by some
surprises for which they are fully satisfied. Here are some types customer gains:

1. Required gains - When buying a product or being provided by a service, these are the very
basic expectations by the customers. An individual buying a Smartphone has the least
expectation that his new bought phone can allow him to make and receive phone calls.
2. Expected gains - These gains beyond the basic ones, but even these are not present in
the product and/or service, said offering can still provide its basic purpose. Hence, for a
Smartphone, it is expected that it should be visually attractive and fashionable.
3. Desired gains - These gains are the customer's preference when it comes to product
and/or service. These are the most sought-after and cherished gains by the customer.
Obtaining these gains can result to the complete satisfaction of the customers. In the case
 of Smartphone, having no trouble in the synching the phone with other gadgets is a
desired gain of any user.
4. Unexpected gains – These gains are the potential benefits of the product and/or service for
which the customer is unaware until these are introduced to him. Although these ideas and
innovations are not articulated by the customer, they are able to transform the customer's
experience with a product and/or service. A touch screen capability of a Smartphone is a
type of an unexpected gain for customers.

In order to be successful, an entrepreneur should be able to clearly identify his customer's

gains and how important are these gains to the latter. Tailor-fitting the customer gains to a
product and/or service offering is the key the product's and/ or service success. The better the
value proposition will appeal to the customer segment depends on the bulk of customer gains
information the company has.

Customer Pains

Customer pains are situations which either avoid the customer from getting a job done or
the negative experiences, emotions and risks that the customer experiences before, during or
after a job. Said pains include the following:

1. Productivity pains - These pains include the inefficiency of the businesses that a customer
experience. Majority of customers practice time management that they felt annoyed when
additional steps would occur in the buying process.
2. Support pains — These are pains felt by a customer when he is not assisted during the
buying process.
3. Financial pains —These are pains that involve money in particular that often a customer
spends too much for a product and/or service when his intention really is to spend less.
4. Process pains - These pains those that create friction to buyers because of the
substandard processes of the business.

It is vital to dig deeper into the causes of customers’ pain/s in order to know the
importance and urgency of these pains for the them. A long waiting que is an example of a
customer's pain that an entrepreneur should resolve. Making this pain unbearable for the
customers is the obligation of the entrepreneur.

Customer Jobs/Jobs-to-be-done

Customer jobs describe the functional, social and emotional tasks customers are trying to
do, challenges they are attempting to resolve and needs they desire to satisfy in their personal
and professional lives. Known also as jobs-to-be-clone (JTBD) shifts the locus a hypothetical
or aggregate user to what actual users want to accomplish by using the product. Here, the
perspective must

1. Functional jobs -These are the regular and particular jobs that a customer is trying to do
and is working towards. These are easy and simple things like cooking a menu, finishing
an essay for the English assignment, eating balance diet and other similar ones.
 2. Social jobs - These consist of the manners a customer desires to reflect his image in a
social environment. Some examples include fitting in with a group of friends or praising a
co-employee in his sales presentation.
3. Personal/ emotional jobs - These include how a customer works towards feeling a certain
way. Some people feel they can rush from a tough task and then do another task after like
having a gym practice before dinner time.
4. Supporting jobs - Often customers also purchase value, hence doing a supporting task.
Here are the three roles of customers that may assist in supporting jobs:
a. Buyer of value - This task is any purchase of value that may cover from evaluating
choices at hand up to paying for the product that had been chosen.
b. Co-creator of value - These are jobs for which a customer has a direct hand in the
manufacture of the product with the company. Such jobs include providing ideas for
product design, product testing and giving product and/or service reviews online.
c. Transferor of value - These are jobs at the end of the product use such as disposal of
product trash or giving the ownership of the product to another person because it has
no value anymore to the original owner.

As the entrepreneur makes assessment of the customer jobs, he needs also to assess
the job context in which the job was done. Said job context is equally important because it has
the power to influence the job type. For instance, there is a big difference when a customer
dines in a restaurant with his friends and that when he is with his friends.
In the same way that it is vital for the entrepreneur to understand which jobs are vital to
the customers and those that the customer can simply abandon or replaced. Certainly, not all
jobs are of the same significance for the customer based on a job's impact and the priorities of
the customer.

Value Proposition

After really understand the customers, including their gains, pains and jobs, then it is time
to reflect on the gain creators, pain relievers and the products and/or services to offer then.

Gain Creators

Gain creators explicitly outline how the products and services may create customers
gains and offer customer added value. An entrepreneur may form benefits that a customer
supposes, desires, or may came as a surprise. Gain creators may include functional utility,
social gains, positive emotions, and cost savings.
Pain Relievers

Pain relievers explicitly outline how the products and/or services lighten, avoid or solve
the particular customer pains. An entrepreneur must provide details on how his offering of
product and/or service could lessen or completely eradicate the annoyance of his customers
before, while, and after they are trying to get a job done.

Products and Services

These are the products and/or services which create gain and relieve pain and built
around the value proposition. These offerings may help customers obtain a functional, social,
 or emotional job done or just satisfy the basic needs. In addition, these products and/or
services could be in the form of tangible, digital/virtual, intangible or financial which are
essential to the customers.

Achieving fit between the value proposition and customer profile is the intention of
creating the value proposition canvas. Both the value proposition side elements and the
customer profile elements should fit in. A fit is realized once the products and services offered
as part of the value proposition address the most significant pains and gains from the
customer profile.

Figure of The Value Proposition Canvas of the Bakery

The Lean Canvas: A Business Model Canvas Alternative

The Lean Canvas as proposed by Ash Maurya is a developed version of the Business
Model Generation. It outlines a more problem-focused approach and appropriate to use by small
entrepreneurs especially those creating startup businesses. The focus is more on customers’
needs, on actionable metrics and offer a fast idea-to-product transformation. The Lean Canvas is
also primarily meant for entrepreneurs and not the customers, consultants, investors or advisors.
 Figure of The Lean Canvas
Source: https://scorechicago.org/business-plan-templates/

Here are the elements of the Lean Canvas Model:

1. Problem - It is important to understand the problem first that the business will
address. Every customer segment that an entrepreneur wants to serve has å
set of problems that require solving. In this box, the entrepreneur shall list the
three high priority problems that the customer segment is experiencing. This is
to ensure that the right product and/or service shall be met based on the
existing need of the customer segment being served.
2. Solution - Once a problem has been identified, the next step to look for the
effective solution. However, this is not easy task to do. According to Steve
Blanks, the Godfather of Lean Startup, the entrepreneur needs to "get out of the
building". The phrase was coined by Blanks to mean going out in the streets
and interview the customer segment. The customer should be asked questions
in order to learn from them regarding their problems. The solution here must be
concisely written and specific.
3. Value Proposition - This block contains a marketable promise to the target user
that the business will solve their problem. This is similar with the business
canvas model.
4. Unfair Advantage- A startup should recognize if it has the competitive
advantage that cannot be copied and cannot be bought or it has an unfair
advantage over others. Basically, this block, is hard to answer, but essential
especially when looking for partners and investors. The entrepreneur needs to
think about what the business has that no one else can buy such as dream
team, expert endorsements and existing customers.
 5. Customer segments - This is similar with the business canvas model. The
problem and the customer segments must be connected.
6. Channels- These are the ways to reach the customer segments. Channels,
which are free as well as paid, can be used to reach your customer directly.
They can be email, social, CPC ads, blogs, articles, trade shows, radio and TV
plus webinars which are also the same with the business model canvas.
7. Revenue streams - This is the money matter of the business just like in
business model canvas. It is common for startups to lower their cost or even
offer it for free in the beginning to gain attraction. Getting people to sign up for
something for free is not the same than asking them to pay as they are more
interested in free products.
8. Cost structure - These are the operational costs that the business needs to pay
in bringing the product to the market such as salaries, cost of the materials, cost
of maintenance. The complete variable costs and fixed costs are to be listed
here.
9. Key Metrics - All businesses, whether big or small have some metrics with
which to monitor their performance. The metrics consist of the assortment of
products and/or services the business wants to deliver. For a startup business
though, one metric is good enough and then just build on it. It is important that
the correct metric is recognized.

Suggested Readings

Marr, B. (2019). The 9 Most Successful Business Models Of Today. Retrieved from
Bernard Marr & Co: https://bernardmarr.com/default.asp?contentID=1847
Ovans, A. (2015, January 23). What Is a Business Model ? Retrieved from Harvard Business
Review: https://hbr.org/2015/01/what-is-a-business-model

Suggested Videos
The Rise ofAirbnb: From Airbeds to Billions (2019). [Motion Picture]. youtube.com/watch?
v=1Tc9YScMtN8
Netflix: How a $40 Late Fee Revolutionized Television (2016). [Motion Picture].
https://www.youtube.com/watch?v=BrpEHssa_gQ

LEARNING ACTIVITY 4.1

Student’s Name: ___________________________________________ Score: ______________
Year/Section: ______________________________________ Date: _______________________
Directions: Using the “problem worth solving” in Learning Activity 2.1 from Module 2, fill out the
template of the Lean Canvas below. This is the one-page overview of your startup business as a
solution to this problem. You may “Go Out of the Building” for this exercise.

Key Partners Activities Key Propositions Customer Customer Segments

Relationships

Key Resources Channels

Cost Structure Revenue Streams

LEARNING ACTIVITY 4.2

Student’s Name: ___________________________________________ Score: ______________
Year/Section: ______________________________________ Date: _______________________

Directions: Read the article. Answer the questions required below.

How Airbnb’s Exponential Business Model Works

Source: https://www.businessmodelsinc.com/exponential-business-model/airbnb/

Irrespective of the publication, if disruption is in the title (or even mentioned) in the article,
it’s likely that Airbnb gets first billing as a company – and business model – that is disrupting the
landscape of hospitality (and for better or for worse…even housing in general). The proof is in
the listings. By mid-2017, Airbnb had 4 million listings worldwide, spread throughout 191
countries. At this point, Airbnb has more listings than the “top five major hotel brands
combined.”

What’s perhaps most interesting is just how simple Airbnb’s business model is. As you can
see, Airbnb’s business model is a multi-sided marketplace that connects travelers with host and
experience providers. The company makes money from booking fees that come from stays and
experiences. Simple, right?!

However, if you dive into what REALLY makes Airbnb’s business model special is that it’s
exponential…in almost every way…especially when compared to the business model of a hotel
company, like Marriott, the largest hotel chain in the world. In fact, when you look at them side-
by-side, what you’ll notice is that the big shifts Airbnb has made in the hospitality market, have
enabled it to scale hospitality in a way Marriott can only dream of (i.e. exponentially).

Firstly, Airbnb solves a problem (and addresses ambitions for many people). Plain and
simple: Airbnb’s business model is made for a mass market…and even connects mass markets
in a unique way (travelers, hosts, and experience providers). Via its rating system and ability to
tailor experiences, Airbnb has created communities of fans for all of its customer segments.

What’s more, if you’ve used Airbnb, you probably already know that it employs a totally
digital channel. There are no booking agents or front desk receptionists to call. You find and
make reservations and/or manage listings and experiences via an app and online.
 Because it is a marketplace, Airbnb’s core value proposition is essential an information-
based offering. In other words, Airbnb does not own any of the properties nor does it have to
worry about providing value in the form of real assets. Rather, its business model is predicated
on connecting people who have something to offer with others who need what they have. It’s all
information at the core. Additionally, as a marketplace, Airbnb has several revenue streams, all
connected to booking stays and experiences.

On the operational side, Airbnb has built scalability into everything the company does.
Whether it’s working with regulators or developing ads and apps, Airbnb has set up processes
that enable it to move very quickly to new markets in a way that brick and mortar hotels only
wish for in their wildest dreams.

Connecting all of this, are Airbnb’s algorithms, that churn through the millions and millions
of stays, guests, hosts, and experiences, continually matching the right value propositions with
the right people. This is very much a virtuous cycle that feeds back into Airbnb’s customer
relationships, which feeds information back to the algorithm, etc.

Finally, when you visit Airbnb, as BMI did in January, two things you notice right away are
1) the entire office experience has been designed to be open and collaborative (and to look just
like some of the favorite homes on the platform); and 2) Airbnb employees are empowered to
make decisions that help customers. While Airbnb is not a holacracy, the company definitely
provides people with the ability to work together to solve problems and provide better
experiences for its customers.

When you add all of these things up, Airbnb represents a company that has not only totally
embraced the idea of an exponential business model. Airbnb understands how all of the
elements of its business model are connected and the company continually innovates to make it
more connected and more exponential.

CRITICAL THINKING QUESTIONS

1. How would you explain the business model canvass of AirBnB? Please see the canvas.
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2. What makes the AirBnb differentiated? How does the company reflect its uniqueness in its
value proposition? Explain.
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3. Is there any suggestion/s that you wanted to recommend to AirBnB at this point to sustain its
business? Detail it.
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