CHAPTER 3

BUSINESS MODELS
3.1 . Business Model Canvas
3.2 . Examples of Business Model Canvas

After this chapter, the students will be able to:

1. demonstrate understanding of the Business Model Canvas; and,
2. identify the nine key elements of the Business Model.

3.1. Business Model Canvas

Startup companies or organizations usually used the Business Model Canvas as a guiding
tool to generate new innovating ideas and apply the strategies in marketing the products or
services. The Business Model Canvas was proposed by Alexander Osterwalder in his book
Business Model Ontology that outlines the key nine segments which form the building blocks
for the business model in a nice one-page canvas.

How to use the canvas

The business model canvas is a shared language for describing, visualizing, assessing and
changing business models. It describes the rationale of how an organization creates,
delivers and captures value.

Fig 3.1 Business Model Canvass

Ales Cowan lists the nine segments that provides business key drivers based on the
Business Model Canvass:

1. Customer segments
List the top three segments. Look for the segments that provide the most revenue.
Who are the customers? What do they think? Feel? Do?

a. Segment Dimensions. Do you have a single or multi-sided market? If you have

a multi-sided market, you’ll have at least as many segments as you have sides.
b. Segment Composition. You have should be able to visualize the individual
customer types as “Personas”, as for instance. What kind of clothes that most
buyers want, what kind of gadgets are they interested with. What they think,
see, feel, and do about your product or service should be well understood.
 c. Problems, Needs, Habits and Current Alternatives. What job are you doing for
the customer? What need are you satisfying? It is necessary to know customers’
wants and needs at the same time, you should be able to identify several
alternatives that they use today. Perform market research by talking to people
and hear their interests.

2. Value proposition
What are your products and services? Why do customers buy, use? What is the
job you get done for your customer? What is compelling about proposition?

A value proposition refers to the promises of the company to offer to customers

should they choose to buy their product or service. It is the declaration of intent or
a statement that introduces the company’s to consumers through by telling what the
company stands for, it’s operations and the reason why it deserves their business
(Twin, 2019).

Some of the most common forms of value propositions are:

1. Newness
2. High Performance
3. Ability to customize
4. Design
5. Brand/Status
6. Price
7. Cost Reduction
8. Risk Reduction
9. Convenience

3. Revenue streams
List your top three revenue streams. If you do things for free, add them here too.
How does your business will earn revenue from the value propositions?

Revenue is the amount of money generated by the company through its business
activities, for example: sales of products and services.

A Revenue Stream is the building block of presenting the cash a company

generates from each Customer Segment. At least one great revenue stream is necessary
for a company to earn money.

Revenue streams can be generated in different ways and mix of these ways:

a. Sale of physical product. The customer pays in cash for the product or service
and he is free to do whatever with it.
b. Usage fee. The customer pays for the usage of the product or service.
c. Subscription fee. The customer pays for a subscribed service once a month or
yearly. Postpaid services of telecom companies like Globe and Smart.
d. Lending/renting/leasing. The customer pays a fee for the right to use for a
particular product for a fixed period of time.
e. Brokerage fees. The company will get its revenue from an intermediate service.
Real estate agents earning from commission from a successful deals and credit card
providers getting percentage of the value of each sale completed between the
merchant and customer are good examples.
f. Advertising. The company gets its revenue for advertising a product, service or a
brand.
g. Volume and unit selling. The company charges affixed price for a product or
service. In buying products in higher quantities, customers get a discount in the
form of lower price or additional products.

4. Channels
How do you communicate with your customer? How do you deliver or promote
the value proposition?

It is important to understand which pathway or channel I best for the company to

communicate or reach the customers.
 The following types of channels or mix of these can be used to satisfy how
customers want to be reached:

a. Awareness. As a businessman, it is needed to come up with ideas on how to reach

out the customers to introduce your products and services. This will enable the
customers to have knowledge and ideas about the use of the products and the
benefits as well.
b. Evaluation. This is done before the process of manufacturing the products or
finalizing the concepts of the services to be offered to the customers. Evaluation
can be done through conducting surveys, interviews and reviews of the product or
service. Evaluation is necessary so that you will be able to assess the value
proposition of the company.
c. Purchase. Customers may choose self-checkout and payment procedures where
they use credit cards, cash on delivery or even doing payments for their
convenience.
d. Delivery. One value proposition to customers is the convenience and faster delivery
of products or service.
e. After Sales. After Sales is a post-purchase support service where customers can be
assisted such as call center, return policy and customer assistance.

5. Customer relationships
How does this show up and how do you maintain the relationship? How do you
interact with the customers through their journey?

A good customer relationship is an important consideration in doing business

because interaction with the customers where their experience with the products or services
met or exceeded their expectations or not.

Customer relationship provides three benefits to the company:

a. Customer Retention. Managing customer relations effectively will likely result in

higher customer retention rates. Fair customer service would likely make customers
do business with the company again.
b. Customer Loyalty. Establishing a positive customer relation drives customer
loyalty for the reason that it creates an intangible incentive for them to return.
Having a line of repeated customers makes it difficult for competitors to lure
people.
c. Customer Satisfaction. It is a measurement that determines whether customers’
satisfaction is met with the offered products or services of the company. Customer
satisfaction is one of the most important indicators of the purchase intentions
and loyalty of the customers.

6. Key activities
What do you do every day to run your business model? What are the unique
business strategies to deliver its value propositions?

In order to ensure success, a company must carry out key activities that are
primarily dictated by its business model. Below are some typical key activities that are
commonly undertaken by most companies:

a. Research and Development. The research and development department are

required to link up with all other functions of the company whether it be
production, marketing or sales.

The following are the typical functions of research and development

department:
1. New product research. It is the work of the R & D department to undertake
in designing the product, the expected cost of production and the plan the
timeframe to produce the product.
2. New product development. Product research eventually leads to the
development of the product as a result achieved during the research phase.
3. Existing product updates. The R & D department must conduct an
examination of existing products if it requires an upgrade based on the
changing needs and benefits of the customers.
 4. Quality checks. The Quality Assurance Team is in charge with the control
and inspection of the products to determine if it achieved the quality
standards set by the company.
5. Innovation. To ensure that product of the company stays with the trends in
the market, the R & D team is also responsible to be updated with the
innovations and new trends within the industry.

b. Production.
Production management consists of a number of activities which are outlined
below:
1. Selection of product and design. The combination of the right product
(value proposition) and the right design (key activities) will determine the
success of the failure of the company. Value engineering and value analysis
are necessary parts of the production activity.

2. Selection of product process. In this production process, it includes the

selection of right technology, process, machines, inventory management
system, etc.
3. Selection of right production capacity. The production management team
should have a full knowledge of the projected demand of the product to set
the production capacity accordingly. This is to avoid either dearth or
surplus of supply. Companies commonly employ the break even analysis
as their tool.
4. Production planning. Routing and scheduling are part of this production
activity. Routing is creating a smooth flow of work by determining the
easiest and most economical ways to execute it. Scheduling is designing
the period of activities to be undertaken by mentioning the start and end of
time for each activity.
5. Production control. Coordinating the interaction of people, materials,
machinery and other resources in order to produce products on a set
timeframe is a very important in the production process. The production
manager compares actual production with the planned production, knowing
the deviations and correcting them to satisfy planned production.
6. Quality and cost control. It is ideal to continuously improve the quality of
the product but also taking into consideration the reduction of costs in order
to keep the product competitive in the market in terms of both quality and
price.
7. Inventory control. Products should be regularly checked to determine
overstocking or understocking. Overstocking means spending more money
on materials and understocking affects production and late deliveries and
commitments. Both should be avoided.
8. Maintenance and replacement of machines. Regular inspection of the
conditions of machines and scheduling maintenance should be done to
ensure continuous production activity and avoid unexpected breaks.

c. Marketing. The marketing department is responsible for the growth of the

company by getting word of the company’s existence and the value it offers to
the customers.

Below are some of the functions of the marketing department:

1. Strategy. Based on the overall goals and missions of the company, the
marketing department is responsible in the drafting and getting approval of
a marketing strategy for the company before cascading it for
implementation.
2. Market research. With market research, the marketing department must
have an enough knowledge of the market the company is engaged with
including the strengths and weaknesses of the product according to the
customers and potential competitors to stay competitive in terms of market
share.
3. Product development. Upon identifying customer pulse and consumer
needs and feelings, the marketing team works in conjunction with the
production team to develop product to address unmet needs. Once the
product is developed, pricing is done by the marketing department.
 4. Communications. All communications with regards to the product is the
responsibility of the marketing department. It includes press release,
product launch, online product reviews, advertisements, emails and others.
5. Sales support. The marketing team work closely with the sales team by
providing them with customer leads as well as other promotional materials
and activities for potential customers.
6. Events. Key or prospective customers are usually called during seminars,
product launches, exhibitions and other marketing activities organized by
the marketing department.

d. Sales and Customer Services. This marketing function plays a key role in
ensuring that customers can become advocates in the market and drive more
business in through word of mouth. Conversely, they can become extremely
vocal with their bad experience and easily drive business away.
1. Handling problems. Customer service representatives are trained to handle
complaints about the products and services of the company. They need to
be customer-focused in order to maintain harmonious relationship and
gather positive feedback to improve products and services.
2. Assisting in sales. Customer representatives help increase the sales of the
company primarily by assisting the marketing and sales department.
3. Clerical tasks. Clerks handles clerical works and sometimes act customer
service representatives where inquiries and present possible suggestions are
made.

7. Key resources
The people, knowledge, means, and money you need to run your business.

Types of Key Resources

a. Physical Resources. It refers to the tangible resources of the company being
used to create its value proposition like equipment, inventory, buildings,
manufacturing plants and distribution networks that enable business operations.
b. Intellectual Resources. These are non-physical resources which includes
brands, patents, IP, copyrights, partnerships, customer lists, customer
knowledge and even people.
c. Human Resources. Human resources are the people of the company who
possesses great deal of creativity and extensive knowledge.
d. Financial Resources. The financial resource include cash, lines of credit and
the ability to have stock option plans for employees.

7. Key partners
List the partners that you can’t do business without (not suppliers).

Key partners are business, governmental or non-governmental entities that

help the business model works. They can be suppliers, manufacturers, business
partners, etc. Partnerships create forces that help the company succeed in areas and
operations that would hard or inefficient for the company to do alone.

Four types of partnerships

a. Strategic alliances between non-competitors. This is an alliance between

your company and another company where there is no direct competition and
can work together and both will be benefited.
b. Coopetition. “ Coopetition” is the combination of “cooperation” and
“competition”. It is business relationship where your competitor can be a
partner in business as long as there is a cooperation of ideas and knowledge
how to enhance products and services.
c. Joint ventures to develop new businesses. A company may join another
company to form a different entity expected to be more profitable than
operating separately.
d. Buyer-supplier relationships. In every business, the customer and supplier
should incorporate the characteristics of trust, quality, and commitment
between them to maintain an amicable relationship to achieve success.
9. Cost structure
List your top costs by looking at activities and resources. What is the business’ major cost
drivers? How are they linked to revenue?

Cost structure defines all the costs and expenses that your company will incur
during the operation of your business model. This is the final step in the process to decide
as a team whether to pivot or proceed.

There are two main categories of cost structure:

1. Value-driven. To create more value in the product itself, not necessary

producing the product at the lowest possible cost is the focus of value-driven
cost structure. Products like Michael Kors, Louis Vuitton and Rolex are
examples.
2. Cost-driven. It focuses on minimizing the costs of the product or service as
much as possible. Examples would be CD-R King and Budget Airlines like
Cebu Pacific.

Examples of Business Models of Some Companies.

 REFERENCES

1. Juaneza, J. P., et al. (2019). Introduction to Technopreneurship, Unlimited Books

Library Services & Publishing Inc., Philippines.
2. Sison, L. G. (2018). Tech to Go, Philippines.
3. Modules of Dr. Jonathan W.L. Salvacion