1. Base of the Pyramid Business Model Innovation
- Market positioning
Example of Innovation for the Base of the Pyramid
- Packaging strategy (salt, coffee, vodka)
- Small portions to make goods affordable
- Pricing strategy (cellphones – pay as you go)
- Product design (Appropriate technologies)
- Distribution strategy (Grameen phone)
- Product financing strategy (microcredit; renting batteries)
- Renting batteries is a way for people to use batteries, who may not be able to afford owning their own
- Production strategy (Shakti Revolution Danone – yogurt microfactories)
- Marketing Strategy (media; word of mouth)
- Payment strategy (M-pesa; payment by phone)
2. Business Model Canvas by Alex Osterwalder & Yves Pigneur
Purpose: The objective of this tool was to help technological geeks (or simply non-business savvy individuals) understand the various intricate aspects of developing a business plan and identifying a business model.
It addresses topics like:Identifying your value proposition, customer segments and key partners, developing customer relationship and marketing channels, and establishing the revenue streams and cost structures.
Definition: The Customer Segments building block defines the different groups of people or organizations an enterprise aims to reach and serve.
- For whom are we creating value?
- Who are our most important customers?
When do customer groups represent separate segments?
- If their needs require and justify a distinct offer
- If they are reached through different Distribution Channels
- If they require different types of relationships
- If they have substantially different profitabilities
- If they are willing to pay for different aspects of the offer
Categories of Customer Segments
- Mass Market
- No distinction between market segments
- Large groups with broadly similar needs
- Examples: Food, basic life staples (tooth paste), consumer electronics
- Niche Market
- Specific, specialized customer segments
- Example: Dried food, expensive wine
- Segmented Markets
- Market Segments with slightly different needs and problems
- Example: Credit card companies that offer packages based on varying levels of net worth
- Diversified Markets
- Multiple unrelated customer segments
- Example: Amazon.com offers products to customers but also sells server usage to other web companies
- Multi-sided platforms
- Brings together two or more distinct but interdependent groups of customers
- A mutually symbiotic relationship must be present
- Example: Google attracts customers through its value proposition of an expansive and efficient search engine but also attracts advertisers through the promise that ads will reach a large population of consumers
Definition: The Value Proposition Building Block describes the bundle of products and services that create value for a specific Customer Segment.
- What value do we deliver to the customer?
- Which one of our customer’s problems are we helping to solve?
- Which customer needs are we satisfying?
- What bundles of products and services are we offering to each Customer Segment
Value Propositions for the Developing World
- Entirely new sets of needs
- Improving product or service performance
- Tailoring products and services to the specific needs of individual customers
- How can you put more money in your customers pockets?
- How does your product manifest the value?
- How will your product be branded?
It is CRITICAL to understand culture for appropriate branding
Definition: The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition.
- Through which Channels do our Customer Segments want to be reached?
- How are we reaching them now?
- How are our Channels integrated? Which ones work best? Which ones are most cost-efficient?
- How are we integrating them with customer routines?
Definition: The Customer Relationship Building Block describes the types of relationships a company establishes with specific Customer Segments
- What type of relationship does each of our Customer Segments expect us to establish and maintain with them?
- Which ones have we established? How costly are they?
- How are our Relationships integrated with the rest of our business model
What kind of relationship do you need to deliver, to acquire and to retain your customers and boost sales in the long run?
- Personal Assistance – based on human interactions. Customers can speak to a sales representative during the sales process or post-purchase
- Dedicated Personal Assistance – a customer representative is assigned individual clients
- Self-service – no direct relationships with customers by providing the customers with everything necessary for them to help themselves
- Automated Services – simulate personal relationships
- User Communities – users can exchange knowledge through online forums
- Co-creation – Customers impact the service by providing product reviews (Amazon) or by producing content for consumption (YouTube)
Definition: The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings)
Types of Revenue Streams
- Transaction Revenues resulting from one-time customer payments
- Recurring revenues resulting from ongoing payments to either deliver a Value Proposition or provide post-purchase customer support
- For what value are our customers really willing to pay?
- For what do they currently pay?
- How are they currently paying?
- How would they prefer to pay?
- How much does each Revenue Stream contribute to overall revenues?
- Asset Sale – Consumer pays for product ownership
- Usage Sale – Consumer pays proportionally for use of a service (ie hotel charges for a room per night)
- Subscription fees – Consumer pays for access on a timely basis (ie per month per week per year)
- Lending/Renting/Leasing – Consumer is granted temporary access subject to renewal
- Licensing – In exchange of a fee, Consumer is granted permission to use protected Intellectual Property
- Brokerage fees – Customer pays for the service of an intermediary in a transaction
- Advertising – Money generated by advertising products
Definition: The Key Resources Building Block describes the most important assets required to make a business model work
- What Key Resources do our Value Propositions require?
- Our Distribution Channels?
- Customer Relationships?
- Revenue Streams?
Most important assets required to make the business model work:
- Physical Resources – manufacturing facilities, buildings, machines
- Intellectual – patents, partnerships, customer databases
- Human – skillsets, specific disciplines
- Financial – cash guarantees, stock options
Definition: The Key Activities Building Block describes the most important things a company must do to make its business model work
- What Key Activities do our Value Propositions require?
- Our Distribution Channels?
- Customer Relationships?
- Revenue Streams?
3 Categories of Key Activities
- Production – designing, making, and delivering a product in substantial quantities
- Problem Solving – determining solutions to customer problems
- Platform/network – software, online platforms, apps
Definition: The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work.
- Who are our Key Partners
- Who are our key suppliers
- Which Key Resources are we acquiring from partners?
- Which Key Activities do partners perform?
Motivations for creating partnerships
- Optimization and economy of scale
- Reduction of risk and uncertainty
- Acquisition of particular resources and activities
Definition: The Cost Structure describes all costs incurred to operate a business model
- What are the most important costs inherent in our business model?
- Which Key Resources are most expensive?
- Which Key Activities are most expensive?
Costs incurred to operate the business
- Cost-driven business models
- Value-driven business models
Cost structures have following characteristics:
- Fixed costs (certain costs remain fixed)
- Variable costs (costs proportional to volume of sales)
- Economies of scale (Reduce avg cost/unit with increased sales)
- Economies of scope: Leverage resources for more operations (like distribution channels)
Source: Business Model Generation
3. Social Business Playlist – Success Stories
- Watch this playlist that shows examples of creative and successful social ventures
- How will you explain your project to a potential customer in 30 seconds? (Rewrite value proposition?)
- Identify one social venture which you think has a sound business model.
- Give five reasons why it would qualify as a social venture
- Give five reasons why you think it has a sound business model