(4 Models Building Business

Learning Objectives:

The learnersshallbe able to:

•Understand the concept of a businessmodel;

quardt.(5) •Design a business model canvas fora 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;

•Selectthe customer segment/s to serve;

• Propose for the channels to use to communicates with customer segments; and,

•Prepare a lean canvas for a startup.

(1) change,the more enhanced your business model."

The more you drive positive

Anand Mahindra

A good product and/or servicedoes not automaticallyturn intoa commercial

between success in the laboratory
success.A business model makes the difference the
a business model will also defne
and success in the marketplace. Having
business model involves the product or
foundation of a business operations. The
the economic engine that will enable a
service offering, the targeted customers,and
objectives. Business model assessment
business to meet its profitability and growth to discover.
is essential for startups, new
and recognized businesses which need
their business models.
preserve oradvance

What is a Business Model?

model, the question only
when management is asked about
its
Basically,
money". AcCording to management guru
Peter
says "how does it plan to generale what value you
to ansuer who your customer
is,
Drucker: "a business model is supposed
do that at reasonable costs". Simply, a
can createladd customer and how you can
for the
proposition,
of its company's core value
business model defines the foundation
 revenue streams.
and assumed
targeting customers, key
resources,
overcoming
Eventually,
challenges i
for success and
offers a framework
business model

Different Types of Business

Models
t
meant for different
of business
models
are different types
There
times. Here
businesses
ar
and some are in contemporary 8.

some of these are traditional

business models that are used traditionally:

A manufacturer is a person or a registered company whie

1. Manufacturer -
to make a
makes finished products from raw materials in an effort
T profit.

who then sell

goods are later distributed to wholesalers and
th
retailers
9. F
directly to customers. The retailers exhibit the products
via brick and more d

stores or on 3rd party E-commerce platforms. In the manufacturing

industn:
ty
products are made in big-scale so as meet the irresistible demand coming

from consumers. Examples of manufacturers in the Philippines are Ajinomo Some o1

Philippines, Alaska Milk and Century Pacific Foods among others.

2. Distributor-Adistributor
1. N
is an entity ora company that purchases noncompeting
ba
products or product lines, stores them in warehouses, and resells them t ch
retailers or directly to thecustomers. Auto dealers are examples of
distributors
the
Unilever spends its major partof revenue in maintaining a proper
distribution.
pri

t
3. Retailer - A retailer is a person or business that purchases goods from ser
the
wholesaler or directly

i
from the manufacturer.Retailers normally do not
produce
their own items.They purchase goods to sell those 2. Fre
goods in small quantities t
end consumers. Online retailer giantsinclude Best by
Buy, Wal-Mart and Target.
4. Franchise- A franchisecan be a Ust
manufacturer, distributoror retailer.
method distributing products or a It is The
services involving a franchisor.A
provides access to his business' franchis the
proprietary knowledge,
sýstem and a brand's processes, busines the
tradenmarkor trade name in order to let
to sell a product or provide a the franchise exa
service under his
pavs a royalty and often an business's name. A franchis
fee for the 3. E-C
initial right to do business under
franchisor's name and
system. In the Philippines, the

Pizza Hut are some Jollibee McDonald's anu bus

examples of retailing awe
the hestexample which businesses. McDonalds's
has 93% of its franchised though
5 restaurants worldwide. are
Brick-and-mortar It is a model that
4.My
businessthat sells refers to the
productsand services to old-fashioned street-so
or store that the business
its customers
owns or
face-to-face in
rents.
Grocery
n Subs
local grooeryand walk-in stores,
dentists, gas statios
fxed
banks are examples of
- It brick-and-mortar businesse
toits
Bricks-and-clicks is a
model where a
6.
company J
physical presence. Customers may
placetheir combines its online and 5.Netf
the products fromthe physical stores. orders online and
This model then pick up Aggr
flexibility because can show its provides the advantage
it
products to betwe
where brick-and--mortar storesare not customers who live Plaes
present. in provi

7.
selling apparel

Direct Sales -
andshoes items in
In

the form
this mudel,
fa
.
i
These day,
products
businesses
Divisoria use

aredirectly
this model.

sold tothe
most own
byth
could be in of
aface-to-face
customers.
Selling 6.servic
conversationorsmall
gathering The formet
Onlin
sellers
Models
8usiness
Bullding
 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 direst selling such as Avon, 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 and involvement in

order to the experience highly personalized. This type of business operates

on trust and credibility toearn revenues for the company. Here the highest
involvement of thecustomerwith the business the more pay they give and the
he

more loyal they become. Hair salons and auto dealers make use of this model.
ta 9. Family-owned - This is a family
owned and operated by a family. The
that is
decision making are controlled by family members. Some examples of this
type of model arethe National Bookstore, ShoeMart, Jollibee and Robinsons.
oto
Some of the basic types of modern business models are explained here:

1. Nickel-and-dime - This model makes use of the lowest price strategyin selling
ing

to
basic product or serviceto thecustomers. Since the basicprice is low,additional

charges for the other perks and services that are offered are required. Here in
ors
the country, Cebu Pacific is the low-costcarrier which offers the lowest possible
on
price for the flight tickets and charges fee. However, it charges fees over extra
the servicessuch as meal/snack, beverage and other services.
2. Freemium -This model is a combination of free and paid services normally used
sto by tech companies in the Software as a Service (SaaS)or apps business model.
Usually thebasicservices arefreebut fora limited timeor with limited features.

The basic servicecomes with app advertisements and storage restrictions but
is a
the premium plans do not have. In order to unlock the upgraded features,
the customer has to choose for paid services. Zoom,Spotifyand Dropbox are
ness examples of this model.
isee
3. E-Commerce - This model is an upgradation of the old-style brick-and-mortar
hise business model. It focuseson buying and selling of goods or services creating
the a web-store using the internet. The transactions of transfer of money and data
and are executed via the Internet. Online stores like Amazon, Flipkart, Shopify.

ghis Myntra, Ebay, Quikr,Olx and Alibaba areexamples 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
-side
to its customerssfor:repeatpurchasesby visiting the websiteover and over again.
bffie Netflix, Linkedin,Amazon Prime, Dollar Shave Club,arefew of its examples.
tions
5. Aggregator - This is a network model, the company acts as a middleman
ses. between two individual parties. Under this businessmodel, most companies
nd provide informationand sourceson a single industry.The company sells its
ck up own brand by creating value for both demand and supply side. It makes profit TY
of
ge 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. eeg
laces
6. Online Marketplace - In the online marketplace,there is a collection of different
esses
sellers into one platform. These sellers compete with each other to deliver
P

elling Building Business Models

Drmer
 Good brand built from factors prices.
similar product/service at competitive sellers
on-time home delivery and quality isvital
such as trust, free and/or on e
earns commission
The online marketplace
in an online marketplace.
on its platform. Examples of well-known
companies using hi
ane
o
sale carried
model are Amazon and Alibaba.
for free. Th
the company offers its services
7. Hidden Revenue - In this model derentt
which are paid for hu
company earns revenue streams from advertisements Liecoit
is shared. Users of Google, Facebook
identified sponsors when information
engine, but these companjes
Instagram and Twitter don't pay for the search
in selii
earn from advertisingmoney spent by businesses.
althougi

8. Data Licensing The Internet has given rise to the importance

/ Data Selling -
human
of data. Data the major element in the web technology where companies
is

SurneyM
need vital information to perform its operations and gain profit. Twitter sels
real-timedata to third party users foranalysis,advertising, customer insight and
16.Razor
and other uses. or even g

9. Agency-Based - This a partner company that has specialization in doing

is such as co

non-core business activities such as advertising,digital marketing, PR, even price and
janitorial and security. Usually, businesses that has no internal know-how holds in a

hire agencies to acquire a customizable solutionfor their needs. Leo Burnet loyal
Company is an agency that services United Airlines, McDonald's, Kellogg's custo
with
and someof their notable clients. custor

10. Affliate Marketing - This D.

is a
commission-based model where comparies Cansulting

make profit by promoting a partner's product and convince its

and users to buy the same. In return, the followers qualified
Most
pr
affiliate gains a commission for
every sales opportunity it referred to consu
their vendor companies.
website oftentimes provides The affiliate Tendered
ser
product review. NerdWallet,
Capterra,
MoneySavingExpert.comand and the Wirecutter are examples of accountants,
that are into affiliate marketing. businesses
Comparies.T
11. Dropshipping-Ina Baston
drop-shippingbusiness,the owner has no
product or hold any inventory ownership of the 4.Soóal Consu
but he has an E-store. He
Suppliers/wholesalers to sell has many different Enter
their product on
is placed on a
business owner's website,
the website. When an
order
itve
nteror

products directly to the the partner sellers then chan

customer. Few examplesof deliver the
Oberlo, Dropship Direct, and Wholesale 2B. this nature incude
Dobd Wia
12. Network Marketing - Often called enterpt
Harvesk
multi-level
direct marketing and direct selling marketing, this
model
but the offerings are sold to the philosophy.There are no retail shops
works on and
target market het
The more people that become tdirectly by the participant
part of the
are gained by selling more goods pyramid structure,
and getting more mo
commission-basedi model where more people
on board. This is
a
and recruitment of members. Avon,participants earn income
H and through selling
network marketing. Mary Kay are
good examples of
13. Crowdsourcing - This is a model that solicits
what value-added concepts be intellectual o
inputtedinthe information of users
Here there is an open call for product and or
u
contributions tohelp solve offering
the service In some
problem.

ess Model
Building Busin
 instances, the contributor of the solutionis given
monetary or recognitionas
rewards. Wikipedia, YouTube, Kickstarter, LEGO ideas, Unilever,
Coca Cola
(new flavorof beverage) make use of crowdsourcing.
14. Blockchain - This is a digital ledger that is irreversible and decentralized. No
one owns and monitors this digital
database but anyone can contributeto it.
This model works on peer-to-peer interactions and document all on a digital
decentralized ledger. Many crypto-currenciessuch as 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 There is
service. 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 isa business model in which one item is sold at a low price

oreven given for free in order to intensify the sales of a complementary good,
such asconsumable supplies.A good example is the Razor that is sold at a low
price and its partner, theblade 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 theability to create some sort of lock-in situation
with customers.

17. Consuiting - The consulting business is composed of experienced and

anies
qualified professionals that offers services based on their line of expertise.
wers
Most consulting firms charge their clients by the number of hours they have
for rendered serviceor a percentage of share once a project is completed. Mostly
n
liate accountants, lawyers, educators and businessmen form their own consulting
erra, companies. The most popular consulting firms are Mckinsey, Deloitte and
Sses Boston Consulting Group, software or website development irms

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
fthe
for humanitarian works to improve human living conditions.Some of the
rent
socialenterprises in the Philippines are Bayani Brew, Coffee for Peace, First
rder
Harvest and Liter of Light.
the
oba
The Business Model Canvas ("

s on earlier book "Business Model Ontology" Alexander Osterwalder, the

In his
Business Model Canvas consisting of nine segments for its building blocks. This
mere
business model can be written in a one-page canvas. Later he wrote a come
nts. book "Business
comprehensive descriptionof this business model in his bestselling
ney Model Generation'".

ling An entrepreneur may focus on every segment or blocks of the business model
sof systematicallyuntil he is able to close the gaps. Every block
The thoughts and ideas
describes the factor
of the entrepreneur
that a startupbusiness needs to study.
modify each as the need arises.
are kept intact and focused although he may block
son
ing
Building Business Models
79
 other
Each block is As one block is change, the
very much interconnected. blocksare
because they may need to be changed.
required to be revisited

model for a small bakery that intends

Here
ssample business canvass
is a to sel

organicaly baked breads:

Key Partners Customer Relationships Customer

Key Activities Key Propositions
Segments

1. vendors of organic baked Hotline number 1.

neighborhood
introduce organically freshly
raw materials produced bread breads E-mail for questions communities
2. healthy
2. packaging suppliers marketing and sales specialized in Facebook page life styist
2.
3. retail
partners bread 3.
3. branding organic 4, Loyalty discounts neighborhood
breads of constant Supermarkets
4. consumer education
quality 4. neighborhood
Key Resources Channels
breads are served bakeries

4.
1. team cooperation qulckly 1, social media

2. raw materials competitive priced 2. rider delivery

3. social media breads

|3. on call delivery
4, retail 6. Halal certified
network 4. direct selling using
7. The 'Finsbury OWn website
bread of Manila
5. physical store

6. events planner

Cost Structure Revenue Streams

1. equipment and facilities
1, volume sales from
supermarkets
2 staf salaries
2. sales to customers
3. product
ingredients
3. sales to eventssuch as weddings, birthdays,
anniversaries, etc.

Figure 5Business Model

Canvas of a Bakery
Basically there are four major
parts of the Business Canvass
the infrastructure,offering, model which are
customers and finances.
partners, key activities and key Infrastructure includes key
resources.Offering consists of the
The part of the customer value proposition.
comprises customer segments,
relationships.Finance takes into channels and customer
accountcost structure and
revenue streams.
Hereisthe templateofthe
business model
canvas of Osterwalder.

X Key Partners

ldentify your
key partners.
companys What
Key Activities

actvites
specific key
are necessary
Key

ldentify
value
Propositions

the core
of the
Customer
What type of
Relationships
Customer Segments
at
consist of important
your value
ldentity who is your
company providess relationships
r
do
Suppllers in vour Propoet
ositlon?
to value proposition
Customers. you nave with your
Supply chain. targets.
What activities set What CUstomers?
exactly is the
What key resources How do you interact Whoare you creating

oes e company
om these
your company apart
from others7

how
Consider
your company's
company trying
glve to
customers?
to

does this differ

with
customers and how
value

What are
for?

they like?

partners? in
What problem Is amongst
Wedrerences your company
customer
segments? What do they need
What key activities 8ream8, tryingDo you
to solve and what What do
are performed by these
distribution channels, communicate
with your
they enjoy?
or customer needs are your customers? the customer
partners7 Think about What is
relationships. company satistying? How much market
why your company support does like?

Do you needto How do you offer your company

works provide? Are you targeting
nartners and the procure speciflo nlche something
Key pari that
different a small niche
Do you satisfles
Communityor a smali
tivations behind resources?
the demands of
them. need to keep costs and
your customer market?
prices low?
segments (like
price, quality.
deslgn, status)?
 Key Resources Channels
What specific key How do you deliver your
resources or assets value proposition?
are necessary to
How do you reach
deliver your value
CUstomer seamente
ent propositions?
What channels are used?
Consider what
Consider your supply.
resources your
distribution, marketing
distribution channels
and revenue streams and communication
may require to function channels.

Are they well-integrated

Additionally, think
about what and cost efficient?

are neeSources Are they being utilized

maintain effectively?
relationships.

Does yourcompany
require a lot of capital
or human resources?
Cost Structure Revenue Streams
ldentify they key costs in your company's business model. ldentify the ways your value proposition generates money
What are the major drivers of costs? for your business.

How do your key activities and key resources contribute to Does your company have multiple methods of generating
the cost structure? revenue?

How do your costs relate to your revenuestreams? Are you

What is the pricing strategy for the products offered by your

property utilizing economiesof scale? company?

Through what channels do your customer pay?
What proportion of costs are fxed and variable?
Is your company focused on cost optimization or value? Does your company offer multiple forms of payment?

Figure 6 Business Model Canvas

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

are Key Partners

key
tion
Key partners are the network of suppliers and partners that may provide the
business model more effective. The entrepreneur could partner with other business,
omer
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 forstartups.

Partnering can be for
risks on
optimizing the use of resources,forming new resource streams or lessening
important business decisions.
ents
the
As the business lifecycle changes, so are the types of partnership that
a startup business would ditfer from
business may be needing. Simply, partners of
is already five years in operation. Here are the four
ating those partners when the business
different types of partnerships:

This partnership is an arrangement between non

Strategic alliances
1.
but retaining
oyt competitors to help each other do an equally advantageous task
business could with several
Smer their independence. For instance,
a new cafeteria

suppliers of coffee beans.

2. Coopetition - This partnership is an agreement between competitors to help
nall be partners in
share the risk that these companies may take. Companies ould
to gain new users.
forming awareness for their shared industry,
3. Joint-ventures - This is when
two businesses because of their mutual interest
new market or a new
agreed to for a completely different company. A

Building Business Models 81

 a
their resources in
area could be the reasons for combining thats
geographic a joint venture

venture. For example, a cheese company

may opr toform with a egup
manufacturing in another place.
milk manufacturer for a cheese distrib

4. Biiyer-supplier These are the most usual type of

relationships -
partnerships i
a dependabla
2
bntella

businesses. Such relationships make certain that there will be patents

c:
supplier this means a stabl
spring of supplies coming in. On the part of the lists,

establishedcustomer for their product. ofintel

Key Activities 3Haman

ofte
are

Key activities are the most essential activities in achieving a company's valye reativi

proposition and to operate successfully.The key activities are mostly a bridge service
between thevalue proposition and the customer segment, certainly,the entrepreneur
has to consider his channels and customer relationships when coming up with 4Financi
the str
have
key forthe business model. This portion is reliant
activities on business model type. and the
Here are the categoriesof key activities:
of financ
1. Marketing - Adding value by promoting products
and/or services such as
advertising a product to create awarenessand hence Customer
demand.
2. Sales - This concerns selling a product and/or service. For
instance, personal Customer
sellingincludes creating customer
relationships, discovering solutions to the
customer's problem and closing sales. product or se
3. Desigm -Thisis about statementcons
forming designs of variousitems.
For example, an apparel Thisis
company creates design of its lines of
clothing forpresentation to the compu
manufacturers. outsourced the
customers.
4. Development - This is adding
In the case of
value through developing
products and services.
realize
upon b
software company, it develops a companies are
probably be customized based on software product which could inthe
the need of the customer.
5. Operations- developr
The manufacturing of
products and deliveryof 1.
manufacturing, and delivering services. Designing
a product in big Functional
highest qualityare some of quantities and certainly ot
the activities under
this activity,
particularly because a lot of business
this.Mostcompanies are
under
problem. S
6 Distribution - This is
about reaching out to
models are in
manufacturing complete c
the phone
To illustrate, a customers to sell to them and
delivering the items to ot
them.
servicesof an item bought by a
customer.
repair shop
provides warranty 2 comr
water
ang
7 Customer experience - Customer Emotiomal
someof the activities involve here.
service, consulting Here va
and customer
support are romthecus
Key Resources traditio
3.purchasin%
Keyresources describes the most
important assets espedally
model work. These are the resourcesthat required to for
allow an make a business a Economic
value proposition, reach arget
arkets,
segments, and gain revenues.These fourbloks
enterprise to create and offer a promotes
val
good
be relationshipswith customer ene
the key resources segment. Here the four
considered
categoriesof whenndeveloping because
resources,
namely; ofa

Buildine Ausiness Mode cate

 wiha 1. Pysical -
These are physical assets which are considered tangible resources
thata company make use of to form its value proposition.These could include
psin equipment,machines, inventory,buildings,vehicles, manufacturing plants and
distributionnetworks that allow the business to function.
ndable
stable 2. Intellectual - These are non-physical, intangible resources such as brand,
patents,proprictary knowledge, copyrights, and even partnerships. Customer
lists,customer knowledge, and eventhe 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-orientedcompanies which require great deal of

creativity and extensive knowledge, human resource is very vital. Customer

servicerepresentatives,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 financialresources.

CustomerValue Proposition
Customer value proposition (CVP) is a business'sway of generating value in their
product or service when targeting
potental
statement consistingof thereason/s someone should do business
cuscs
proposition is a
iththe company.

This is computed through adding all the benefits that the product could provide to
the customers. CVP is a descriptionof the user's experiences that he will come to

realize upon buying and using ofa product. Without customer value propositions,
companiesare walking blindly in the market. Basically, there are factors considered
in the development thecustomer value proposition which are:
of

1. Functional value - The product and or serviceoffers the solution to a particular

problem. Said solution is convenient, better version, easier to use and more
complete compared Examples of functionalbenefits consist of the
to others.

phone competence offered by an iPhone, the thirst-quenchingbenefit by a bottle

of water and the warmness given by a wool sweater.
2. Emotional value - The product and or serviceis 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. Nowadavs,
purchasing locally produced or organic brands carries emotional benerits
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 given to the customer. This statuscan be a
type of status
social responsibility orientation or based from the brand. may include the t
business sophistication and the feeling of being casualcoming trom Apple products, the

d offer# manliness projected by the ltalian Ducati motorcycle brand or the extravagance
exhibited when carrying a cup of Starbucks coffee.
ustomer
veloping
Buiiding Business Models
 but
Different Types of CVPs to

By matching the customer segment to the value proposition, a company c targ

gain more profit. Therefore, it is basic for the company to know exactly the tra 2 Faro
off amongst different customer segments and then choose which one to target and their

serve. Then, thecompany should form its customer value proposition and adopt th next
best business model that could best serve the needs of the selected segment. custc

Some
There arevarious CVPs for every customer segment for allbusinesses. The rease impo
for this is because each segment has its own way of meeting the needs of its
customers
Types of CVPs include all-benefits, points of difference, and resonating 3. Reson
focus.
points

Value the be
All Favorable point Resonating value
proposition Benefits of difference focus
Custon
Consistsof benefits
All All favorable points of The key point of custo
Customers difference a market difference
whose
receive from a
offering has relative improvement
market offering to the next best
Custome
will deliver the
alternative
greatest value to
the customer Custo
for
its
particula
the foreseeable
future Customers, k
Answers the "why should our "why shouldour relationshipe
customer firm purchase "What is the
form purchase your 1.
question your offering?"
most worthwhile
offering instead of Personal
for our firm to
your competitors?"
keep in mind Commun
about your process.
call
Requires Knowledge of
Knowledge of our
offering?
2 cente
own market Knowledge of Dedicate
own market offering
offering and next how own market
best relationst
alternative offering delivers This
Superior value kind
to customers nstance,
compared 33banker.
with next bet

Has the Benefit

assertionValue presumption
alternative 4the
the
Self-service

potential pittall
essentia
Requires
Customervalue s
Automated
research Processes.
Table 7:Types of Custom
Rouuce hllps /ien CVPs heir nersa
wikpudia

ofghlkCuslornar_valueproposition 5.
orers.
- The company in thus acustomer
All Benefits type ot CVP and
1.
just
that a pruduct and/or serveotiering can deliver
list all the benefits or soluti
van Communities
The more benefits that
be lsted anad
serveto target custone Keep
about duwn, the on
only small knowledge (ustumers and better.
This connmecte
approach
competitors from thee compan
ha

Avsreas
a
Pines.
ldng
user
Ser
tesponsive
 but it is disadvantageous. This may lead to managers claiming entitlement
to advantages for solution features that in reality offer little actual benefits to
targetcustomers.
2. Favorable Points of Difference -The company using this CVP tries to differentiate
their solution by conveying
point of difference compared to the customer's
its

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 pointsof differencethat has bees emphasized could be of litle

importance to the target customer.
3. Resonating Focus- Thecompanymaking use of this CVP identifesthe 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-it value propositions for different
customer segments. The elements of value that are important may vary from
customer to customer, hence tailor-fitting is necessary.

CustomerRelationships
Customer relationshipsare the types of relationship a company forms with
itsparticularcustomer 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 a real salespersonto provide help during and after the sales
process. Ways of communication may include onsite 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 S

relationshipthat involves assigning a salesperson to an individual customer.
This kind of relationshipusuallydevelops over an extended period of time. For
an individual
instance,in the banking industry,each big account is provided
banker.

3. Self-sevice - Basically there is no direct relationship that exists here, although

all

are given.
the essential things to assist customers help themselves
4. Automated services- This is combination of customerself-service and automated
a

processes. For instance, automated services are able to identify individual

about
customers and their characteristics, hence they can be given intormation
a personal relationship such that
their orders. Said relationship can even kindle
or movie. tter.
a customer could be proposed of a book the
to be more close
5. Communities - User communities can be used by companies
a trend now to
and connected with their current and potential customers. It is
E&F
and help solve each other's
keep online communities to exchange information CON
and community in the
problems. Tsikot.com is the leading automotive website
Philippines. It offers auto classifieds, forums, reviews, galleries and a lot more.
AVA
interface, location based search with map and mobile
It has a user-friendly
ions responsiveness. Tsikot is the most popular car users community
in the country.

ners rba
ngp
eeds
Dany Buljding Bysiness Models
8 Na
 6. Co-creation - Basically, this is an extension of the traditional
relationship. Here customers have the chance to co-createcustomer-vendor
value
company such as in designing and innovating products. Writing reviewe e
with the

soliciting ideas from customers areexamples of engaging customers to bend

co-creators.A good example is IKEA, a Swedish furniture and home go
In 2018,it launched "Co-Create IKEA", a digital platform
retailer.
that promoh Chann
the participationof customers and fans to design new products.
There are even
cash rewards whose ideas arechosen. Cha.
IKEA also opted to provide test labs an
prototype shops so that customers may hone their cus
suggestions. target

prorndins
Customer Segments oreachh
may.
Shared needs, behaviors and butit
other traits can be the
bases for customer
segmentation. A customer segment
refers to
profession and/or gender; or demographics such as age, ethnicity,
psychographic factors which
behavior, interests, and include spending educa
motivations.A company may
groups to targetwith its products selecta single groupor servic
and services. several
search
Here are the various
types of customer
segments: 2 Enalua
1. Mass - This is basically
an unsegmented market produc
appeal products such in which
as aspirin, orangejuice, products with mass In orde
and thelike are soft drinks,
offered to every paperback romances, to educ
must be for a bi customer. The customer value
this segment
need requirements. number of people proposition for astome
Refrigerator
who has similar
because there is little manufacturers should problem or
target the mass
tosee
c
buy a refrigerator. differentiation needed
by customers who market thebest
2. Niche - are interestedto
This market website
speaks of a
characteristics and extremely customer segment 1.
with very
customized product, custom specitic needs. This segmnent distinct Purchase
madeto fit their necessitates a
proposition for this segmentshould needs. highly
be strictly Hence, the hosen
of this
specific customer defined based customer value
segment. This type of onthe artiaula
automobile parts suppliers who market is preferences
are really
for sale of their products. reliant on common amongst purchase.

automobile
3. Segmented - There are manufacturers Detoeny
businessesthat select to
customer segments that have very offer iten
small products the
In this segment, the and/or servicesto way
on these small
differences in
company forms various se
differences in the customercustomer value
their need
requirements.
the o
instance, the distinction lies
on the net worth segments.
of In propositions based
retail
substantial. This type of bank findsit
profitable tocustomers, which
banking tor
distinct customer value make is
proposition forevery type small yet
of investmentin
4. Diuersified - Some customer furming
companies often select
differentiated segment
Basicallythesecustomer it has.
segnments have very diverse
there may be some overlaps among the customer
eneeds and
profiles af wants. segments.
seeit is profitable to investin attracting ustumers,
these customers One. he
Although
companies in the Philippines is San Miguel Corpration. still
the
5. Multi-sided platfurnts This type of customer segment is copaed
-
used
segments are reliant with each other, which makes it a when
a

necessity
toserve
customer
both
wendy
sidesof the balance.This is true with
credit cards. It is vital for customers to
use
their creditcards. At thesametime, it is also
ecome important that stores acceptthese
credit cards of customers for
transaction. If one end of the
other one shallhave the equation fails, the
same fate.
motes
s
eeven
and
Channels

Channels are the touch points through

which a company communicates with its
target customers. Hence, they play a
big role in definingthe customer experience
and
providing value. An entrepreneur should
understand which channel is appropriate
toreach his target consumers. There are
five phases that a channel may pass
but it may cover more thanone of these through
omer phases at a time.
nicity,
1. Awareness This
is the marketing and
-
nding advertising phase. Said phase entails
vera 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 enginesplus YouTube,
Instagram, Facebook are good examples.
2. Evaluation - In this phase, the
customer evaluates, read about or uses the
product or avail of theservicein order to
formulate an honest opinion about it.
mass In order to form a good evaluation of the offering,
it is best for the
to educate the customers also about the entrepreneur
nces,
company's competitors. This way the
n for customers are assisted in evaluating their options.Similarly,
customers are able
n or tosee clearly why the product and/or serviceof the
thebest choice.Google My Business,Social entrepreneur's company is
rket
Media accounts and the company's
ed to website may be used for evaluation.
3. Purchase - This phase is the actual sales
process.Here the customers buy their
tint chosen product and/or service.The sales
process representsthe exchange of a
particularproduct and/or servicefor money. Stripeand
ghly Paypal can be used for
alue
purchase.

nces 4. Delivery known as the fulfillment stage of the process, this is the phase
- Also
when the promised value proposition has reached the customers.
ngst Simply, the
rers
way the offerings shall reach the customers to solve their problems.
Postage/
Mail such as UPS, FedEx and USPS are good examples.

s to 5. After Sales - This phase centers in giving customer care and support ater
nts purchase. It offers the customers to call when they have a
problem or make
sed queries about the product. Email service providers and Chat
platforms like
for Facebook messenger can be utilized.

yet There are also different channel types, which are:

ing
as 1. Direct channels - Direct channels are those that the
entrepreneur owns or has
nts controlover. This could be his physical store, website,or
salesforce. Owning
the channel could mean added costs but may provide a
Jgh direct and strong
still relationshipwith the customer and could give higher profit
margins.
Ted 2. Indirect channel - Also known as partner charnels, the company makes use of
intermediaryand places its products or makes the serviceobtainableatthe partner
ne store. Wholesalers are considered
partner channels. Winegrowers partner with
oth
Bulding 8usiness Models
 the mart
wholesalers in various countries to sell their wines. Quick to reach
advantages an
and less investment in infrastructure are some of the
of

indirect
channel.However, it is expected that there will be lower margin on the produg

Value Proposition Canvas)

was Alexander Osterwalder who developed this value proposition canvas
It

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 propositioncanvas consists of two building blocks
namely the customer'sprofile and a company's value proposition.

Customer Profile

The customerprofile points to the customer segment that the company shall serve
itsproduct and/or service offering. A customer protile should be created for each
customer segment, as cach segment has distinct gains,pains and jobs. The
tcompany
nevds 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 arhetvpesalso known as personas
are
those dry demographic purtrayals of customers transformed into
living, breathing
people which the audience can comprehend,
n Customer archetype is an idea of Steve
Blank which he popularized in his Lean Launchpad. More
of customer archetypes
personas arediscussed in Chapter 5.

VALUE PROPOSITION
CUSTOMER PROFILE
segmentde
Gain creators
Gains
Customer E

Products
& serices Customer ajobCuston
jobs done
experiences
Pain relievers Pains
1.
Produc
Custom
theyfe
Figure 4 Value Proposition 2.
Canvas
Source: Suppor
https:/www.b2binternational.com/
3.during
Customer Gains
Financt

Customer gains include all the custonr

expectations and needs of customers, thin
that may delightthem and
other stufts 4.really
that may intensify the
possibility of the
customersembracingavalue proposition. Process
hy a service, somegains are gven Uponbuyingaproduct or being provide
less attention by the customer. sulbsta
Although, ther

Mode
Building Business
por
 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
th him to make and receive phone calls.
2. Expected gains - These gains are 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.

ck 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 thecase of
Smartphone, having no trouble in thesynching
the phone with other gadgets is a desired gain
of any user.
4. Unexpected gains - These gains are the
adh
potential benefitsof the product and/or
servicefor which the customer is unaware until
these are introduced to him.
an
Although these ideas and innovations are not
they are able to transform the
articulated by the customer,
customer's experience with a product and/or
ers service. A
touch screen capability of a
Smartphone is a type of an unexpected
are gain for customers.
ing
In order to be successful,an entrepreneur
ev should be able to clearly identify his C
customer's gains and how important are these D.
es gains to the latter. Tailor-fitting the
customer gains to a product and/or TY
serviceoffering is the key the product's and/
or servicesuccess.The better the
value proposition will appeal to the
segment depends on thebulk of customer gains customer
Direc,
information the company has.
Customer Pains 4ttend

Customer pains are situations which

either avoid the customer from getting
a job done or the negative experiences, We
emotions and risks that the customer
experienaesbefore,during or after a job. Said checking
pains incude the following: the

1. Productivity pains -These pains include

the inefficiency of the businessesthat a
customer experiences.Majorityof
customers practice timee management that 5NSIVENESS
they felt annoyed when additional steps mpletado
b
would occur in the buying process. ar a
2. Support pains -
These are pains elt by a customer
when he is not assisted
LTY &
QLAL
during the buying process.
3. Financial pains -These are CILT
pains that involve money in particular ars
customer spends too much for a that often a
product and/or service when his intention ng
really isto spend less. tan
ONKOMUN
4. Process pains - These
pains those that create friction to
substandard processesof the business. buyers because of the LLAC

d
fo t
It is vital to dig deeper
into the causes of lotee KiDAD)
hese the importance and customers'pain/s in order to know thorand
urgency of these pains for the them.
ided A long waiting que is an
Agpapai
nantaane
uphols

enlks
her kal ak
BuildngBusiness
Models RADUHAN
peos
bang
BASAN) kabsars
esotre
 Pro
should resolve. Making ths
Value r
an entrepreneur
example of a
's painthat
customer' obligationof
the entrepreneur. After
is the tir

pain unbearable
for the customers itis
then to
Customer Jobs/Jobs-to-be-done custon. services
and emotional tasks
social Cre
the functional, Gain
Customer jobs describe and needs they desi
they are attempting to resolve
are trying to do, challenges lives. Known
also as jobs-to-be-done Gain
personal and professional
to satisfy in their user to what actual users
focus from a hypotheticalor aggregate Customer
(JTBD) shifts the
the perspective must be taken t
to accomplish by using the product. Here, benefits
want him fully. The following are the
from the angle of the customer
to understand
mayincls
types of these jobs: Reli
Pain
and particular jobs that a customer is

1. Functional -These are the regular

jobs
These are easy and simple things like Pain
trying to do and is working towards.
assignment, eating balance
cooking a menu, finishing an essay for the English or solve
diet and other similarones. how his

2. Social jobs These consist of the manners

- a customer desires to reflect his annoyan
image a social environment. Some examplesinclude fitting in with a group
in
Products
of friendsor praising a co-employee in his sales presentation.
3. Personall incude how a customer works towards feeling
emotional jobs -These The:
a certain way. Somepeople feel they can rush from a tough task and then do built aro
another task after like having a gym practice before dinner time.
functiona
4. Supportingjobs-Often customers also purchase value,hence
doing asupporting thesepr
task. Here arethe three roles of customers that may
assist in supporting jobs:
intangib
a. Buyer of value - This task isany purchase of
value that may cover from
evaluating choices at hand up to paying for the Ach
product that had ben
chosen.
intentior
b. Co-creator of value - These are jobsforwhich sideelen
a customer has a directhand
in the manufacture
of the product the
with the company. Such prod
DIOviding ideasfor product jobs include
design,product testing significas
and/or service reviews online. and giving produs
c of value - These are
Transferor
jobs at the end of
as disposalof product
another person

As the entrepreneur
trash or giving the
because it has no value
the product use sucet
ownership of the product
anymore to theoriginal
owner
"
makes assessment of the Produc
to assess the job context in which i customer jobs, he needs
the job was als
important because has the power to done. Said job
context is equally
Freshiy
b
it
influence the job Organicbr
is a big difference when a type. For
customer dinesin a instance,there
when he is with his friends. restaurant with his
friends andthat
Inthe same waythat it is vital forthe
to the customers and
are vital
thosethat entrepreneur
the customerto understand which jobs
replaced. Certainly, not all jobsare ofthe can
same simply abando
on a job's impact and the priorities of the significance
customer.
forthe
customer based The
Lea
Che
The
Bullding Business Moo Busn
this

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 them.

Gain Creators

Gain creators explicitly outline how the products and services may create
customer gains and offer customer added value. An entrepreneur may form
benefits that a customer supposes, desires, or may came asa 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
details on
or solve the particular customer pains. An entrepreneur must provide
the
how his offering of product and/or service could lessen or completely
eradicate

are trying to get a jobdone.

annoyance of his customers before, while, and after they

Products and Services

relieve pain and

These are the products and/or services which create gain 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,
be in the form of tangible, digital/virtual,
these products and/or services could
essential to the customers.
intangible or financialwhich are

and customer profile is the

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

Gain Creator:
Gain Creator:
Special made to order
1.
made to order
1. Specially 2. Special recipes
2. Special recipes Customer Jobs
3. Speedy delvery
reliable riders
3. Fast delivery by Vlsit website
1.
Products 2 Go to the Facebook
Pains:
Freshly baked
3 Fll out order
1. Late Delvery
Pain Relievers:
Organic breads 2. Dirty place
Short waiting tirne 3.Wrong litema dellvery
1.
2. Systematic
and tinely dellvery
Quality products
3.
Figure 5The Value Proposition Canvas of the Bakery

Model Canvas Alternative

The Lean Canvas: A Business
version of
Canvas as proposed by Ash Maurya is a developed
The Lean approach
outlines a more problem-focused
the Business Model Generation.
It

Building Business Modeis

 those creating

use by small
entrepreneurs
especially
metrics and of
startup
to needs, on actionable
and appropriate on customers'
The focus is more primarily meant
businesses. The Lean Canvas is also
a fast idea-to-product
transformation. investors or advisors.
customers, consultants,
and not the tree
entrepreneurs Customer
Value
Unfair
segments
are s
advantage
Problem Solution Propositon email
Benetts)
Whatmakes you
Who are he different

are the Les toe Whats vOur sohtion hat are the key Customers you are
ihat dlerent
Wh u
hon does sove et you trying to address (e
com retal
s and be custome problem sohvbon ttop three7) com
and is nol -9overnment
or need hal need fe as conpared lo hom the customers asiy Ccopied etc)? What
be soved ecisbng atenatves?
point of vew? Why diferentates hem?
buy your solution?

Exstng altematives High level concept

9 Key metrics
(Features) 6 Channels Earty adapters

Watahng is Whal do you measure What are the key What are the various Whch customers are
avallabie now fhe to detne success tea buying paths most Nkaly rst
in features of your for the your
market te sove the revenue, solution (topthree?) customer to get your Duyers (eg have the
profli
oeted furnover, backdog. thal you are seling? product (direct highest need, have he
probeme shat are etc)? purchase, leasing. money. are risk
thelr shortals
etcy takers)y?

8 Cost Structures Revenue streams

What are the vanoUs tbed and vanable
cost components of What are the sources of revenue for
Pouct or service? (Note
y
your produci ar servce les
Revenue Cost is profit)

Figure6 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
address.Every first that the
customer segmentthat an business will
of problems entrepreneur wants to
that require
solving. In this box, the servehas a set
high priority
problems that the entrepreneur shalllist the
ensure that the customer segment is three
right product experiencing. This is to
need of the and/or
customer segment being serviceshallbe met based on
2. Solution - served. the existing
Once a problem
effective has been
solution. identified, the next
Blanks.the However, this is not step to look
easy task to for the
Godfather of Lean do.
thebuilding".The Startup,the According to Steve
phrase was coined l entrepreneur needs
and interview by to "get out ot
thecustomer Blanksto
in order to segment. mean
customer should be out inthe sreets
learnfrom Ihe going
bebe concisely written them regarding their asked
and specific. problems. The questions
3. Value solution here omust
Proposition -This
that the block containsa
business will marketable
solve their
canvas model. Problem. This is pronise to the target
similar with user
4. Unfair the business
Adantage- A
that cannot startupshould
be copied
others,
revogueeit it has the
anotbe touglt or ad
Basically, this
blok is hard to it hls
an vompetitive
untair advantagë
looking for
partners and aswer, but advantage over
nvestors The essential
entrepreneur needsespecially
to think a
when
 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 arethe 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 samewith the business model canvas.

7. Revenue streams - This the money matter of the business just like in business
is

model canvas. It is common for startups to lower their cost or even offer it for
freein thebeginning togain 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 arethe operationalcosts that the business needs to pay in

bringing theproduct to themarket such as salaries, costof the materials,cost of

maintenance. The complete variable costs and fixed costs are to be listed here.

Key Metrics - All businesses, whether big or small have somemetrics with which
to monitor their performance. The metrics consistof 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
correctmetric 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=1S47

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

he The Rise of Airbnb: From Airbeds to Billions (2019). [Motion Picture].

youtube.com/watch?v=1 Tc9YScMtN8
of Netflix: How a $40 Late Fee Revolutionized Television (2016). [Motion Picture].

ets |https://www.youtube.com/watch?v-BrpEHssa
gQ
ons
ust

User
ness

tage
OVer
vhen Bulding Business Mgdels