MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

CHAPTER 3

BUSINESS MODEL CANVAS

3.0 INTRODUCTION
Business Model Canvas (BMC), introduced by Osterwalder (2008) is a method of
analyzing, designing, strategizing and testing a business model based on nine business
areas. The strategies are put up on a board so that the entire model can be seen at once.
This will allow the entrepreneur to understand each of the strategies and relate it easily
to the other strategies on display.

The Business Model Canvas is a canvas or a chart which includes at least nine areas or
elements in a business model, including:

1 Customer segments 4 Customer relationships 7 Key resources

2 Firm's value propositions 5 Key partners 8 Cost structure
3 Marketing channels 6 Key activities 9 Revenue streams

1
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

3.1 BUSINESS MODEL CANVAS COMPONENTS

1) Customer Segments

Customer segments refer to the target people and/or organizations you are offering
value proposition. they can be divided into groups of individuals or organizations that
have similar demographics, psychographics, behaviour, geographical characteristics or
other multidimensional combinations.

Demographics Psychographics
Firms often segment customers on the Customers can also be segmented on the
basis of demographics: basis of psychographics:
age, family size, gender, income, lifestyles, personalities, and values
occupation, education, race, nationality
and social class
Geographical characteristics Behaviour
Given the extent to which incomes, One of more popular ways of segmenting
cultures, and government polices can vary consumers to target with a product is to
from country to country and from region use behavioural variables, such as the
to region within a country, one can expect occasions on which the product is used,
preference to also vary from one such the product's benefits, the user's status,
location to another. usage rate, and the user's attitude
towards the product.
Multidimensional combinations
Rather than use one criteria such as psychographics, demographics or geographical
characteristics to segment a market, a fırm can use two or more criteria.
Figure 3.2 Customer segments

2
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

Companies that identify underserved segments can then outperform the competition by
developing uniquely appealing products and services. Customer segmentation is most
effective when a company's offerings are tailor-made to segments that are the most
profitable and serve them with distinct competitive advantages. This prioritization can
help companies develop marketing campaigns and pricing strategies to extract
maximum value from both high- and low- profit customers.

Sources: https://sevenrooms.com/en/blog/customer-segmentation/

Figure 3.3 Examples listed as restaurant guest segments

2) Firm's Value Propositions

A company’s value proposition is what distinguishes itself from its competitors. Value is
provided through various elements such as newness, performance, customization,
reliability in getting the job done, design, brand, price, cost reduction, risk
reduction, accessibility, and convenience. The value propositions may be quantitative,
e.g. price and efficiency; or qualitative, e.g. overall customer experience and outcome
me. The following are examples of value proposition concepts and techniques:

(a) Unique Selling Proposition (USP)

USP is often considered synonymous with value proposition (especially in relation to
copywriting), but it only focuses on what makes a product better than the competition.

Source: https://medium.com/@charmaintsf

3
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

(b) Unique Value Proposition (UVP)

UVP has a strong focus on uniqueness, which makes it less useful for the general market
but it is useful to specific target market due to its unique features. Besides that, some
value propositions involve innovative technology. Some simply deliver better service.
Others are a mix of better goods and services. Indeed, there are many different types,
some of which are quantifiable, e.g. price, speed of service; and some of which remain
qualitative, e.g. design, status, customer experience.

4
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

Which Value Are Most Important?

What customers value in products varies by industry.
Here are the top five elements influencing loyalty for 10 types of businesses.

Extra: The Elements of Value

Link: https://hbr.org/2016/09/the-elements-of-value

5
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

Extra: The Elements of Value

Link: https://hbr.org/2016/09/the-elements-of-value

6
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

(c) Feature-Advantage-Benefit (FAB)

FAB is a process that helps an entrepreneur figure out what each of the products
features means to customers, which enables the entrepreneur to address their
concerns, desires, wants, and needs. Start by listing the product's features, then
consider the advantages it creates (e.g. a knife that would not corrode). Finally turn that
into the practical benefit (e.g. there is no need to buy a new knife every year).

Example 1

Source: https://slideplayer.com/slide/11679974/

7
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

Example 2

Example 3

8
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

Example 4

Example 5

9
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

(d) Points of Parity-Points of Difference (POP-POD)

POP-POD is a process used to find differentiating factors between businesses. Start by
finding points of parity-the factors in common with competitors, then find the points of
difference-the business aspects that is different to competitors.

3) Marketing Channels
A company can deliver its value proposition to its targeted customers through different
channels. Effective channels will distribute company's value proposition in ways that
are fast, efficient and cost-effective. An organization can reach clients either through its
own channels (store front), partner channels (major distributors), or a combination of
both. The first decision to be made when trying to sell products or services to the target
market is whether to sell directly to that target market, or to use intermediary services.
Selling directly to the target market is known as direct marketing. This is done without
any intermediary. The most common methods of direct marketing include direct
selling, internet marketing and catalogues.

Although direct marketing involves a simple and straightforward process, it does not
always move goods from producers to consumers efficiently, due to the lack of
expertise, experience and economies of scale. In order to be more efficient, many
companies rely on marketing intermediaries to market their products.

Multi-channel
marketing means you’re
leveraging multiple
channels, particularly
the channels that your
customers use the most.
In practice, it’s about
meeting your audience
where they live whether
that’s on social media, a
mobile app, in their
email inboxes, over SMS,
or on the phone.
Extra: 5 Examples of Brands
with Great Multi-Channel
Marketing Strategies
Link:

https://www.nexcess.net/woocommerce-resource/channel-strategy/

10
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

4 Customer Relationships
Customer relationships are the types of relationships a company establishes with
specific customer Segments. Customer relationships may be driven by one or more of
these three motivations:

(a) Customer acquisition

Customer acquisition is the process of bringing new customers or clients to your
business. The goal of this process is to create a systematic, sustainable acquisition
strategy that can evolve with new trends and changes.

11
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

Digital Customer Acquisition Process

12
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

(b) Customer retention

The customer retention definition in marketing is the process of engaging existing

customers to continue buying products or services from your business.

13
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

(c) Increased sales (upscaling)

Basic steps to increase sales volume and build brand value at the same time:

(a) Pile on the benefits

Offer customers an opportunity to save time and save money, and sales will increase.
Offer them multiple opportunities to do both and sales will soar dramatically. For
example, structure the sales message to stress both the time-saving and money-saving
benefits of the product or service. Then, include a discount price offer if customers buy
before a certain deadline. Finally figure out how to deliver all or some of what has been
bought immediately.

(b) Make buying easy

Look for ways that can make the buying process easier and faster. For example, design
the selling procedure so that customers do not have to make unnecessary decisions.
Every decision they have to make interrupts the buying process and diverts their
attention away from completing the sale. Follow up after the sale with a personalized
"thank you" message and include a brief request for the information.

(c) Follow up
Selling is not a one-step process. Most people do not buy something the first time they
see or hear about it. Salvage many of these potential customers with an effective follow-
up system, which in turn builds a supportive relationship that gains trust and eventually
the sale. Make sure there is a way to get contact details (i.e. phone number/email
address, etc.) for the website visitors. For example, offer customers a complimentary
special report or other useful information delivered only by email.

14
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

5 Key Partners
Key partners are the network of suppliers and partners that make the business model
work. Companies forge partnerships to optimize business models, reduce risk, and
acquire resources.

Strategic alliances Competition:

between strategic partnerships
non-competitors between competitors

4 types of
Partnerships

Joint ventures to Buyer-supplier

develop new relationships to assure
businesses reliable supplies

Partners' motivation factors:

(a) Optimization and economy of scale

A Smart partnership between partners may provide opportunities for optimization
and economy of scale in managing resources and activities.

(b) Reduction of risk and uncertainty

A strategic alliance and co-operative approach between partners may provide a
platform to work out a solution that can reduce costs, risk and uncertainty in a 'win-win
manner.

(c) Extending company reach through alliance with strategic partners

Companies extend their own capabilities by relying on other firms to furnish particular
resources or perform certain activities. Resources may include knowledge, licenses, or
access to customers. A mobile phone manufacturer may license an operating system for
its equipment rather than developing one in-house. An insurer may find it better to rely
on the competition of independent brokers to sell its policies rather than develop its
own sales force.

15
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

6 Key Activities

key activities are any activities that your business is engaged in for the primary purpose
of making a profit. Business activities include operations, marketing, production,
problem-solving, and administration.

Key activities are activities that a company must do in order to make its business model
work. For example, at a computer software company, the key activities include software
development and marketing. A consultancy company will concentrate on problem
solving.

Key activities are important in any business building block. These activities will depend
on the nature of the business as seen below:

• Production activity dominates the business models

Production of manufacturing, Production firms, be they related
to design, manufacture, delivery or quality control.

• Consultancies, hospitals, and other service

Problem organizations typically focus on problem-
solving solving activities, requiring knowledge
management and continual staff training.

• Creating or maintaining platforms can be a key

activity. The business model for a credit card
Platform/ company may require a common platform
network Platform/network between banks, merchants and
customers. Platforms have to be maintained,
extended and promoted.

16
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

7 Key Resources

Key resources are the most important assets needed to make a business model work.
Every business model requires them, and it is only through them that companies
generate value propositions and revenues. Key resources can be physical, financial,
intellectual, or human. A microchip manufacturer needs capital-intensive production
facilities, whereas a microchip designer depends more on human resources.

Key resources can be owned or leased by the company, or acquired from key partners.
They can be categorized as the following:

(a) Physical
Examples include manufacturing facilities, buildings, vehicles, machines, systems, point-
of sales systems, and distribution networks. Large retailers like Tesco and Kamdar rely
heavily on physical resources, which are often capital-intensive.

(b) Intellectual
Examples include brands, proprietary knowledge, patents and copyrights, partnerships,
and customer databases. All are increasingly important components of a strong business
model. Intellectual resources take time to engender and develop. Consumer goods
companies, such as Nike and Sony, rely heavily on their brands. Qualcomm, a supplier of
chipsets for broadband mobile devices, built its business model around patented
microchip designs that now earn the company substantial licensing fees.

(c) Human
All enterprises need human resources, but those resources are particularly prominent in
knowledge-intensive and creative industries. A pharmaceutical company relies heavily
on human resources-skilled scientists and an aggressive sales force.

(d) Financial
Some business models depend heavily on financial resources and/or guarantees, such
as cash, lines of credit, or a stock option pool for hiring key employees. For example,
Ericsson, the telecom equipment manufacturer, will opt to borrow funds from banks and
capital markets, and use the funds to provide vendor financing that in turn ensures
orders are placed with Ericsson rather than with competition.

17
MPU 32092 ASAS PEMBUDAYAAN KEUSAHAWANAN CHAPTER 3

8 Cost Structure

The entrepreneur should strategize the best and appropriate cost structure to suit the
project concept. The opted cost structured model will have to be aligned with the other
activities in the business model to match the total products and services concept offered
to customers. For example, the AirAsia model is a low-cost model where customers are
charged for products and service items that they choose when they purchase their ticket.
Customers can choose to have food in-flight, or select their seats, and will pay
accordingly.

The cost structure for an online business model will be different from traditional sales
outlets. An entrepreneur may also opt for outsourcing strategies where products are
outsourced totally or only a certain component is outsourced to local or international
suppliers. This strategy may provide cost and quality advantages and reduce
operational and financial risks. Many international fashion brands outsource production
to manufacturers like Indonesia, Vietnam and China, where labour costs are
considerably lower.

9 Revenue Streams

Venue streams represent the cash a company generates from each customer/product
segment. An entrepreneur will have to strategize and modify his products and services
to create attractive values for target customers.
An entrepreneur may explore additional revenue streams through export markets or
online marketing, or for example, lease idle assets to generate additional revenue.

18