Business Models Maximize Customer Value

Business Models Maximize Customer Value

According to Alex Osterwalder, author of Business Model Generation, in today’s innovation-driven market, great products are becoming commodities. To stay ahead of the competition, companies must now combine great products with the right business models. What is the right business model? It is the best method for companies to create the most value for customers when delivering their products and services. According to Osterwalder, every business model has nine building blocks. The nine building blocks include:

1 – Customer Segments – The businesses or consumers for which your company is creating value. Customers do not exist to buy, you exist for them. Who are they? Why would they buy your product or service?

2 – Value Proposition – What need or problem are you solving? It is about the customer, not you. Each customer segment has its own value proposition that directly aligns with your product or service.

3 – Channels – How does your product or service get from the company to customers; i.e., physical distribution, virtual distribution or both? What touchpoints are you interacting with customers and delivering value?

4 – Customer Relationships – How do you acquire, grow and maintain customers? Are your customers physical or virtual?  What is your approach for each customer type?

5 – Revenue Streams – How does your company make money from each customer segment; e.g., Freemium? That is, how and by which pricing mechanisms is your business model capturing value?

6 – Key Resources – What infrastructure do you need to create, deliver and monetize value? What are the most important assets you need to make your business model work; e.g., engineers, patents, etc.?

7 – Key Activities – What are the most important things your company must do to make the business model work?  What things do you need to perform well to be successful?

8 – Key Partners – What key partners do you need to make the business model work? What is their function? Note you will not own all of the key resources or do all of the key activities for your business model.

9 – Cost Structure – What are the costs, both direct and indirect, to operate the business model? Does your company’s total revenues exceed its total costs?

Osterwalder’s nine building blocks can help companies design, discuss, etc. any business model imaginable; i.e., the right business model to create the most value for customers when delivering products or services. It is not enough to enumerate the nine building blocks when designing business models. Company leaders must map them out on a pre-structured canvas – the business model canvas. By having one big picture view, you can both see and understand how all nine building blocks should successfully fit and work together.

All contents copyright © 2012, Josh Lowry. All rights reserved.

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