BUSINESS DEVELOPMENT

MODEL AND STRATEGIES

Sohan Babu Khatri CEO Three H Management

Adjunct Faculty Ace Institute of Management

Kathmandu College of Management

Day’s Plan….

Six Tough Questions on App Business Models and Strategies

Question No. 1

What are the main business models I can use to make money and how do I select the right one for my idea?

8

On Ideas

If a man makes a better mousetrap than his neighbor, though he builds his house in the

woods, the world will make a beaten path to his door.

Ralph Waldo Emerson

Two Problems

1. He never said it.

2. The research doesn’t support it.

• The basic mousetrap (1897)

• How much innovation (better mousetraps) in mousetraps since then?

Mousetrap Innovations• Since USPTO’s founding in 1828, how many mousetrap

patents in U.S.?– 4,400 patents (Hargadon, 2010)

• How many new mousetrap patent applications each year currently?– 400 as of the mid-1990s (Hope, 1996)– 40 of these are granted

• How many out of these have made money?– 20 out of the 4,400

Why don’t every innovation succeed ?

And then somebody said this….

14

Business Concept

The manufacturer who waits for the world to beat a path to his door is a great optimist. But the manufacturer who shows this “mousetrap”

(and its value) to the world, keeps the smoke coming out his chimney.

O.B. Winters

Value Proposition

Business Model

Revenue Model

Value Proposition

Business Model

Revenue Model

Value Proposition

Business Model

Revenue Model

Value Proposition

Business Model

Revenue Model

Mind the Difference ….

Do you like my product ?

Would you pay for my product ?

Value Proposition

Business Model

Revenue Model

App Monetization

Mobile is a big deal, but that doesn’t mean it will magically lead to a big deal for you. You need to build a sustainable mobile business, not just a one-hit wonder.

Think about this statistic: 2% of app developers claim about 54% of all app revenues. So, how do you join that alluring 2%? Have a well-thought out plan to profit from your app. And hash

this out before your app launches.

Approach mobile app business model with the dual mindset of building an awesome app and an eventual business

Answer the Followings• What problem is your app trying to solve and how would

you do that (in the best way possible) ?• What is unique about your app and would people pay for

this?• What else do you think your app users would be willing to

pay for?• What business models do competing apps use and how well

have they worked?

A Good Place to Start

Business Modeling

From an economics perspective, a large number of successful business models these days are built on two-sided networks

and even multi-sided networks.

These are usually services that connect businesses to consumers or consumers to consumers, such as, for example

AirBnB and eBay type services.

These models exhibit powerful network effects if they manage to scale up and allow owners to monetize either one side of the

network (e.g. consumers or businesses) or both (e.g. commission-based) depending on the application.

Also, it’s important figure out a balance between your need to gain users with your need to earn revenue. Some app business models earn more money right off the bat at the expense of quickly acquiring tons of users, while others result in high downloads first and profits later.

What is your timetable? Can you afford to initially forgo revenue to accumulate users? (It might be worth it,

depending on your users).

Top 6 Most Bankable App Business Models

1. Free, But With Ads (In-App Advertising)2. Freemium (Gated Features)3. Paid Apps (Cost Money to Download)4. In-App Purchases (Selling Physical/Virtual Goods)5. Paywalls (Subscriptions)6. Sponsorship (Incentivized Advertising)

Only the creative and courageous app marketers make it rain money.

Question No. 2

Which sectors have the most potential in my country / market ?

Which is the right question in this regard ?

A. “What works in my local market”

B. “What works in the markets that I want/I am well placed to reach”

Going International / Global

Going International / Global with Mobile App

• The good thing about mobile apps is the fact that the market is global and the costs and barriers to reach international markets are very low compared to other, more traditional businesses.

But….• Do we know international market and the opportunities posed

by it ?– Gaps ?– Problems ?– Issues ?

• Do we know “consumers” well ?

• Are we well placed to reach them ?

Does you app rely on local content, services, businesses, stakeholders, intermediaries, value chain ?

Scalability ?

For most apps, scale is critical and thinking locally can only get you so far

Activity: Opportunity Mapping

Question No. 3

What is more difficult? Coding or marketing the app?

The consensus among developers says marketing.

Constant experimentation (in other words trial-and-error) is one of the strategies most frequently used in order to find out what works best in your case.

Question No. 4

What are the best ways to do marketing for my app and acquire users/downloads etc?

Starting Point

Customer Analysis

Decision Process

Type

Value Drivers

Customer Base

Products

Number

#1 Cross-promotion

#2 Become part of an ecosystem/platform

#3 Do some PR

Question No. 5

What are the most common mistakes that mobile app developers do and how can I avoid them?

#1 Failing to see app development as a business

• The best technology solution is not good enough without the right business models and execution.

• This is one of the best known principles in the area of technology strategy.

• Developers that lack business acumen/experience often fail on the commercial side of the business.

#2 Failing to prepare for success• The nature, scale and pace of the app economy is such that in a matter of days

your user based may grow from tens to tens of thousand users.

• Will your back-end cope?

• Will you be able to pay for third-party API calls utilized in your app?

• If not, what may have been initially a great service, will fail due to poor customer experience or you may run out of money.

• A proper business case should anticipate success.

#3 Failing to pivot/adapt

• A common advice in the startup world is “pivot till you die”.

• If your idea is not working try applying it on a different market, adapt it to the current market, flip it on its head or scrap it altogether and go for something else.

#4 Failing to know and listen to your users

• In a market where consumer switching costs are so low and a user can easily replace your app with the competitor’s app, user experience and customer support are critical success factors.

• Your app will be deleted if it crashes repeatedly, if it is poorly designed, or does not deliver what it says on the tin.

• Test your app, test it again, use crash-reporting and user-analytics services and keep it up to date, implementing new features and listening to user feedback.

Question No. 6

Is it better to try to innovate with a never-seen app, or is it better to be a follower?

Neither is easy and both can work.

• The downside is that by the time you do it, others will probably be trying to do it too, so there will be more competition.

• You don’t just need a better app, you also need better execution, i.e. a better business model and marketing, in order to topple the leader.

The advantage of being a follower is that you learn from others’ mistakes and failures.

You may for example see what is not so good or what is missing from an app and fill the gap, or extend it into another market.

On the other hand, a new, innovative idea can take you a long way before the competition catches up (although never at a safe distance) but it is more difficult to create a niche and then expand it.

In the app economy innovation is not limited to technology but extends to business models, strategies and business functions too.

END OF PART I

BUSINESS MODELING

BUSINESS MODEL CANVAS

Why do I (Technologist) need (to waste time developing) a business model?

• Because technologists think like technologists

• Technologists are notoriously:– Smart– Logical– Rational– Practical– Fair-minded– Proud of their work

• Because technologists ONLY think like technologists

• Technologists are notoriously:– Smart– Logical– Rational– Practical– Fair-minded– Proud of their work

… and that exactly might be the problem

Business development is different than technologydevelopment and requires a (slightly) different skill set

BUSINESS SENSE

+

TECHNICAL SENSE =

COMMON SENSE

Common Sense =

AND SOME MORE……

Three Foundations of Successful Venture

…. Answering these three questions

The BUSINESS MODEL is the logic by which you answer these three questions

BUSINESS MODEL CANVAS

The 9 Building Blocks

Activity: Value Proposition

For whom are we creating value?Who are our most important customers?

1.

Customer Segmentation• Demography• Geography• Psychograph• Behavior

• User type• Usage• Benefits sought• Price sensitivity• Competitor• Application• Brand loyalty

Segmentation and Market-

Driven Strategy

Segments

Value Opportunities

Capabilities/Segment

Match

Targets

Positioning Strategy

Illustrative Segmentation Variables

Characteristicsof people/organizations

ConsumerMarkets

Industrial/OrganizationalMarkets

Age, gender, income,family size, lifecycle stage, geographiclocation, lifestyle

Type of industry , size, geographic location, corporate culture, stage ofdevelopment, producer/intermediary

Use situationOccasion, importance of purchase, prior experience withproduct, user status

Application, Purchasing procedure(new task, modifiedrebuy, straight rebuy

Buyers’ needs/preferences

Brand loyalty status, brand preference, benefits sought,quality, proneness to make a deal

Performance requirements, brand preferences, desired features, service requirements

Purchasebehavior

Size of purchase, frequency of purchase

Volume, frequencyof purchase

Segmentation Requirements

Customer Segment

Identifiable

Actionable

FavorableStability over time

Response Differences

Are you serving……… ??

• Mass market– one large group of customers with broadly similar needs and problems.

• Niche market– Business models targeting niche markets cater to specific, specialized Customer Segments.

• Multi- Segmented– Market segments with slightly different needs and problems– Segments have similar but varying needs and problems.

• Diversified (unrelated)– Two unrelated Customer Segments with very different needs and problems. For example, in 2006 Amazon.com

decided to diversify its retail business by selling “cloud computing” services: online storage space and on-demand server usage.

– Thus it started catering to a totally different Customer Segment—Web companies—with a totally different Value Proposition

• Multi-sided platforms (or multi-sided markets)– Two or more interdependent Customer Segments. A credit card company, for example, needs a large base of credit

card holders and a large base of merchants who accept those credit cards.

2.

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• The Value Proposition is the reason why customers turn

to one company over another. • It solves a customer problem or satisfies a customer

need.• Value Proposition is an aggregation, or bundle, of

benefits that a company offers customers.

A Value Proposition creates value for a Customer Segment through a distinct mix of elements catering to that segment’s needs.

Values may be quantitative(e.g. price, speed of service) or qualitative

(e.g. design, customer experience).

Some possible elements of value• Newness / Novelty• Performance• Customization• Getting the Job Done• Design

• Brand / Status• Price• Cost Reduction• Risk Reduction• Accessibility • Convenience / Usability

Sohan B. Khatri

People don’t buy ¼” drill bits… they by way to

make ¼” hole on the wall

Sohan B. Khatri

Selling Benefits

Feature

Advantage

Benefit

Specific characteristic inbuilt in the product

What the feature does /The function of the feature

What the feature can do for the customer

Sohan B. Khatri

Wrinkle-free

Attached water bottle holder

3X Zoom

Feature Advantage Benefit

Can hold a water bottle

No need for ironing Saves time, energy and electricity

Don’t have to stop for drinking water, hence

time saved

Better and more close-up pictures, fond memories

Can capture images from a distance

3.

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?

…….

• Finding the right mix of Channels to satisfy how customers want to be reached is crucial in bringing a Value Proposition to market.

• Own Channels, through partner Channels, or through a mix of both.• Partner Channels lead to lower margins, but they allow an

organization to expand its reach and benefit from partner strengths. • Owned Channels and particularly direct ones have higher margins,

but can be costly to put in place and to operate. • The trick is to find the right balance between the different types of

Channels, to integrate them in a way to create a great customer experience, and to maximize revenues.

4.

What type of relationship does each of our CustomerSegments expect us to establish and maintain with them?Which ones have we established? How costly are they?How are they integrated with the rest of our business model?

Can be driven by following motivations• Customer acquisition• Customer retention• Boosting sales (upselling)

• In the early days, for example, mobile network operator Customer Relationships were driven by aggressive acquisition strategies involving free mobile phones. When the market became saturated, operators switched to focusing on customer retention and increasing average revenue per customer.

The Target ….. To Enhance Overall Customer Experience

Types / Categories/ Ways/ Strategies• Personal Assistance• Dedicated Personal Assistance• Self – Service• Automated Services• Communities• Co-creation

5.• 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?

If customers comprise the heart of a business model, RevenueStreams are its arteries.

A business model can involve two different types of Revenue Streams:

1. Transaction revenues resulting from one-time customer payments

2. Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

Pricing Mechanisms

Set Pricing Objectives ….1. Survival2. Customer Acquisition3. Impacting Customer Perception of Value4. Maximum Current Profit5. Maximum Market Share6. Maximum Market Skimming7. Product-Quality Leadership

Pricing Strategies

App Monetization Concepts, Ideas and Strategies

Top 6 Most Bankable App Business Models

1. Free, But With Ads (In-App Advertising)2. Freemium (Gated Features)3. Paid Apps (Cost Money to Download)4. In-App Purchases (Selling Physical/Virtual Goods)5. Paywalls (Subscriptions)6. Sponsorship (Incentivized Advertising)

1. Free, But With Ads (In-App Advertising)

• In this business model, you remove the cost-barrier to purchasing your app and allow free downloads.

• Goal is to accumulate a sizeable user base and gather information on the people interacting with your app.

• Then, this data gets sorted and sold to app publishers who pay you to place targeted ads in your app.

……• This monetization strategy has proven quite effective for

Facebook. The social behemoth reported a 151% increase in their mobile advertising revenue during the second-quarter of this year.

• Essentially, you make money by selling data-driven advertising space in your app. You can do this independently or work with a mobile ad partner.

• According to statistics released from the Interactive Advertising Bureau, mobile advertising spend rose to $3.4 billion in 2012, up 111 percent from the prior year’s record levels, and mobile advertising now accounts for 9 percent of all digital revenue.

Pros• Mobile apps are in a prime position to collect tons of data on

their users (such as their in-app behavior and their location)• Allows you to gain users quickly because people love free apps• Can be effective if moderate and targeted advertising is used

(ads are interesting yet limited)• Mobile advertising spend will surpass radio, magazines, and

newspapers in 2014 (lucrative and growing industry)

Cons• Not an innovative model and people can get annoyed of ads,

which may lead to app churn• Mobile ads can comprise your app experience by claiming a

portion of the already limited screen size• This model won’t work for niche or utility apps that are

designed to help users perform important functions (ads will be too unnatural and intrusive in this setting when people just want to do something quickly)

2. Freemium (Gated Features)• Similar to in-app advertising, the app is also offered for free in a

freemium business model, but certain features are gated and cost money to be unlocked.

• In other words, people have access to an app’s basic functionality, but there is a charge for premium or proprietary features.

• The premise of this model is that you attract people to your app and give them a rich preview of what your app can do (without giving them everything).

• The goal is to accumulate and engage app users until they are willing to pay for additional in-app tools.

…….• A great example of a brand that capitalizes on this

strategy is Angry Birds. The Rovio team (the creator of Angry Birds) released a free version of their addictive app. However, the app keeps certain features hidden (like being able to juice up your bird, additional levels, etc.) until users upgrade (for a small fee) to the full version.

His monetization strategy allows you to tease users with a stripped down version of your app until they are hooked enough to happily buy additional features.

Pros• This mobile business model makes it easy to build up

a large user base and showcases your app so people get hooked (and then you can upsell)

• People who “try before they buy” are more likely to become engaged and loyal users later on

• Flexible model because it can be adapted to almost any vertical

Cons• If you offer too few features for free, app churn will be high• If you offer too many features for free, it will be

difficult/complex to convince your existing user base to pay for an upgrade (upgrade won’t have much incremental value)

• App marketers must be careful not to provide a large segment of their users (the free ones) with an inferior app experience

3. Paid Apps (Cost Money to Download)• App is not free to download. • If people want to use your app they must first purchase it from the

app store. • They key to finding success with this model is in your ability to

showcase the perceived value of your app with a killer app listing (which includes screenshots, five star reviews, etc.) that differentiates it from similar free apps.

• Put another way, the most profitable paid apps do a great job of selling their app’s unique features, be it design or functionality or brand.

…..• For example, let’s look at Calendars 5, which is a paid productivity

app that costs $4.99 in Apple's app store. • When you check out Calendars 5’s iTunes listing, the app

immediately positions itself as a “smart calendar” that incorporates tasks, human language, and reminders in a clean and colorful layout.

• The app’s listing page includes rich screenshots that highlight its sleek design and stellar reviews about its superior functionality.

• Within a few seconds, the app is able to make a compelling case that it’s better than Apple’s default calendar and thus, worth the monetary investment.

The paid app business model is like a “pay then play” strategy that is propped up by your mobile marketing team’s ability to convince users to buy your app instead of free substitutes.

Pros• App developers and app marketers earn revenue upfront with

every new download• People who have paid for an app are more likely to turn into

engaged users (since they spent money to purchase your app vs. choosing a free one)

• In this model, the app does not usually have any in-app advertising thus allowing it to have a cleaner interface

• This model motivates app developers to focus on innovation since people expect paid apps to be the crème of the crop

Cons• Selling an app is hard because app stores are so

overcrowded (stiff competition from many free apps)• App stores take a cut of the revenue from paid apps

(Apple gets approximately 30%)• Paid models are a shrinking part of app store revenue• 90% of paid apps are downloaded less than 500 times

per day (cost-barrier to gaining a large number of users)

4. In-App Purchases (Selling Physical/Virtual Goods)

• In-app purchases are exactly what they sound like. • In a nutshell, this app monetization strategy involves selling physical

or virtual goods within your app, and then retaining the profits. • In-app purchases can include a wide variety of consumer goods

such as clothes and accessories. • However, in-app purchases can also be virtual goods such as extra

lives or in-game currency. • Whatever your app is selling, make sure the in-app purchases feel

like a natural part of your app.

………• MeetMe is an example of an app that has creatively

incorporated in-app purchases into their social app. • People can download MeetMe for free and use it to

browse profiles, chat with people, and connect with locals. • However, you can also purchase credits to enhance your

visibility and gain new ways to interact with people. • MeetMe’s purchase model has is lucrative because the app

is able to clearly highlight the benefits of in-app currency.

The in-app purchases model is about turning your app into another sales channel (for physical products that are used in the real world) or a mobile storefront (for virtual goods which can only be used inside the app).

Affiliate and Referral Marketing

• New services are automatically transforming existing mobile links into revenue-generating links by directing the user to one of thousands of retailers.

• Instead of an ad, viewers are unobtrusively presented links within relevant content.

• The popular mobile and social shopping app Wanelo (also available as a web app) showcases products available for sale , each of which is shared by a member of the Wanelo community. The app lets users follow certain stores or individuals and discover products they love. These discoveries turn into purchases, and these purchases provide Wanelo with referral revenue.

………• Another form of affiliate marketing for apps is to promote

other mobile apps with the goal of earning commissions when the app is purchased and downloaded.

• These types of ads typically have a more integrated and natural feel within the app, especially if the content or style (for example a skiing game referring a mountain weather application) of both applications are natural complements.

Pros• This app business model works particularly well for eCommerce/mCommerce

brands and is flexible enough for other verticals too• In-app purchases can help app marketers make comfortable profits with the

lowest amount of risk• Buying virtual goods can lead to deeper levels of engagement (growing

monetization strategy)• The profit margin is usually high with this model because brands don’t have the

traditional expenses on mobile that brick-and-mortar stores do (like staffing and rent)

• Flexible model which can also be adapted to include affiliate programs and partnerships that drive referral revenue

Cons• App stores usually take a cut of the revenue for virtual goods

(but not physical goods or services) purchased inside an app• Recently, this model has received bad publicity because

government officials are pressuring Apple and Google to add stricter regulations to prevent children from making accidental in-app purchases

• Apps will need to be more transparent on their app store listing page if they include in-app purchases (which may prevent some people from downloading)

5. Paywalls (Subscriptions)• The paywall app business model is similar to the

freemium model except that it focuses on gating content, not features.

• Paywalls allow an app user to view a predetermined amount of content for free and then prompts them to sign up for a paid subscription to get more.

• This model is best suited for service focused apps and allows brands to earn revenue on a recurring basis.

………• An example of an app that utilizes this app business

model is Umano, which transforms news stories into podcasts.

• Umano allows users to listen to a limited number of stories until they sign up for a premium subscription.

• With this strategy, people get to use all of Umano’s best features, but for a fixed amount of time until they are engaged enough to pay for unlimited use and content.

At its core, this model is like a “pay later” or “free trial” model because users get to test drive the app, but then need to sign up for a subscription to bypass certain content limits and restrictions.

Pros• People get to experience all of your app’s features which

increases session lengths and lowers app churn• This app business model results in a continual

weekly/monthly/yearly (depending on your setup) flow of revenue since subscriptions usually auto-renew

• Subscribers are more likely to be loyal and engaged app users• Subscriptions and content gating also motivate app developers

and app marketers to ensure they curate high-quality content that is worth paying for

Cons• Does not easily translate to all verticals (most suited

for news, lifestyle, and entertainment apps since they can limit content like articles read or videos watched)

• It can be hard to determine where and when to place a paywall (what is the right limit to place?)

6. Sponsorship (Incentivized Advertising)

• Of all the app business models listed in this post, this is probably the newest entrant in the mobile world.

• Sponsorship entails partnering with advertisers, who provide your users with rewards for completing certain in-app actions.

• In this model, brands and agencies pay to be part of an incentive system.

• Your app earns money by taking a share of the revenue from redeemed rewards.

• This way, you can incorporate advertising into your app that actually enhances your app’s ability to engage users.

……• An early adopter of this app business model is

RunKeeper. RunKeeper uses incentivized advertising to motivate its users to track their running activity with their app to unlock exclusive rewards and promotions. This strategy lets RunKeeper monetize their app without disrupting their app’s experience with banner ads.

In the sponsorship app business model, advertisers gain inclusion in your app by funding rewards for your users, who earn these rewards by engaging more with your app.

Pros• Innovative app business model which can be adapted for

many verticals• This advertising strategy will likely be better received by app

users because it is relevant and related to an app’s purpose• App developers and marketers earn revenue, advertisers get

more ad space, and users benefit from free promos• This form of advertising can be aligned with your app’s

conversion funnels

Cons• Mobile marketers need to be careful about what

actions they incentivize within their app (Apple has been cracking down on incentivizing downloads and social sharing)

• This app business model has not been as thoroughly tried and tested as the other ones (results and success may vary)

Apps Are Trending Towards Blended Models

• Last year, Developer Economics published a chart which shows the popularity and revenues from five of the most bankable app business models (excluding sponsorships since it’s so new).

• Interestingly, it shows that advertising is the most popular app monetization strategy, but subscriptions are the most profitable.

As the app landscape becomes more sophisticated, we should expect to see a trend towards more blended models.

For instance, you can start with a “free, but with ads” model and then offer users a paid upgrade to an ad-free version, which is a “freemium” approach.

The end lesson here is: don’t just do what others have done before, adapt and iterate on each app monetization strategy to make it work for your app.

6.

What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?

Categories

• Physical• Financial• Intellectual• Human

7.

What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?

7S of a Business Model / Management

Shared Values

Systems

Structure

Strategy

Staffs

Skills

Style

8.

Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?

Modes of Partnerships

1. Strategic alliances between non-competitors2. Coopetition: strategic partnerships between

competitors3. Joint ventures to develop new businesses4. Buyer-supplier relationships to assure reliable

supplies

Motivations for Partnerships• Optimization and economy of scale

– usually formed to reduce costs, and often involve outsourcing or sharing infrastructure..

• Reduction of risk and uncertainty– Blu-ray, for example, is an optical disc format jointly developed by a group of the world’s leading

consumer electronics, personal computer, and media manufacturers. The group cooperated to bring Blu-ray technology to market, yet individual members compete in selling their own Blu-ray products.

• Acquisition of particular resources and activities– Some extend their own capabilities by relying on other firms to furnish particular resources or

perform certain activities. Such partnerships can be motivated by needs to acquire knowledge, licenses, or access to customers. A mobile phone manufacturer, for example, may license an operating system for its handsets rather than developing one in-house. An insurer may choose to rely on independent brokers to sell its policies rather than develop its own sales force.

9.

9. • What are the most important costs inherent in our business model?

• Which Key Resources are most expensive? • Which Key Activities are most expensive?

Two Models

Naturally enough, costs should be minimized in every business model. But low Cost Structures are more

important to some business models than to others. Therefore it can be useful to distinguish between two broad classes of business model Cost Structures: cost-driven and value-driven (many business models fall in

between these two extremes)

Cost Driven Business Model

• Cost-driven business models focus on minimizing costs wherever possible.

• This approach aims at creating and maintaining the leanest possible Cost Structure, using low price Value Propositions, maximum automation, and extensive outsourcing.

Value Driven Business Model• Some companies are less concerned with the cost

implications of a particular business model design, and instead focus on value creation.

• Premium Value Propositions and a high degree of personalized service usually characterize value-driven business models.

Right Mix of 9 Building Blocks

www.canvaniser.com

DESIGN ASPECTS OF BUSINESS MODELS

1. Customer Insight

Customer Insight

• Companies invest heavily in market research, yet often wind up neglecting the customer perspective when designing products, services—and business models.

• Good business model design avoids this error. • It views the business model through customers‘ eyes, an approach that

can lead to the discovery of completely new opportunities. • This does not mean that customer thinking is the only place from which

to start an innovation initiative, but it does mean that we should include the customer perspective when evaluating a business model.

• Successful innovation requires a deep understanding of customers, including environment, daily routines, concerns, and aspirations.

Adopting the customer perspective is a guiding principle for the entire business model

design process.

Customer perspectives should inform our choices regarding Value Propositions,

Distribution Channels, Customer Relationships, and Revenue Streams.

Henry Ford once said,

“If I had asked my customers what they wanted, they would have told me ‘a faster horse.”

…..• Business model innovators should avoid focusing

exclusively on existing Customer Segments and set their sights on new or unreached segments.

• A number of business model innovations have succeeded precisely because they satisfied the unmet needs of new customers

Customer Insight in Business Model Design

Organization-Centric Business Model Design

• What can we sell customers ?• How can we reach customers

most efficiently ?• What relationships do we need

to establish with customer ?• How can we make money from

our customers ?

Customer-Centric Business Model Design

• What job(s) do(es) our customer need to get done and how can we help ?

• What are our customer’s aspirations and how can we help him live upto them ?

• How do our customers prefer to be addressed?

• How do we as an enterprise best fit into their routines?

• What relationship do our customers expect us to establish with them?

• For what value(s) are customers truly willing to pay?

The Empathy Map

What does she see?

• Describe what the customer sees in her environment– What does it look like?– Who surrounds her?– Who are her friends?– What types of offers is she exposed

to daily (as opposed to all market offers)?

– What problems does she encounter?

What does she hear?

• Describe how the environment influences the customer

• What do her friends say?• Her spouse?• Who really influences her, and

how?• Which media Channels are

influential?

What does she really think and feel?

• Try to sketch out what goes on in your customer’s mind– What is really important to her

(which she might not say publicly)?– Imagine her emotions. What moves

her?– What might keep her worried ?– Try describing her dreams and

aspirations.

What does she say and do?

• Imagine what the customer might say, or how she might behave in public– What is her attitude?– What could she be telling others?– Pay particular attention to potential

conflicts between what a customer might say and what she may truly think or feel.

What is the customer’s pain?

• What are her biggest frustrations?

• What obstacles stand between her and what she wants or needs to achieve?

• Which risks might she fear taking?

What does the customer gain?

• What does she truly want or need to achieve?

• How does she measure success?• Think of some strategies she

might use to achieve her goals.

The Empathy Map

Sohan B. Khatri

Buyer Behaviour - Social Factors• A customer’s buying behaviour is also influenced by social factors, such as the groups to

which the customer belongs and social status.• In a group, several individuals may interact to influence the purchase decision. • The typical roles in such a group decision can be summarised as follows:

• The person who first suggests or thinks of the idea of buying a particular product or serviceInitiator• A person whose view or advice influences the buying decisionInfluencer• The individual with the power and/or financial authority to make the ultimate choice regarding

which product to buyDecider• The person who concludes the transactionBuyer• The person (or persons) who actually uses the product or serviceUser

Sohan B. Khatri

Post Purchase Evaluation

Satisfaction vs Dissatisfaction

Actual PurchaseTime , Access and Reference

Purchase DecisionChoosing Alternative Product Features

Evaluation of AlternativesCriteria for Evaluation Rank Alternatives or Resume Search

Information SearchInternal Search External Search

Problem Recognition [Awareness of Need]Desired State Actual State

Buyer Decision-making Process

Sohan B. Khatri

What Marketers need to do ?

Post Purchase Evaluation

After sales communication After sales service Customer lifetime value

Actual PurchaseDesign moment of truth

Purchase DecisionCommunicate Product Features Design easy process

Evaluation of AlternativesHelp consumers with information Influence by framing alternatives

Information SearchImpress consumers intensely Be present in all sources of information

Problem Recognition [Awareness of Need]Communicate Need Sell solution

2. Ideation

Generating New Business Model• Mapping an existing business model is one thing;

designing a new and innovative business model is another. • What’s needed is a creative process for generating a large

number of business model ideas and successfully isolating the best ones.

• This process is called ideation. • Mastering the art of ideation is crucial when it comes to

designing viable new business models.

Business Model Innovation• ignoring the status quo and suspending concerns over

operational issues• is not about looking back, because the past indicates little

about what is possible in terms of future business models• not about looking to competitors, since business model

innovation is not about copying or benchmarking, but about creating new mechanisms to create value and derive revenues.

• is about challenging orthodoxies to design original models that meet unsatisfied, new, or hidden customer needs.

Ideas for business model innovation can come from anywhere, and each of the nine business model buildingblocks can be a starting point.

Transformative businessmodel innovations affect multiple building blocks.

Epicenters of Business Model Innovation

1. Resource-driven– Resource-driven innovations originate from an

organization’s existing infrastructure or partnerships to expand or transform the business model.

• Example: Amazon Web Services was built on top of Amazon.com’s retail infrastructure to offer server capacity and data storage space to other companies.

Epicenters of Business Model Innovation

2. Offer-driven– Offer-driven innovations create new value propositions that affect

other business model building blocks.

• Example: When Cemex, a Mexican cement maker, promised to deliver poured cement to job sites within four hours rather than the 48 hour industry standard, it had to transform its business model. This innovation helped change Cemex from a regional Mexican player into the world’s second largest cement producer.

Epicenters of Business Model Innovation

3. Customer-driven– Customer-driven innovations are based on customer needs, facilitated access,

or increased convenience. Like all innovations emerging from a single epicenter, they affect other business model building blocks.

• Example: 23andMe brought personalized DNA testing to individual clients—an offer previously available exclusively to health professionals and researchers. This had substantial implications for both the Value Proposition and the delivery of test results, which 23andMe accomplishes through mass-customized Web profiles.

Epicenters of Business Model Innovation

4. Finance-driven– Innovations driven by new revenue streams, pricing mechanisms, or reduced

Cost structures that affect other business model building blocks.

• Example: When Xerox invented the Xerox 914 in 1958— one of the first plain paper copiers—it was priced too high for the market. So Xerox developed a new business model. It leased the machines at $95 per month, including 2,000 free copies, plus five cents per additional copy. Clients acquired the new machines and started making thousands of copies each month.

Epicenters of Business Model Innovation

5. Multiple-epicenter driven– Innovations driven by multiple epicenters can have significant impact on

several other building blocks.

• Example: Hilti, the global manufacturer of professional construction tools, moved away from selling tools outright and toward renting sets of tools to customers. This has a substantial change in Hitli’s Value Proposition, but also in its Revenue Streams, which shifted from onetime product revenues to recurring service revenues.

Show your full creative colors…..

194Sohan Khatri

"An innovative business is one which lives and breathes 'outside the box'. It is not just good ideas, it is a combination of good ideas, motivated team members and an instinctive understanding of what your customer wants."

Richard Branson - DTI Innovation lecture, 1998

Sohan Khatri 195

Techniques• “What IF”… and Scenario Analysis• 5Why Techniques• Brainstorming• Reverse Brainstorming• Focus Group Discussion

Ideation• Which elements must we study before generating business

model ideas?

• What innovations can we imagine for each business model building block?

• What are the most important criteria for prioritizing our business model ideas?

DESIGN ASPECTS OF BUSINESS MODELS

1.Customer Insights2.Ideation3.Visual Thinking4.Prototyping5.Storytelling6.Scenarios

STRATEGY

Strategy Landscape - Business Environment:

context, design drivers, and constraints

Each of these contextual aspects offers feeders for strategy formulation for business model design and implementation

How should yourbusiness model evolvein light of a changing

environment?

EVALUATING BUSINESS MODELS

Perform Detail SWOT analysis of each building block of Business Model

Strength-Weakness Analysis

Analyzing Threats

Assessing Opportunities

Using SWOT assessment

analysis results todesign new

business model options

Value Innovation

Changing elements on the right-hand side has implications for the left-hand side. For example, if we add to or eliminate parts of the Value Proposition, Channels, or Customer Relationship Building Blocks, this will have immediate implications for Resources, Activities, Partnerships, and Costs.

Identifying which elements of the Value Proposition can be eliminated, reduced, raised, or newly created. The first goal is to lower costs by reducing or eliminating less valuablefeatures or services. The second goal is to enhance or create high-value features or services that do not significantly increase the cost base.

You can ask the Four Actions Framework questions (eliminate, create, reduce, raise) about each business model Building Block and immediately recognize implications for the other parts of thebusiness model, (e.g. what are the implications for the cost side when we make changes on the value side?and vice versa).

Questioning your canvas with thefour actions framework

Customer Segment PerspectiveAsk yourself the Four Actions Framework questionsabout each business model Building Block on thecustomer side of the Canvas: Channels, Relationships,and Revenue Streams. Analyze what happens to thecost side if you eliminate, reduce, raise, or create valueside elements.

• Which new Customer Segments could you focus on, and which segments could you possibly reduce or eliminate?

• What jobs do new Customer Segments really want to have done?

• How do these customers prefer to be reached and what kind of relationship do they expect?

• What are the cost implications of serving new Customer Segments?

Value Proposition PerspectiveBegin the process of transforming your Value Propositionby asking the Four Actions Framework questions.Simultaneously, consider the impact on the cost sideand evaluate what elements you need to (or could)change on the value side, such as Channels, Relationships,Revenue Streams, and Customer Segments.

• What less-valued features or services could be eliminated or reduced?

• What features or services could be enhanced or newly created to produce a valuable new customer experience?

• What are the cost implications of your changes to the Value Proposition?

• How will changes to the Value Proposition affect the customer side of the model?

Cost PerspectiveIdentify the highest cost infrastructure elements andevaluate what happens if you eliminate or reduce them.What value elements disappear, and what would youhave to create to compensate for their absence? Then,identify infrastructure investments you may want tomake and analyze how much value they create.

• Which activities, resources, and partnerships have the highest costs?

• What happens if you reduce or eliminate some of these cost factors?

• How could you replace, using less costly elements, the value lost by reducing or eliminating expensive resources, activities, or partnerships?

• What value would be created by planned new investments?

FIND POINTS OF SYNERGIES WITH OTHER BUSINESS MODELS

Strategic alliancePartnerships

Joint VenturesDiversification (horizontal / vertical)

Design – Innovation

Satisfy Market Bring to Market

Improve Market

Create Market Be Reactive Be Adaptive

Be Expansive Be Pro-active/ Explorative

Note the followings carefully• Critical Success Factors • Key Performance Indicators• Metrics and Measurements to be used• Feedback Loop • Incremental Improvements• Total Quality Management

APP MARKETING STRATEGIES

7Ps of Marketing

In a market that is estimated to be worth $ 25 billion by 2015, discoverability is the key and this is reliant on a clear app marketing strategy and timely execution.

Study Consumer Behavior Patterns

Some prescriptions• Identify Your Target Persona First• Consider Pricing Carefully• Cast a Wide Net With Your Elevator Pitch• Continuously Promote Retention• Don’t Overlook the International Market

• USER ENGAGEMENT IS THE KEY

………• Make your press kit pop.• Build an enticing microsite.• Create a teaser or giveaway campaign.• Keep content fresh. • Build hype. • Ask customers for feedback.

……..a high-resolution logo, sample design screens, an app icon, a press release, a microsite and a teaser video. Make sure you have a fantastic name and icon for your app that's catchy and connects with the audience instantly. The first paragraph of the app description should be your selling pitch and app store screenshots should be customized to attract your customer.

One of the most under-rated, but highly effective strategies is app store marketing. Because a lot of people browse with keyword searches, select your keywords wisely by researching successful competitors.

………• Create a Buzz around your App

– a. Extensive market & competitive analysis– b. SEO and ASO– c. Press Releases

• Integrate social media• Mobile display advertising• Burst Marketing• Incentivized downloads

An estimated 60% of downloads come directly from users who discover your app from organic search within the app store, so your app store description is crucial.

ALL THE BEST