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Taking it to the Next Level: What’s your Business Model R. Bruce Thurston – Management Resource Services

Bruce Thurston - Taking it to the Next Level

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Page 1: Bruce Thurston - Taking it to the Next Level

Taking it to the Next Level:What’s your Business Model

R. Bruce Thurston – Management Resource Services

Page 2: Bruce Thurston - Taking it to the Next Level

Key Activities

Key Partners

Key Resources

Cost Structure

Customer Relationships  Value 

Propositions

Customer Segments

Channels

Revenue Streams

Page 3: Bruce Thurston - Taking it to the Next Level

Key Activities –what it takes to get the product out to market; the howKey Partnerships – the 

network of suppliers & partners that surround the business

Key Resources – the assets required to create the product

Cost Structure –expenses related to product/service creation

Page 4: Bruce Thurston - Taking it to the Next Level

Value Proposition – the end product; meeting the needs/demands of the customer

Revenue Streams – why, what, how customers are paying; Cash generation

Channels – how the brand gets to the customer

Customer Segments –who are your customers

Relationships – going the extra mile to retain customer loyalty

Page 5: Bruce Thurston - Taking it to the Next Level

Customer Segment: who are your customer?

Customer Groups represent separate segments if:– Their needs require and justify a distinct offering– They are reached through different Distribution Channels

– They require different types of relationships– They have substantially different profit abilities– They are willing to pay for different aspects of the offer

Page 6: Bruce Thurston - Taking it to the Next Level

Customers ‐ for whom are we creating value?

Who are our most important customers?– Mass Market ‐ no distinction between segments– Niche Market ‐ specialized Customer Segments– Segmented ‐markets segments with slightly different needs and problems

– Diversified ‐ two unrelated customer segments with very different needs and problems

Page 7: Bruce Thurston - Taking it to the Next Level

Channels: how the brand gets to the customer

Describes how the company communicates with and reaches its Customer Segments to deliver Value Proposition, the company’s interface with customers.  

Channels serve several functions:– Raising awareness among customers about a company’s Product 

and Services– Helping customers evaluate a company’s Value Proposition– Allowing customers to purchase specific products and services– Delivering a Value Proposition to customers– Providing post‐purchase customer support. 

Page 8: Bruce Thurston - Taking it to the Next Level

Channels: how the brand gets to the customer

• 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?

Page 9: Bruce Thurston - Taking it to the Next Level

Channels: touch points!

Channel Types:• Own / Partner

– Direct ‐ Sales Force– Web Sales

• Own Stores

• Indirect ‐ Partner Stores• Wholesaler

Page 10: Bruce Thurston - Taking it to the Next Level

Channels: phasesAwareness – How do we raise awareness?Evaluation – How do we help customers evaluate our proposition?

Purchase – How do we allow customers to purchase specific  services?

Delivery – How do we deliver a Value Proposition to customers?

After Sales – How do we provide post‐purchase customer support?

Page 11: Bruce Thurston - Taking it to the Next Level

Customer Relations: going the extra mile to retain customer loyalty

A company should clarify the type of relationship it wants toestablish with each Customer Segment 

Relationships can range from automated to personal and driven by the following motivations:

– Customer Acquisitions– Customer Retention– Boosting Sales (Upselling)

The customer relationships called for by a company’s business modeldeeply influences the overall customer experience. 

Page 12: Bruce Thurston - Taking it to the Next Level

Customer Relations• What type of relationship does each of our Customer Segments expect  us to 

establish  and maintain them? • Which ones have we established?• How costly are they?• How are they integrated with the rest of our business model?

Customer Relationship categories:– Personal Assistance – human interaction, to get help during the sales process or after 

purchase. – Dedicated Personal Assistance – Dedicating a customer rep specifically to an individual client. – Self‐service – no direct relationship.– Automated Service – mixes a more sophisticated form of customer  self service with 

automated processes. For ex. Online personal profiles gives customers access to customized services. 

– Communities – user communities– Co‐creation – with customers, engage customers in design. 

Page 13: Bruce Thurston - Taking it to the Next Level

Customer Relations

• For what value are our customers really willing to pay?

• For what do they currently pay? • How are they paying?• How would they prefer to pay?• How much does each Revenue Stream contribute to overall revenues?

Page 14: Bruce Thurston - Taking it to the Next Level

Revenue Stream: why, what, how customers are paying; Cash GenerationIf Customers are the heart of each business then Revenue Streams are thearteries.  

A company must ask:For what value is each Customer Segment truly willing to pay?

Successfully answering this question allows the firm to generate one or moreRevenue Streams from each Customer segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list price, bargaining, auctioning, market dependent, Volume dependent,or yield management. 

Page 15: Bruce Thurston - Taking it to the Next Level

Revenue Stream: two methods

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

• Transaction Revenues resulting from one‐timecustomer Payments.

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

Page 16: Bruce Thurston - Taking it to the Next Level

Revenue Stream: two types of pricing mechanisms

Fixed Menu Pricing: – Predefined prices based on static variables. – List Price– Product Feature Dependent– Customer segment dependent– Volume Dependent

Dynamic Pricing:– Prices change based on market conditions– Negotiation– Yield Management – Inventory and timing (airlines)– Real‐time‐market – supply and demand– Auctions – Price determined by outcome of competitive bid. 

Page 17: Bruce Thurston - Taking it to the Next Level

Revenue Stream: options to generate revenues streams

Asset Sale – selling rights to physical propertyUsage fee – the more a service is used the more the customer pays. Subscription fees – selling continuous access to a serviceLending/renting/Leasing – temporary grant someone exclusive rights 

to use a particular asset for a fixed period in return for a feeLicensing – Giving customers the permission to use protected 

Intellectual property in exchange for licensing fee. Brokerage fees – derived from intermediation services performed on 

behalf of two or more parties. Advertising – fees for advertising a certain product, service or brand. 

Page 18: Bruce Thurston - Taking it to the Next Level

Key Resources: the assets required to create the product/service

• Most important assets required to make a business model work.

• Key resources can be physical, financial, intellectual, or  human.

• Key resources can be owned or leased by the company or acquired from key partners. 

Page 19: Bruce Thurston - Taking it to the Next Level

Key Resources: what key resources do our value propositions require? 

Our Distribution Channel? Customer Relationships? Revenue Streams?

Key Resources can be categorized as follows:Physical – Building/EquipmentIntellectual – Brand, proprietary knowledge, patents, copyrights, partnerships, customer database.Human – critical in knowledge intensive/ creative industriesFinancial – cash, line of credit, stock option pool for key employees. 

Page 20: Bruce Thurston - Taking it to the Next Level

Key Activities: what it takes to get the product out to market; the how

The most important things a company must doto make the business model work.

These are required to create and offer a ValueProposition, reach markets, maintain customerrelationships, and earn revenues.  

Page 21: Bruce Thurston - Taking it to the Next Level

Key Activities: Process Improvement Example

Page 22: Bruce Thurston - Taking it to the Next Level

Key Partnerships: the network of suppliers & partners that surround the business

• Describes the network of suppliers and partners that make the business model work.

• Companies create alliances to optimize their business model, reduce risk, or acquire resources.

Four types:– Strategic Alliances between non‐competitors– Co‐opetition – strategic partnerships between competitors– Joint Ventures – to develop new businesses– Buyer‐supplier relationships to assure reliable supplies

Page 23: Bruce Thurston - Taking it to the Next Level

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

Three motivations for creating partnerships:– Optimization of economy of scale – the most basic form– Reduction of Risk and Uncertainty ‐ Insurance– Acquisition of particular resources and activities – rely on other firms– to furnish particular resources or perform certain activities.

Page 24: Bruce Thurston - Taking it to the Next Level

Cost Structure: expenses related to product/service creation

• Describes all the costs incurred to operate the business model

• Creating and delivering value, maintaining Customer Relations and generating revenue all incur costs. 

• Costs can be calculated easier after defining Key Resources, Key Activities, and Key Partnerships. 

• Some models are more cost‐driven than others, ex. Low cost airlines. 

Page 25: Bruce Thurston - Taking it to the Next Level

Cost Structure: what are the most important costs inherent in our business model?

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

Two broad classes of business model cost structures: – Cost Drive – minimize costs where ever possible– Value Driven – focus on value creation – luxury 

Cost Structures have the following characteristics:– Fixed Costs – remain despite volume produced.– Variable Costs – vary proportionately with the volume– Economies of Scale – benefit from large volumes– Economies of Scope – cost advantage due to larger scope of business

Page 26: Bruce Thurston - Taking it to the Next Level

Key Activities

Key Partners

Key Resources

Cost Structure

Customer Relationships  Value 

Propositions

Customer Segments

Channels

Revenue Streams

Page 27: Bruce Thurston - Taking it to the Next Level

Taking it to the Next Level:What’s your Business Model

QUESTIONS??

Page 28: Bruce Thurston - Taking it to the Next Level

Taking it to the Next Level:What’s your Business Model

R. Bruce Thurston – Management Resource Services