Understanding Business Model Canvas

29 March 2021

Our very first segment is finally out.

I’m Haidar, a brand consultant at Neu Entity will be sharing ideas and explaining how one can create a flow that makes sense on creation, delivery and capture value of an idea. Head over to our social media platforms and follow us to find out more of what we can offer.

Value Proposition 

Value Proposition is a statement that answers the “why” someone would want to do business with you or “why” should they. Convincing a potential customer why your services or products will be of more value than the rest who are offering similar proposals. 

A concrete value proposition can give you an advantage over your competitors and more often what your prospects use to evaluate you. Having a clear, concise value proposition is important. Creating a value proposition identifies all the benefits your product or service can offer. It can be critical to identify your consumer’s main problem but your value proposition is the solution.

Customer Segment

Customer segment involving groups of customers with specific marketing groups. Narrowing them by gender, interests, buying habits, or demographic. Processing it requires a thought-out strategy, understanding how to manage and group your own customers, also which data you will use to do this. Differentiating their customer base, will help businesses target individuals better and maximize sales. 

In business to business marketing, some companies might segment their customers according to a wide range of factors which includes, Industry Number of Employees, Product previously purchased from the company, and location. 

Channels

Channels describe how a company communicates with and reaches its customer segments to deliver its Value Proposition. the importance of understanding which pathway is best suited for your company to reach out to the target audience which is also your customers. 

Function of Channel

  1. AWARENESS; Raising awareness to the customer about the companies products/services 
  2. EVALUATION; Helping customer evaluate a company’s Value Proposition 
  3. PURCHASE; Allowing consumers to purchase specific products and services.
  4. DELIVERY; Delivering a Value Proposition to customers.
  5. AFTERSALES; Providing post-purchase for customer support

Customer Relationship

Customer relations describes the ways that a company will engage with its customers to improve the customer experience. It includes providing answers to short-term roadblocks as well as proactively creating long-term solutions. Why is it important because it will help businesses to retain their consumers/customers,  it helps businesses to up-sell or cross-sell to their customers and get referrals from these customers. Some businesses/ consumers prefer one-to-one because that’s the only way they can build trust.

Revenue Streams

Revenue streams categorize the earnings a business generates from certain pricing mechanisms and channels. Revenue stream can take the form of one of these revenue models; Transaction-based revenue proceeds from sales of goods that are usually one-time customer payments. Service revenue is generated by providing good service to customers and most of the time is calculated based on time like the number of hours of consulting service provided. What comes next is Project revenue, revenues usually earned through a one-time project with existing clients/customers or newcomers. 

Last but not least is recurring revenue, earnings from ongoing payments for continuing services. The recurring revenue model is the most used by businesses because it is predictable and reassures the company’s/businesses source of revenue as ongoing like subscription fees, rents, licensing, brokerage fees, and advertising fees.

Key Activities 

When it comes to Business Model Canvas, Key activities are like any activities that your business is engaged in for the primary purpose of making a profit. Businesses’ key activities are inclusive of operations, marketing, production, problem-solving, and administration. Keep in mind that key activities will keep changing depending upon the type of business that you operate.

Defining your key activities is to help you discover what activities you need to address or focus on to differentiate your product or service with that you can effectively deliver your Value Proposition.

Key Resources 

The most important asset needed to make a business model work which is best described as the building block is Key Resources. Every business model requires them, it is only through them that companies generate Value propositions and revenues. When it comes to key resources it can be physical, financial, intellectual, or human.

Four of the main categories are Physical resources, human resources, intellectual resources, and financial resources. 

  1. Physical resources require raw material, building, storage facility, machines, and factories. 
  2. Human resources are basically staff, talented engineers, marketing experts, and so on. Resources are a need or rather important in companies in the knowledge-intensive and creative sectors. 
  3. Intellectual resources most likely lean towards more on your brands, patents, copyrights, partnerships, and of course, customer databases. It can include recipes for those who are dealing with food.
  4. Financial resources involve cash, credit, etc. 

Key Partners

The relationship you have with other business, governmental or non-consumer entities that help your business model work. These can be the relationships that you have with your suppliers, manufacturers, business partners, etc. These partnerships that you will undoubtedly create will be forces that help you need to help your business to succeed in an area that would be inefficient for you to do yourself. 

There are 4 types of partnership you need to know:

Strategic alliances between non-competitors. 

It means that you can partner with a manufacturer to produce a part of your business product that you, yourself may not be able to do. In return, you will have to create a contract to pay for the parts that your partner has made for you. 

Coopetition. 

A strategic partnership between competitors. Companies that are directly competing against one and another will still have to work together to generate awareness for their shared industry, in the attempt to gain more new users for all those in the industry to compete for.

 Joint Ventures to develop new businesses. 

You can join your company with another to create an entirely different entity, which is more profitable for both parties rather than if you were to operate separately.

Buyer-supplier relationships.

 Specifically means building a reliable relationship with a buyer or supplier. All you need to incorporate is the characteristics of trust, quality, and commitment between the two entities.

Cost

Cost structure refers to the proportion of fixed and variable costs within an organization. Fixed costs usually have a fixed percentage of your overall costs. While they do change, often incrementally they remain fairly staple. Variable costs are the type of costs that change depending on the number of goods and services produced by a business. Inclusive things like raw materials, shipping costs web hosting serves.

Fixed Cost Example :

  • Amortization
  • Depreciation
  • Insurance
  • Interest expense
  • Property taxes 
  • Rent
  • Salaries 
  • Utilities 

Variable Cost Example :

  • Direct materials 
  • Commissions/ Affiliate payments
  • Shipping Costs
Summary
Understanding Business Model Canvas.
Article Name
Understanding Business Model Canvas.
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Our Brand Consultant at Neu Entity will be sharing 9 segments of the business model canvas and how it will help you to brand efficiently.
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Neu Entity
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