Topic 3 Key elements of a business model
A business model is your formula to define what value you will give to your customers and it describes how you will deliver this. It should continually adapt with your business.
All business models share three common elements:
1.Value proposition;
2.Value creation and delivery (through value configuration) and
3.Value capture (the revenue model).
The value proposition is not the “What?” or the “Who?”. It is the “Why?”.
- It explains why a stakeholder would engage with the enterprise.
- It is the value that the stakeholder receives by purchasing or engaging with the services that an enterprise is offering – it is not the product or service itself, but the value derived from it.
The Value configuration describes:
- The processes that will be used to create the product or service
- The resources that are required – for example, workforce or raw materials.
A revenue model is a description of how exactly revenues are generated now and over time. It identifies:
- Which revenue stream(s) to pursue (e.g., direct sales of a Harley Davidson, or also subscription or pre-/freemium models, or advertising revenues from offering ‘free’ services, etc.)
- What monetary value to offer to different customer segments – the (often intangible) value of your value proposition monetized (e.g., how much customers are willing to pay for the independence, freedom, and individuality they value when riding a Harley Davidson)
- How to actually price the value to various customers (e.g., offering discounts for reasons of competition or economy of scale)
- Who exactly pays for the value? (This is not necessarily the one who uses the value. For example, Google receives money from advertisers rather than the end users like you and me.)