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Customer Segments
The Customer Segments Building Block defines
the diΩerent groups of people or organizations an
enterprise aims to reach and serve
Customers comprise the heart of any business model. Without Customer groups represent separate segments if:
(profitable) customers, no company can survive for long. In order • Their needs require and justify a distinct oΩer
to better satisfy customers, a company may group them into • They are reached through diΩerent Distribution Channels
distinct segments with common needs, common behaviors, • They require diΩerent types of relationships
or other attributes. A business model may define one or several • They have substantially diΩerent profitabilities
large or small Customer Segments. An organization must make • They are willing to pay for diΩerent aspects of the oΩer
a conscious decision about which segments to serve and which
segments to ignore. Once this decision is made, a business model
can be carefully designed around a strong understanding of
specific customer needs.
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Value Propositions
The Value Propositions Building Block describes
the bundle of products and services that create
value for a specific Customer Segment
The Value Proposition is the reason why customers turn to one
company over another. It solves a customer problem or satisfies
a customer need. Each Value Proposition consists of a selected
bundle of products and/or services that caters to the requirements
of a specific Customer Segment. In this sense, the Value Proposi-
tion is an aggregation, or bundle, of benefits that a company
oΩers customers.
Some Value Propositions may be innovative and represent a
new or disruptive oΩer. Others may be similar to existing market
oΩers, but with added features and attributes.
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Channels
The Channels Building Block describes how a
company communicates with and reaches its
Customer Segments to deliver a Value Proposition
Communication, distribution, and sales Channels comprise a
company's interface with customers. Channels are customer touch
points that play an important role in the customer experience.
Channels serve several functions, including:
• Raising awareness among customers about a company’s
products 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
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Customer Relationships
The Customer Relationships Building Block In the early days, for example, mobile network operator Customer
describes the types of relationships a company Relationships were driven by aggressive acquisition strategies
establishes with specific Customer Segments involving free mobile phones. When the market became saturated,
A company should clarify the type of relationship it wants to operators switched to focusing on customer retention and increas-
establish with each Customer Segment. Relationships can range ing average revenue per customer.
from personal to automated. Customer relationships may be The Customer Relationships called for by a company’s business
driven by the following motivations: model deeply influence the overall customer experience.
• Customer acquisition
• Customer retention
• Boosting sales (upselling)
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Revenue Streams
The Revenue Streams Building Block represents A business model can involve two diΩerent types of Revenue Streams:
the cash a company generates from each Customer • Transaction revenues resulting from one-time customer payments
Segment (costs must be subtracted from revenues to • Recurring revenues resulting from ongoing payments to either
create earnings) deliver a Value Proposition to customers or provide post-purchase
If customers comprise the heart of a business model, Revenue customer support
Streams are its arteries. A company must ask itself, For what value
is each Customer Segment truly willing to pay? Successfully
answering that question allows the firm to generate one or more
Revenue Streams from each Customer Segment. Each Revenue
Stream may have diΩerent pricing mechanisms, such as fixed list
prices, bargaining, auctioning, market dependent, volume depen-
dent, or yield management.
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Key Resources
The Key Resources Building Block describes
the most important assets required to make a
business model work
Every business model requires Key Resources. These resources
allow an enterprise to create and oΩer a Value Proposition, reach
markets, maintain relationships with Customer Segments, and
earn revenues. DiΩerent Key Resources are needed depending on
the type of business model. A microchip manufacturer requires
capital-intensive production facilities, whereas a microchip designer
focuses more on human resources.
Key resources can be physical, financial, intellectual, or human.
Key resources can be owned or leased by the company or acquired
from key partners.
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Key Activities
The Key Activities Building Block describes
the most important things a company must do
to make its business model work
Every business model calls for a number of Key Activities. These
are the most important actions a company must take to operate
successfully. Like Key Resources, they are required to create and
oΩer a Value Proposition, reach markets, maintain Customer
Relationships, and earn revenues. And like Key Resources, Key
Activities diΩer depending on business model type. For software
maker Microsoft, Key Activities include software development.
For PC manufacturer Dell, Key Activities include supply chain
management. For consultancy McKinsey, Key Activities include
problem solving.
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Key Partnerships
The Key Partnerships Building Block describes
the network of suppliers and partners that make
the business model work
Companies forge partnerships for many reasons, and partnerships
are becoming a cornerstone of many business models. Companies
create alliances to optimize their business models, reduce risk, or
acquire resources.
We can distinguish between four diΩerent types of partnerships:
• Strategic alliances between non-competitors
• Coopetition: strategic partnerships between competitors
• Joint ventures to develop new businesses
• Buyer-supplier relationships to assure reliable supplies
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9 Cost Structure
The Cost Structure describes all costs incurred to
operate a business model
This building block describes the most important costs incurred
while operating under a particular business model. Creating and de-
livering value, maintaining Customer Relationships, and generating
revenue all incur costs. Such costs can be calculated relatively easily
after defining Key Resources, Key Activities, and Key Partnerships.
Some business models, though, are more cost-driven than others.
So-called “no frills” airlines, for instance, have built business models
entirely around low Cost Structures.