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BUSINESS DEVELOPMENT

MODEL AND STRATEGIES


Sohan Babu Khatri CEO Three H Management

Adjunct Faculty Ace Institute of


Management
Kathmandu College of Management
Days 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?
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

8
Two Problems

1. He never said it.

2. The research doesnt support it.


The basic mousetrap (1897)

How much innovation (better mousetraps) in


mousetraps since then?
Mousetrap Innovations
Since USPTOs 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 dont every innovation succeed ?
And then somebody said this.
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
14
Value
Proposition

Revenue Business
Model Model
Value
Proposition

Revenue Business
Model Model
Value
Proposition

Revenue Business
Model Model
Value
Proposition

Revenue Business
Model Model
Mind the Difference .

Do you like my Would you pay for


product ? my product ?
Value
Proposition

Revenue Business
Model Model
App Monetization
Mobile is a big deal, but that doesnt 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, its 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
Decision
Process

Number Type
Customer
Analysis

Customer
Value
Base
Drivers
Products
#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 competitors 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 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.

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 dont just need a better app, you also need better execution, i.e. a
better business model and marketing, in order to topple the leader.
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
technology
development 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?
Customer Segmentation
Demography User type
Geography Usage
Psychograph Benefits sought
Behavior Price sensitivity
Competitor
Application
Brand loyalty
Segments

Value
Opportunities
Segmentation
Capabilities
and Market- /Segment
Match
Driven
Strategy Targets

Positioning
Strategy
Illustrative Segmentation Variables
Consumer Industrial/
Markets Organizational
Markets
Characteristics Age, gender, income, Type of industry , size, geographic
of people/ family size, lifecycle stage, location, corporate culture, stage of
organizations geographic development, producer/
location, lifestyle intermediary
Use situation
Occasion, importance of purchase, Application, Purchasing procedure
prior experience with (new task, modified
product, user status rebuy, straight rebuy

Buyers needs/ Brand loyalty status, brand Performance requirements, brand


preferences preference, benefits sought, preferences, desired features,
quality, proneness to make a deal service requirements

Purchase Size of purchase, frequency Volume, frequency


behavior of purchase of purchase
Identifiable

Response
Actionable
Differences
Segmentation Customer
Requirements Segment

Stability over
Favorable
time
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 SegmentWeb companieswith 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.
What value do we deliver to the customer?
Which one of our customers 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 segments 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 Brand / Status
Performance Price
Customization Cost Reduction
Getting the Job Done Risk Reduction
Design Accessibility
Convenience / Usability
Sohan B. Khatri
Selling Benefits

Feature Specific characteristic inbuilt in the product

Advantage What the feature does /


The function of the feature

Benefit What the feature can do for the customer

Sohan B. Khatri
Feature Advantage Benefit
Wrinkle-free No need for ironing Saves time, energy and
electricity

Attached water bottle Can hold a water bottle Dont have to stop for drinking
holder water, hence time saved

Can capture images from a Better and more close-up


3X Zoom pictures, fond memories
distance

Sohan B. Khatri
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.
What type of relationship does each of our Customer
Segments 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
If
customers
comprise
the heart
For what value are our customers of a
really willing to pay?
For what do they currently pay? How
business
are they currently paying? model,
How would they prefer to pay? Revenue
How much does each Revenue
Stream contribute to overall
Streams
revenues? 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. Survival
2. Customer Acquisition
3. Impacting Customer Perception of Value
4. Maximum Current Profit
5. Maximum Market Share
6. Maximum Market Skimming
7. 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
years 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 wont 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 apps 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 wont 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 apps unique features, be it design or
functionality or brand.
..
For example, lets look at Calendars 5, which is a paid productivity
app that costs $4.99 in Apple's app store.
When you check out Calendars 5s 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 apps 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 its better than Apples 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
teams 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 crme 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.
MeetMes 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 dont
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 Umanos 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 apps 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 apps 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 apps 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 apps
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 apps
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 its 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 The end lesson here
towards more
blended models.
is: dont just do what
others have done
For instance, you before, adapt and
can start with a iterate on each app
free, but with ads monetization
model and then strategy to make it
offer users a paid
upgrade to an ad-
work for your app.
free version, which
is a freemium
approach.
What Key Resources do our Value Propositions
require?
Our Distribution Channels? Customer Relationships?
Revenue Streams?
Categories
Physical
Financial
Intellectual
Human
What Key Activities do our Value Propositions require?
Our Distribution Channels? Customer Relationships?
Revenue streams?
7S of a Business Model / Management
Systems

Style Structure

Shared
Values

Skills Strategy

Staffs
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-competitors
2. Coopetition: strategic partnerships between
competitors
3. Joint ventures to develop new businesses
4. 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 worlds 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.
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,
servicesand 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 Customer-Centric Business Model Design
What can we sell customers ? What job(s) do(es) our customer need to
get done and how can we help ?
How can we reach customers What are our customers aspirations and
most efficiently ? how can we help him live upto them ?
How do our customers prefer to be
What relationships do we need addressed?
to establish with customer ? How do we as an enterprise best fit into
their routines?
How can we make money from What relationship do our customers
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? What does she hear?
Describe what the customer Describe how the environment
sees in her environment influences the customer
What does it look like? What do her friends say?
Who surrounds her?
Her spouse?
Who are her friends?
What types of offers is she exposed
Who really influences her, and
to daily (as opposed to all market how?
offers)? Which media Channels are
What problems does she influential?
encounter?
What does she really think and feel? What does she say and do?
Try to sketch out what goes on Imagine what the customer
in your customers mind might say, or how she might
What is really important to her behave in public
(which she might not say publicly)? What is her attitude?
Imagine her emotions. What moves What could she be telling others?
her?
Pay particular attention to potential
What might keep her worried ? conflicts between what a customer
Try describing her dreams and might say and what she may truly
aspirations. think or feel.
What is the customers pain? What does the customer gain?
What are her biggest What does she truly want or
frustrations? need to achieve?
What obstacles stand between How does she measure success?
her and what she wants or Think of some strategies she
needs to achieve? might use to achieve her goals.
Which risks might she fear
taking?
The Empathy Map
Buyer Behaviour - Social Factors
A customers 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:

Initiator The person who first suggests or thinks of the idea of buying a particular product or service

Influencer A person whose view or advice influences the buying decision

Decider The individual with the power and/or financial authority to make the ultimate choice regarding
which product to buy

Buyer The person who concludes the transaction

User The person (or persons) who actually uses the product or service
Sohan B. Khatri
Buyer Decision-making Process
Problem Recognition [Awareness of Need]
Desired State Actual State

Information Search
Internal Search External Search

Evaluation of Alternatives
Criteria for Evaluation Rank Alternatives or Resume Search

Purchase Decision
Choosing Alternative Product Features

Actual Purchase
Time , Access and Reference

Post Purchase Evaluation


Satisfaction vsB.Dissatisfaction
Sohan Khatri
What Marketers need to do ?
Problem Recognition [Awareness of Need]
Communicate Need Sell solution

Information Search
Impress consumers intensely Be present in all sources of information

Evaluation of Alternatives
Help consumers with information Influence by framing alternatives

Purchase Decision
Communicate Product Features Design easy process

Actual Purchase
Design moment of truth

Post Purchase Evaluation


After sales communication After sales
Sohan service
B. Khatri Customer lifetime value
2. Ideation
Generating New Business Model
Mapping an existing business model is one thing;
designing a new and innovative business model is
another.
Whats 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 building
blocks can be a starting point.

Transformative business
model innovations affect multiple building
blocks.
Epicenters of Business Model Innovation
1. Resource-driven
Resource-driven innovations originate from an
organizations existing infrastructure or partnerships to
expand or transform the business model.

Example: Amazon Web Services was built on top of


Amazon.coms 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 worlds 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 clientsan 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 copiersit 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 Hitlis Value Proposition, but also in its Revenue
Streams, which shifted from onetime product revenues to
recurring service revenues.
Show your full creative colors..

Sohan Khatri 194


"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 Insights
2.Ideation
3.Visual Thinking
4.Prototyping
5.Storytelling
6.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 your
business model evolve
in 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 to
design new
business model
options
Value Innovation
Changing elements on the right-hand Identifying which elements of the You can ask the Four Actions
side has implications for the left-hand Value Proposition can be eliminated, Framework questions (eliminate,
side. For example, if we add to or reduced, raised, or newly created. create, reduce, raise) about each
eliminate parts of the Value The first goal is to lower costs by business model Building Block and
Proposition, Channels, or Customer reducing or eliminating less valuable immediately recognize implications
Relationship Building Blocks, this will features or services. The second goal for the other parts of the
have immediate implications for is to enhance or create high-value business model, (e.g. what are the
Resources, Activities, Partnerships, and features or services that do not implications for the cost side when
Costs. significantly increase the cost base. we make changes on the value side?
and vice versa).
Questioning your canvas with the
four actions framework
Customer Segment Perspective
Ask yourself the Four Actions Framework questions
about each business model Building Block on the
customer side of the Canvas: Channels, Relationships,
and Revenue Streams. Analyze what happens to the
cost side if you eliminate, reduce, raise, or create value
side 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 Perspective
Begin the process of transforming your Value Proposition
by asking the Four Actions Framework questions.
Simultaneously, consider the impact on the cost side
and 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 Perspective
Identify the highest cost infrastructure elements and
evaluate what happens if you eliminate or reduce them.
What value elements disappear, and what would you
have to create to compensate for their absence? Then,
identify infrastructure investments you may want to
make 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 alliance
Partnerships
Joint Ventures
Diversification (horizontal / vertical)
Design Innovation

Bring to Improve
Satisfy Market
Market Market

Create
Be Reactive Be Adaptive
Market

Be Pro-active/
Be Expansive
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
Dont 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

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