4 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)
The Customer Relationships Building Block describes the types of relationships a company establishes with specifi c Customer Segments A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. Customer relationships may be driven by the following motivations: • Customer acquisition • Customer retention • Boosting sales (upselling) Customer Relationships 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 Customer Relationships called for by a company’s business model deeply infl uence the overall customer experience. Cr 4 bmgen_final.indd 28 6/15/10 5:32 PM
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? We can distinguish between several categories of Self-service solve each other's problems.Communities can also Customer Relationships,which may co-exist in a In this type of relationship,a company maintains no help companies better understand their customers company's relationship with a particular direct relationship with customers.It provides all the Pharmaceutical giant GlaxoSmithKline launched a Customer Segment: necessary means for customers to help themselves. private online community when it introduced alli,a new prescription-free weight-loss product. Personalassistance Automated services GlaxoSmithKline wanted to increase its under- This relationship is based on human interaction. This type of relationship mixes a more sophisti- standing of the challenges faced by overweight The customer can communicate with a real customer cated form of customer self-service with automated adults,and thereby learn to better manage customer representative to get help during the sales process or processes.For example,personal online profiles give expectations. after the purchase is complete.This may happen on- customers access to customized services.Automated site at the point of sale,through call centers,by e-mail, services can recognize individual customers and their Co-creation or through other means. characteristics,and offer information related to orders More companies are going beyond the traditional or transactions.At their best,automated services can customer-vendor relationship to co-create value with Dedicated personal assistance simulate a personal relationship (e.g.offering book or customers.Amazon.com invites customers to write This relationship involves dedicating a customer movie recommendations). reviews and thus create value for other book lovers. representative specifically to an individual client.It Some companies engage customers to assist with the represents the deepest and most intimate type of Communities design of new and innovative products.Others,such relationship and normally develops over a long period Increasingly,companies are utilizing user communities as YouTube.com,solicit customers to create content of time.In private banking services,for example,dedi- to become more involved with customers/prospects for public consumption. cated bankers serve high net worth individuals.Similar and to facilitate connections between community relationships can be found in other businesses in the members.Many companies maintain online com- form of key account managers who maintain personal munities that allow users to exchange knowledge and relationships with important customers
29 We can distinguish between several categories of Customer Relationships, which may co-exist in a company’s relationship with a particular Customer Segment: Personal assistance This relationship is based on human interaction. The customer can communicate with a real customer representative to get help during the sales process or after the purchase is complete. This may happen onsite at the point of sale, through call centers, by e-mail, or through other means. Dedicated personal assistance This relationship involves dedicating a customer representative specifically to an individual client. It represents the deepest and most intimate type of relationship and normally develops over a long period of time. In private banking services, for example, dedicated bankers serve high net worth individuals. Similar relationships can be found in other businesses in the form of key account managers who maintain personal relationships with important customers. Self-service In this type of relationship, a company maintains no direct relationship with customers. It provides all the necessary means for customers to help themselves. Automated services This type of relationship mixes a more sophisticated form of customer self-service with automated processes. For example, personal online profiles give customers access to customized services. Automated services can recognize individual customers and their characteristics, and oΩer information related to orders or transactions. At their best, automated services can simulate a personal relationship (e.g. oΩering book or movie recommendations). Communities Increasingly, companies are utilizing user communities to become more involved with customers/prospects and to facilitate connections between community members. Many companies maintain online communities that allow users to exchange knowledge and solve each other’s problems. Communities can also help companies better understand their customers. Pharmaceutical giant GlaxoSmithKline launched a private online community when it introduced alli, a new prescription-free weight-loss product. GlaxoSmithKline wanted to increase its understanding of the challenges faced by overweight adults, and thereby learn to better manage customer expectations. Co-creation More companies are going beyond the traditional customer-vendor relationship to co-create value with customers. Amazon.com invites customers to write reviews and thus create value for other book lovers. Some companies engage customers to assist with the design of new and innovative products. Others, such as YouTube.com, solicit customers to create content for public consumption. 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? bmgen_final.indd 29 6/15/10 5:32 PM
R Reyenue streams The Revenue Streams Building Block represents A business model can involve two different types of Revenue Streams: the cash a company generates from each Customer 1.Transaction revenues resulting from one-time customer payments Segment(costs must be subtracted from revenues to 2.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 different pricing mechanisms,such as fixed list prices,bargaining,auctioning,market dependent,volume depen- dent,or yield management
The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings) If customers comprise the heart of a business model, Revenue 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 fi rm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have diΩerent pricing mechanisms, such as fi xed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management. Revenue Streams A business model can involve two diΩerent 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 r$ 5 bmgen_final.indd 30 6/15/10 5:32 PM
For what value are our customers really willing to pay? For what do they currently pay?How are they currently paying?How would they prefer to pay?How much does each Revenue Stream contribute to overall revenues? There are several ways to generate Revenue Streams: Subscription fees of ownership.Zipcar.com provides a good illustration. This Revenue Stream is generated by selling continu- The company allows customers to rent cars by the Assetsale ous access to a service.A gym sells its members hour in North American cities.Zipcar.com's service The most widely understood Revenue Stream derives monthly or yearly subscriptions in exchange for has led many people to decide to rent rather than from selling ownership rights to a physical product. access to its exercise facilities.World of Warcraft purchase automobiles. Amazon.com sells books,music,consumer electron- Online,a Web-based computer game,allows users to ics,and more online.Fiat sells automobiles,which play its online game in exchange for a monthly sub- Licensing buyers are free to drive,resell,or even destroy. scription fee.Nokia's Comes with Music service gives This Revenue Stream is generated by giving customers users access to a music library for a subscription fee. permission to use protected intellectual property in Usage fee exchange for licensing fees.Licensing allows rights- This Revenue Stream is generated by the use of a Lending/Renting/Leasing holders to generate revenues from their property with- particular service.The more a service is used,the This Revenue Stream is created by temporar- out having to manufacture a product or commercialize more the customer pays.A telecom operator may ily granting someone the exclusive right to use a a service.Licensing is common in the media industry. charge customers for the number of minutes spent on particular asset for a fixed period in return for a where content owners retain copyright while selling the phone.A hotel charges customers for the number fee.For the lender this provides the advantage of usage licenses to third parties.Similarly,in technology of nights rooms are used.A package delivery service recurring revenues.Renters or lessees,on the other sectors,patentholders grant other companies the right charges customers for the delivery of a parcel from hand,enjoy the benefits of incurring expenses for to use a patented technology in return for a license fee one location to another. only a limited time rather than bearing the full costs
31 There are several ways to generate Revenue Streams: Asset sale The most widely understood Revenue Stream derives from selling ownership rights to a physical product. Amazon.com sells books, music, consumer electronics, and more online. Fiat sells automobiles, which buyers are free to drive, resell, or even destroy. Usage fee This Revenue Stream is generated by the use of a particular service. The more a service is used, the more the customer pays. A telecom operator may charge customers for the number of minutes spent on the phone. A hotel charges customers for the number of nights rooms are used. A package delivery service charges customers for the delivery of a parcel from one location to another. Subscription fees This Revenue Stream is generated by selling continuous access to a service. A gym sells its members monthly or yearly subscriptions in exchange for access to its exercise facilities. World of Warcraft Online, a Web-based computer game, allows users to play its online game in exchange for a monthly subscription fee. Nokia’s Comes with Music service gives users access to a music library for a subscription fee. Lending/Renting/Leasing This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? of ownership. Zipcar.com provides a good illustration. The company allows customers to rent cars by the hour in North American cities. Zipcar.com’s service has led many people to decide to rent rather than purchase automobiles. Licensing This Revenue Stream is generated by giving customers permission to use protected intellectual property in exchange for licensing fees. Licensing allows rightsholders to generate revenues from their property without having to manufacture a product or commercialize a service. Licensing is common in the media industry, where content owners retain copyright while selling usage licenses to third parties. Similarly, in technology sectors, patentholders grant other companies the right to use a patented technology in return for a license fee. bmgen_final.indd 31 6/15/10 5:32 PM
5 Brokerage fees This Revenue Stream derives from intermediation Each Revenue Stream might have different pricing services performed on behalf of two or more parties. mechanisms.The type of pricing mechanism chosen Credit card providers,for example,earn revenues can make a big difference in terms of revenues gener- by taking a percentage of the value of each sales ated.There are two main types of pricing mechanism transaction executed between credit card merchants fixed and dynamic pricing. and customers.Brokers and real estate agents earn a commission each time they successfully match a buyer and seller. Advertising This Revenue Stream results from fees for advertising a particular product,service,or brand.Traditionally. the media industry and event organizers relied heavily on revenues from advertising.In recent years other sectors,including software and services,have started relying more heavily on advertising revenues
Brokerage fees This Revenue Stream derives from intermediation services performed on behalf of two or more parties. Credit card providers, for example, earn revenues by taking a percentage of the value of each sales transaction executed between credit card merchants and customers. Brokers and real estate agents earn a commission each time they successfully match a buyer and seller. Advertising This Revenue Stream results from fees for advertising a particular product, service, or brand. Traditionally, the media industry and event organizers relied heavily on revenues from advertising. In recent years other sectors, including software and services, have started relying more heavily on advertising revenues. Each Revenue Stream might have diΩerent pricing mechanisms. The type of pricing mechanism chosen can make a big diΩerence in terms of revenues generated. There are two main types of pricing mechanism: fi xed and dynamic pricing. 5 bmgen_final.indd 32 6/15/10 5:32 PM