33 Pricing Mechanisms Fixed Menu Pricing Dynamic Pricing Predefined prices are based on static variables Prices change based on market conditions List price Fixed prices for individual products,services, Negotiation Price negotiated between two or more partners or other Value Propositions (bargaining) depending on negotiation power and/or negotiation skills Product feature Price depends on the number or quality of Yield management Price depends on inventory and time of purchase dependent Value Proposition features (normally used for perishable resources such as hotel rooms or airline seats) Customer segment Price depends on the type and characteristic Real-time-market Price is established dynamically based on supply dependent of a Customer Segment and demand Volume dependent Price as a function of the quantity purchased Auctions Price determined by outcome of competitive bidding
33 Fixed Menu Pricing Predefined prices are based on static variables Dynamic Pricing Prices change based on market conditions List price Fixed prices for individual products, services, or other Value Propositions Negotiation (bargaining) Price negotiated between two or more partners depending on negotiation power and/or negotiation skills Product feature dependent Price depends on the number or quality of Value Proposition features Yield management Price depends on inventory and time of purchase (normally used for perishable resources such as hotel rooms or airline seats) Customer segment dependent Price depends on the type and characteristic of a Customer Segment Real-time-market Price is established dynamically based on supply and demand Volume dependent Price as a function of the quantity purchased Auctions Price determined by outcome of competitive bidding Pricing Mechanisms bmgen_final.indd 33 6/15/10 5:32 PM
6 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 offer a Value Proposition,reach markets,maintain relationships with Customer Segments,and earn revenues.Different 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
34 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, fi nancial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners. Key Resources Kr 6 bmgen_final.indd 34 6/15/10 5:32 PM
What Key Resources do our Value Propositions require? 35 Our Distribution Channels?Customer Relationships? Revenue Streams? Key Resources can be categorized as follows: fully created may offer substantial value.Consumer Financial goods companies such as Nike and Sony rely heavily Some business models call for financial resources Physical on brand as a Key Resource.Microsoft and SAP and/or financial guarantees,such as cash,lines of This category includes physical assets such as depend on software and related intellectual property credit,or a stock option pool for hiring key employ- manufacturing facilities,buildings,vehicles,machines, developed over many years.Qualcomm,a designer ees.Ericsson,the telecom manufacturer,provides systems,point-of-sales systems,and distribution and supplier of chipsets for broadband mobile an example of financial resource leverage within a networks.Retailers like Wal-Mart and Amazon.com devices,built its business model around patented business model.Ericsson may opt to borrow funds rely heavily on physical resources,which are often microchip designs that earn the company substantial from banks and capital markets,then use a portion of capital-intensive.The former has an enormous global licensing fees. the proceeds to provide vendor financing to equipment network of stores and related logistics infrastructure. customers,thus ensuring that orders are placed with The latter has an extensive IT,warehouse,and logistics Human Ericsson rather than competitors. infrastructure. Every enterprise requires human resources,but people are particularly prominent in certain business Intellectual models.For example,human resources are crucial in Intellectual resources such as brands,proprietary knowledge-intensive and creative industries.A phar- knowledge,patents and copyrights,partnerships, maceutical company such as Novartis,for example, and customer databases are increasingly important relies heavily on human resources:Its business model components of a strong business model.Intellectual is predicated on an army of experienced scientists resources are difficult to develop but when success- and a large and skilled sales force
35 Key Resources can be categorized as follows: Physical This category includes physical assets such as manufacturing facilities, buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks. Retailers like Wal-Mart and Amazon.com rely heavily on physical resources, which are often capital-intensive. The former has an enormous global network of stores and related logistics infrastructure. The latter has an extensive IT, warehouse, and logistics infrastructure. Intellectual Intellectual resources such as brands, proprietary knowledge, patents and copyrights, partnerships, and customer databases are increasingly important components of a strong business model. Intellectual resources are diΩicult to develop but when successfully created may oΩer substantial value. Consumer goods companies such as Nike and Sony rely heavily on brand as a Key Resource. Microsoft and SAP depend on software and related intellectual property developed over many years. Qualcomm, a designer and supplier of chipsets for broadband mobile devices, built its business model around patented microchip designs that earn the company substantial licensing fees. Human Every enterprise requires human resources, but people are particularly prominent in certain business models. For example, human resources are crucial in knowledge-intensive and creative industries. A pharmaceutical company such as Novartis, for example, relies heavily on human resources: Its business model is predicated on an army of experienced scientists and a large and skilled sales force. Financial Some business models call for financial resources and/or financial guarantees, such as cash, lines of credit, or a stock option pool for hiring key employees. Ericsson, the telecom manufacturer, provides an example of financial resource leverage within a business model. Ericsson may opt to borrow funds from banks and capital markets, then use a portion of the proceeds to provide vendor financing to equipment customers, thus ensuring that orders are placed with Ericsson rather than competitors. What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams? bmgen_final.indd 35 6/15/10 5:32 PM
7 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 offer a Value Proposition,reach markets,maintain Customer Relationships,and earn revenues.And like Key Resources,Key Activities differ 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
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. Key Activities 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. KA 7 bmgen_final.indd 36 6/15/10 5:32 PM
What Key Activities do our Value Propositions require? 37 Our Distribution Channels?Customer Relationships? Revenue streams? Key Activities can be categorized as follows: Platform/network Production Business models designed with a platform as a Key These activities relate to designing,making,and Resource are dominated by platform or network- delivering a product in substantial quantities and/or related Key Activities.Networks,matchmaking of superior quality.Production activity dominates the platforms,software,and even brands can function as business models of manufacturing firms. a platform.eBay's business model requires that the company continually develop and maintain its plat- Problem solving form:the Web site at eBay.com.Visa's business model Key Activities of this type relate to coming up with requires activities related to its Visa credit card new solutions to individual customer problems. transaction platform for merchants,customers,and The operations of consultancies,hospitals,and other banks.Microsoft's business model requires managing service organizations are typically dominated by the interface between other vendors'software and its problem solving activities.Their business models call Windows operating system platform.Key Activi- for activities such as knowledge management and ties in this category relate to platform management, continuous training. service provisioning,and platform promotion
37 Key Activities can be categorized as follows: Production These activities relate to designing, making, and delivering a product in substantial quantities and/or of superior quality. Production activity dominates the business models of manufacturing firms. Problem solving Key Activities of this type relate to coming up with new solutions to individual customer problems. The operations of consultancies, hospitals, and other service organizations are typically dominated by problem solving activities. Their business models call for activities such as knowledge management and continuous training. Platform/network Business models designed with a platform as a Key Resource are dominated by platform or networkrelated Key Activities. Networks, matchmaking platforms, software, and even brands can function as a platform. eBay’s business model requires that the company continually develop and maintain its platform: the Web site at eBay.com. Visa’s business model requires activities related to its Visa® credit card transaction platform for merchants, customers, and banks. Microsoft’s business model requires managing the interface between other vendors’ software and its Windows® operating system platform. Key Activities in this category relate to platform management, service provisioning, and platform promotion. What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue streams? bmgen_final.indd 37 6/15/10 5:32 PM