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The Osterwalder Business Model

By Marketing Advisory, 3EA
The Osterwalder Business Model

The Osterwalder's business model was developed by Alexander Osterwalder and Yves Pigneur which is a simple template representing nine essential elements which are the building blocks of an organisation. These individual elements provide full scope of the business and the layout shows how each element fit together.

These 9 elements can be segregated into 3 categories which can be used to ask some question that helps in building the canvas model. These 3 categories are:

1. Value Creation
This can be done in 2 ways: First by offering a good or service which customer can't resist. Second, by preventing the production of goods/services whose worth is less to market than the production cost. Two questions are answered from the value creation:
a. Who are we serving?
b. What unique benefit that we offer?

2. Delivering Value
Customers are willing to accept and use the value business offers because of their awareness about your business and the fact that the offering will solve a core problem.
a. What is the operating model?

3. Capturing Value
Stage at which the organisation gets paid. This is determined by the revenues and the spending but it also depends on the multiple factors like competitor’s pricing, market strategy etc. It will also answer the questions:
a. What unique things we are offering?
b. Why it won’t be imitated?

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Key Partners:
This element informs us about the key partners, which could be formed creating alliances or the suppliers for the organisation. This element will also help understand what are the sources of motivation for these partnership. The business should also understand that in order to grow, what kind of future partnerships will be required.

Key Activities:
This element defines all the key activities that the value proposition requires like activities in the channels, customer relationships, revenue stream etc. The business should evaluate which activities are critical by adding or removing the activities and assessing their impact.

Key Resources:
The means that a company needs to perform in order to fulfil the required value proposition. These can be categorized as Physical, Intellectual, Financial or Human resources.

Value Proposition
This element defines all the core benefits that are being delivered to the customers. This is the reason why a customer buy/prefer your product or services. This also helps the company in distinguishing itself from the competitors. The differentiation could be based on multiple factors like price, quality, brand status, customer experience etc.

Customer Relationship
It is the relationship your target customer expects you to establish with them. This also includes how the business integrates this relationship in terms of cost and format. These relationships can be categories as:
- Personal Assistance: Interacts with the customer directly.
- Dedicated Personal assistance: Very close interaction with the customer through a dedicated representative.
- Self Service: Company provides tools/services for customer to serve him/herself.
- Automated Services: Self-service relationships where historical preferences are accounted to improve overall experience.
- Communities: Creating communities of clients to share their experiences and come up with common challenges & solutions.
- Co-creation: The customer has a direct relationship with company's product or service that it will take.

Channels
This element defines how you effectively provide the value proposition to the target customers. This includes go-to marketing strategy, distribution channels, promotional activities & materials, sales team, online strategy etc.

There could be multiple options for the channel, but the channel(s) selected should be quickest & most efficient. The types of channels possible are:
- Company owned
- Partners owned (Like Distributors)
- Mix of both

Customer Segment
This element defines the classes for which you are creating value for and decides who is your most important customer. This segment also checks if there is a strategic fit between the customer needs & the value proposition.

To have a proper customer segmentation, a company must first know its customer's current and future needs and then organise them according to the priority and potential customers for the future.

Cost Structure
This element identifies the most important costs in your business and the resources & activities that are most expensive. Following are common cost structures:
- Fixed Cost
- Variable costs
- Economies of Scale
- Economies of scope

These revenue stream could be:
- Asset Sale
- Usage Fees
- Subscription Fees
- Lending/leasing/renting
- Licensing
- Brokerage
- Advertising

Key Lesson:
Every organisation should see how canvas model helps you make your business or product better. Asking the team to collaborate in the canvas model is a great way to understand on what on your & their mind. The focus should be on improving the business model as you go ahead in the long run.

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Article by: Marketing Advisory, 3EA