Business Model Canvas For Beginners. 3. Business Model Channels – How To Choose The Best Channels

 At the basic level, business model channels Are the mechanism for how we communicate with and deliver our value propositions to our customer segment. What channels have in common is that they are touchpoints that play a critical role in customer satisfaction and customer retention. Channels are typically broken down into types and phases. 

Business Model Channels

The Channels section of the Business Model Canvas and what to include

In the previous sections we identified that our customers have:

• Job(s) they are trying to achieve – Goal(s).
• Pains or frustrations that they have in the process of achieving their goal(s).
• Gains – desired outcomes and motivations for achieving their goal(s).

Based on this, you have created value propositions that offer the best solution to help them achieve their goals. Furthermore, a positioning statement to persuade and influence customers. Now you need to create a plan and decide how you take your product to the market (business model channels – distribution) and how you will plan your marketing to make customers aware of your product (business model channels – communication).

Using the information on customers goals, pains and motivations you can also craft communications that:

• demonstrate you understand them (their goals/pains)
• appeal to their motivations and therefore the underlying emotions that will influence them to buy.
• create customer experiences that fit your target market.

Distribution Channels

Distribution channels are how you get your product to the customer. If you have a digital product or service (e.g. Software as a Service SaaS), then you might distribute and sell your product on your website. However, for physical products distribution and sales channels can be very different e.g. order online and then pick up in-store.

Another way to think of a distribution channel is who is going to deliver the product to the customer. This can be different from where the product is purchased.

Distribution channels = how the product is (physically or digitally) delivered (distributed) to the market and ultimately to the customer.

As an example, Amazon would hold a digital copy of a Book on its servers that can be distributed to a Kindle after purchase.

Alternatively, Amazon will hold physical copies of a book in its distribution centres. After purchasing the book online, the book is then sent out for delivery.

Examples of distribution channels:

• Wholesaler
• Marketplace
• Retailer
• eTailer
• Affiliate
• Website

Communication Channels

Reaching your customer segment and being able to communicate with then is vital to growing your business. It is through the communications that you explain your value proposition, influence potential customers and secure sales.

Your goals in using communication channels are:

• Raise awareness of among customers about your business and product or service.
• Communicate clear and in a short amount of time your value proposition.
• Influence customers to either buy your product or give you permission to communicate with them.
• Customers often require a degree of persuasion and that is done through a marketing funnel.
• After purchasing your product, communication channels are used to maintain a relationship and have repeat purchases.

Examples of communication channels:

• TV
• Radio
• Billboards
• PR
• YouTube
• Google
• Facebook
• Instagram
• Snapchat
• Website
• Communities

The Channels And The Customer Journey.

Example For A Book

Let’s imagine you are an author who has produced a new science-fiction book. Furthermore, we have the book available in two versions, one in print and the other electronically (digital) as an eBook e.g. via Amazon Kindle. To keep it very simple let’s say that it is aimed at young adults (16-25 as a simple demographic criterion).

We can imagine different scenarios about distribution and communication channels (business model channels):

• Jenny – sees a review of the book as an Ad on Facebook and then goes onto her Apple iPad and orders the eBook in the Apple Book Store. In this case, Apple Book Store is the distribution partner and Facebook is the communication channel.
• Charles – hears a review of the book on a radio show and then walks into a book shop and buys the book. The radio show is the communication channel and the book store is the distribution channel).
• Claire – reads a review of the book on Goodreads and then decides to searches for the book on Google. She clicks through to your website and then signs up for a free first chapter. A week later, after having read the chapter, she walks into a local book store. The book is priced at $14.99. While there, she looks up the price on Amazon, it is listed at $11.99. Finally, she buys the book on Amazon. Google/Goodreads/Website are communication channels and Apple Books is the distribution channel.
• Robert – wants to buy a book for his daughter. He is at an airport and decides to walk into the book store and buys the book there. The book store is the communication channel and distribution channel.
• Hannah – is shopping on Amazon and sees your book in her recommendations. She clicks on and adds a print version of the book to her cart and then finishes her online shopping and buys the book.

What we can understand from these scenarios are:

• online affects offline purchases.
• sometimes the buyer isn’t the consumer – Robert is the buyer, but his daughter is the ‘consumer’ of the book.
• distribution channels are not always the same as communication channels. Hannah has the same communication and distribution channel (they overlap) but Charles doesn’t.
• in the case of Claire, we can understand that sometimes purchase decisions are a journey and not always simple. The implications are that the brand, value proposition and communications need to be integrated across multiple channels.

Mapping Customer Purchase Journeys

The Customer Journey Canvas

The Customer Journey Canvas can be used for a wide range of uses. However, one of the most powerful ways is to map the purchase journey. While some journeys can be short others can be more complex, it will depend on the product or service in question and the context.

Usually, there are three main touchpoint types in commerce situations.

• Stimulus: the very first-time customers become aware of a given product or service.
• First moment of truth: the decision to buy a product or service.
• Second moment of truth: the first experience customers have of using a product or service.

There is a better way to think about market segmentation and new product innovation. The structure of a market, seen from the customers’ point of view, is very simple: They just need to get things done, as Ted Levitt said. When people find themselves needing to get a job done, they essentially hire products to do that job for them.

Clayton Christensen

Planning Communications

Communication channels are where and how you acquire your customers. In other words, another term for them is acquisition channels. The only problem with this term is that assumes a one-off transaction and for most businesses, the goal is to build long-term relationships.

The business model channels building block is crucial for at least researching where your customers spend their time online. This forms the basis for how you will reach them to make them aware of your product or service.

Mapping Pain Priorities And Motivations To Marketing

Marketing is all about persuasion, influence, trust and building relationships.

The Growth Marketing Blueprint is a systematic way to plan how to acquire potential customers, convert them and subsequently build a relationship. Unlike most ‘marketing funnels’ it focuses on the full funnel – keeping customers, not just selling to them.

If you used the Customer Journey Canvas earlier, then you will understand the job(s), gains and pains for a customer segment.

The Customer Journey Map Can Be Used In Two Ways:

1. Analyse how the customer journey for existing products and services that you are aiming to compete against.
2. Map your existing product/service purchase journey to identify opportunities to improve.
3. Improve the after-sales services and relationship

1. Competitor Experiences

If you know at what point customers find buying a competitor product causes frustration or dissatisfaction you can target that with your own process and use to your advantage.

2. Innovating The Purchase Path

There are lots of ways to enhance or even innovate the purchase path and reconfigure services to help customers. This is particularly true for more complex products and services that involve more information, higher levels of risk and longer decision times.

3. Creating The Long-Term Relationship

A lot of companies I talk to don’t know what or how they should be doing with customers after the purchase. Often they might bolt on a community forum or a knowledge base without recognising a much broader strategy and opportunity to develop experiences and relationships.

Benefits Of Building Relationships

In the example given earlier, Claire signed up to get a free chapter for the book. As an author, if you were launching another book you would ideally want to have a database of customers who already liked your work. In the lead up to your next book launch, you would then send out a free chapter, give them details about the launch date and any promotions.

Generating Brand Awareness

If you’re launching a new business or product then nobody will know of your existence until you launch. The first part of your plan, and one of the most important, is to generate awareness and start to communicate with potential customers.

The business model channels building block isn’t necessarily detailed at this stage about which channels are best or how to pick the right ones. You can download that later in this guide.

There are lots of powerful ways to launch your product and gain traction with your market.

See the Launch Canvas and details if you want to plan your product launch. Download it for free.

Key Points For Business Model Channels

• Use the business model channels block to think about channels for communication vs. distribution.
• Research where your customer segments spend their time online.
• Identify what media they read e.g. what content they engage with and where.
• Review what routes they are to market and make notes for later of potential distribution partners.

At the end of the business model channels building block, you should have a clearly described your communication channels and distribution channels.

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Consumption II: Consumption duality. Substitution and income effects.

Consumption duality 

There are two ways to solve a consumer’s choice problem. That is, we can either fix a budget and obtain the maximum utility from it (primal demand) or set a level of utility we want to achieve and minimise cost (dual demand).

The way to solve either problem is very similar: we look for the Lagrangian function and obtain first order conditions, then solve the system.

When dealing with primal demand, that is, utility maximisation, our Langrangian is as follows:

Subj. to:

So that:

That is, our Lagrangian is our utility function, which depends on x1, x2 minus the restriction- our budget. The first order conditions (which we obtain from the first derivatives) give us Marshallian demand curves.

When dealing with dual demand, that is, cost minimisation, our Lagrangian system is as follows:

Subj. to:

So that:
That is, our Lagrangian is our cost function, which depends on x1, x2 minus our utility function, which must equal a constant. The first order conditions give us Hicksian demand curves.

Video – Consumption duality:

We all know that, in theory, when the price of something goes up we buy less of it. But there are two factors at play here: one is the fact that we will look for something similar but less expensive and the second is the fact that if what goes up takes up a large proportion of our budget (a mortgage), we simply have less to spend. In the next entry, we cover the dynamics of this in more detail.

Substitution and income effects

This Learning Path is a bit more of a mixed bag than the previous one, finishing off our consumer choice problem, looking at the some useful implications of this in demand theory before moving on to other types of demand theories.

Generally, if the price of something goes down, we buy more of it. This is down to two effects:

• Income effect: because it’s less expensive, we have more purchasing power because it is a smaller drain on our personal finances.
• Substitution effect: because it offers more utility per unit of money, other alternatives become less attractive.

What Eugen Slutsky managed to do was find an equation that decomposes this effect based on Hicksian and Marshallian demand curves.

Graphically:

Mathematically, it is based on the derivatives of Marshallian and Hickisan demands:

The left hand side of the equation is the total effect- that is, the derivative of x (quantity) respect p (price). It shows us how much the total quantity of x that we consume varies when we change price. The next part is the substitution effect- how much the variation is due to us finding similar options. It is obtained from the derivative of the Hicksian demand with regards price. The right hand side is the income effect, how much changes in our purchasing power affect the amount we consume of a certain good. It is the derivative of the Marshallian demand with regards wealth (multiplied by the quantity).

Whether the SE and the IE are positive or negative when prices rise depends on the type of good:

	TE	SE	IE
+	Substitute goods	Substitute goods	Inferior goods
–	Complementary goods	Complementary goods	Normal goods

It is not always possible to tell what the total effect will be- if we are talking about inferior complementary goods, for example, the SE and the IE pull in opposite directions. The TE will depend on which effect is stronger.

Video – Income and substitution effects:

Marshall and Hicks treated substitution and rent effects differently, judging whether or not they should both be included in demand functions. Let’s see why and how this affects what we would, in theory, consume.

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The Most Important Tech and Societal Trends for Marketers in 2023

 Marketers say they expect AI to be the most important emerging tech of 2023 and the potential impact of a recession to be the most important societal trend, according to recent research from WARC.

The report was based on data from a survey conducted in 2022 among more than 1,700 marketers around the world.

Some 42% of respondents say they believe artificial intelligence will be an important emerging technology in 2023. Live video/streaming ranks as the second-most important emerging tech, and the metaverse ranks third.

Marketers say they believe the societal topics and consumer concerns that will have the biggest impact on their marketing strategies in 2023 are a potential economic recession, the environment, and data privacy.

Some 46% of respondents expect to shift their investment balance more towards performance marketing in 2023, and 31% expect to shift their investment balance more towards brand marketing.

About the research: The report was based on data from a survey conducted in 2022 among more than 1,700 marketers around the world.

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Delegation Tips From 10 Successful Leaders

 Delegation isn't simply about passing work down the command chain.

Effective delegation requires understanding which tasks and decisions need to be handed off and who is best suited within your organization to tackle them.

To help people become better delegators, OnDeck created an infographic (below) that explores the strategies of successful leaders.

It covers delegation tips from ten well-known entrepreneurs and executives, including Mark Zuckerberg, Sara Blakely, and Bill Gates.

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Business Model Canvas For Beginners. 6. Key Activities – Be Unique In What You Do

 In this section of the business model canvas building blocks, you’ll learn how to combine your key activities to be unique. Discover what are key activities and how to decide which activities provide the best solution.

Key Activities Overview

Not every activity in the business delivers value even though it may be important. The key activities section focuses on the tasks that need to be done to deliver the value proposition and achieve the overall purpose of the business.

As Simon Sinek lays out in his book Start with Why, a company needs to define its overall long term value and purpose. Key activities depend on the overall business model of the company, its market, customer segments and value proposition.

When looking at different companies it is often easy to understand the core activities that help to sustain and grow their business model. As an example, when analysing Microsoft it is easy to see that they are in the software business and therefore software development is a core activity. Likewise, a car company like BMW needs to be excellent at engineering and production.

What Are Key Activities In A Business Model Canvas?

Overall, key activities are those processes, tasks and activities that clients will identify with your product or service. They will ideally be hard to imitate and for competitors to replicate.

When assessing your business through the Key Activities building block it is important to take an overall view of the business and link to other building blocks such as Key Partners. It might be a good choice at times to use Key Partners to do some of the activities rather than your business. As an example, some activities might take need a heavy investment in infrastructure if they were key activities and therefore would ideally be better as partners.

Questions To Consider

Some of the considerations for key activities are:

1. What Key Activities do our value proposition require?
2. What Key Activities are needed for our Distribution Channels?
3. What Key Activities do we need to deliver our Customer Relationships?
4. What Key Activities relate to our Revenue Streams?

1. What Key Activities Do Our Value Propositions Require?

If your value proposition is to deliver a high-quality service then a key activity will be the support services you put in place to deliver that promise of value.

If on the other hand you you offered value for money and positioned yourself as no-frills, then you would need to eliminate all activities that were not essential and just focus on those that help to keep costs low. As an example, Aldi has a no-frills retail environment and offers alternatives to branded products.

If you are Apple then design, engineering and branding form the core activities.

2. What Core Activities Are Needed For Our Distribution Channels?

Imagine that your core business will be to produce naturally sourced non-leather shoes that are produced from organic materials and you are eco-friendly and carbon neutral. You could sell your shoes through Amazon, on your own website or potentially through retail stores.

If you only sell online then a core activity will be the activities related to online marketing and eCommerce. If you sell through physical stores then you need to have activities related to running stores, training staff…

3. What Key Activities Do We Need To Deliver Our Customer Relationships?

The key activities that relate to customer relationships involve activities such as sales, marketing and of course customer service. You need to evaluate what are the activities that you need to deliver against the customer relationships you defined earlier. Of course, any activities you define will have associated costs to them.

A consultancy needs to generate customers and therefore requires business development, lead generation activities.

4. What Key Activities Relate To Our Revenue Streams?

If within your business model you offer subscription services then you need to be able to bill customers on a regular basis and provide the necessary support.

Business Model Key Activities

he key Activities building block of the Business Model Canvas

The Value Proposition determines the types of key activities that will be critical to the business. At the early stages of developing a business, it is important to remember that the business model needs to reach a point where it can be tested. In other words, if the value proposition fits the market. If in designing the process too many activities are added to this block it can delay the overall testing of the value proposition and run the risk of the key activities not necessarily all being needed. This is often referred to as bloat.

Examples Of Core Business Activities

These are some of the key activities that fit different types of business models:

1. Production
2. Marketing

1. Production

Production consists of many different activities.

As an example, Fashion companies like Zara have specialized in spotting trends and being able to be first to market with them. This is because they have a highly efficient process for moving from design to production to then merchandising the products in-store.

Here are a few for you to consider as you develop your business model:

• Selection of product and design: the first step is to design the for the product or services. While product design is more tangible services design can be more complex. In many cases because of the need for digital services both are complementary processes. Choosing the right combination of features for a product and functions is how you match your product to the value proposition. Value engineering and value analysis are parts of this activity.
• Selection of Production Process: this stage consists of deciding what production process the company requires. Key considerations are how and what blend of technologies are right needed, e.g. machines, inventory management system, etc.
• Production Capacity: The production management must have full knowledge of the expected demand for the product and also be able to have room to meet future demand. Break-even analysis is the most popular methods are often used by production managers to predict capacity.
• Production Planning: Production planning is usually based on forecasted sales and predictions. For established products forecasting can often be extremely accurate. However, for new product launches and instances where demand can fluctuate e.g. seasonal demand, forecasting and production planning becomes more difficult. As an example, Toys can be both seasonal and volatile, often the popularity of a toy can outstrip forecasts and/or production capacity. Hence sometimes toys become unavailable over Christmas.
• Production Control: The production manager is also responsible for monitoring and controlling the production process. This is done by comparing planned production with actual production, exploring deviations if any and ultimately correcting these deviations to meet planned production.
• Quality and Cost Control: Customers want the maximum quality for the cheapest price. Moreover, customer expectations of service levels and communications are continually shifting. In essence, customers are becoming more demanding. Quality and costs have to be controlled and new ways of improving quality while lowering costs are constant business pressure.
• Inventory Control: Inventory Control is fundamental a production-driven part of the business which aims to meet demand in the market. Understocking causes lost sales, disappointed customers and leads to poor customer experience. On the other hand, too much stock means that cash is tied up in the business that could be used to generate sales instead.
• Maintenance and Replacement of Machines: The production manager must be on top of the condition of the machines under his function by constantly monitoring them and scheduling regular maintenance like oiling, replacing worn parts, cleaning, etc. This function ensures that there are no unexpected breaks in production.

2. Marketing

Marketing is a core activity for many businesses. In fact, some business outsources production and many other parts of the business leaving sales and marketing as sales and marketing. Some of the activities associated with are:

• Strategy: Marketing strategy involves selecting what resources are needed to grow the business in which markets based on the products and services the business creates. As an example, Apple will develop a strategy have chosen to enter a new market with Apple music and to compete with Spotify, likewise, it chose to enter the video streaming business to compete with Netflix. Are these their core activities or do they support the sales of their hardware?
• Market Research: Market research focuses on understanding customers and shift in customer behaviour.
• Product Development: Marketing teams are often the custodians of the customer data, analytics and the overall customer relationship. As a result, marketing teams work closely with R&D and product development teams.
• Communications: The marketing team is responsible for all communication and maintaining consistency with the overall brand. Marketing is thus charged with delivering the overall growth within a business.
• Sales Support: Your business model may rely on Business to Business (B2B) or business to consumer (B2C) relationships. Sales teams are more dominant in B2B companies that usually are selling higher-value products and services.
• Events: Marketing is also responsible for organizing and executing events such as seminars, product launches, exhibitions, etc. they will typically call key or prospective customers to such events as well.

Types Of Key Activities Used In The Business Model

In the business model three types of activities are highlighted:

1. Production
2. Problem-solving
3. Platform/Network

1. Production

These activities are generally a characteristic of manufacturing firms and entail the design, creation and delivery of products. However, with the development of sensors and also digital systems products are becoming entwined with services. Car manufacturers, consumer electronics and drug companies are just a few examples of companies that rely on production as a key activity.

2. Problem Solving

Consultancies, hospitals, wellness clinics, spas and many other service companies typically aim to solve customer problems uniquely. These organizations are characterized by knowledge management, continuous learning and reliance on people with the necessary talent. In the digital era systems are learning to capture knowledge and use it to diagnose problems and present solutions. Though far from perfect this is an ongoing era of development with AI.

3. Platform/Network

Have you noticed how many of the top valued businesses rely on a platform business model? Facebook, Alibaba, eBay and many other billion-dollar companies are platforms. But platforms also offer Software as a Service such as Salesforce.

Essentially, platforms and networks are easy to scale because of low or zero marginal costs.

Example Of A Platform Business Model

Auction house D.Art (“platform business”) organises its yearly modern art-painting auction in Zürich. The auction (“infrastructure”) is a well-known event that will help to make the paintings of young talented artists (“producers”) and art collectors (“consumers”) more accessible to each on an as-need basis. Experts (“agents”) are present to advise groups of collectors on relevant artists (“trust”).

As D.Art does not own the paintings, it simply lays out the rules of interactions (“eliminate friction”) to enable the information exchanges (“value creation”) between the artists and collectors followed by compensation through money, goods and/or services, and fees for D.Art (“monetising strategy”).

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