Business Model Innovation for Management Consultants

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Business Model Innovation for
Management Consultants
A practical guide on how to change & innovate the business

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Consulting firms are hired very often to help to change the Business Model. Those projects
are difficult as you have to generate innovation and convince the firm to change.

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There is no one recipe for how to innovate. However, there are some proven techniques,
frameworks, approaches that will help you find a way to innovate the Business Model.

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In this presentation, I will teach you how to pick the right Business
Model Innovation technique during consulting projects.

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Innovation in Customer
Segments
Value Proposition
Innovation
The Business Model Canvas
Innovation in the Cost
Structure
Innovation in Key
Resources
Innovation in Revenue
Streams & Sales channels
Relationship
Innovation in Key Partners

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This presentation will help you create Business
Model Innovations on the level of top
management consultants

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What you will see in this presentation is a part of my online course where you
can find case studies showing analyses along with detailed calculations in Excel
$190
$19
Click here to check my course

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To describe business models, you can use many tools. One of the most popular
ones is the so-called Business Model Canvas. We will use it in this course.

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In this section, we will talk about the following things
McDonald's Business
Model
Netflix – evolution of
business model
What is the Business Model
Canvas

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What is the Business Model
Canvas?

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One of the ways to describe the business model is to use the so-called business
model canvas. Let’s look at the components of the canvas.
Key Partners Key Activities
Key Resources
Relationships
Channels
Value proposition Customer segments
Cost Structure Revenue structure
 What value do you deliver to
the customer
 Which problem are we solving
 How does it differ for
different customer segments
 Main customer segments you
are targeting
 How are we reaching our
customers?
 How do we deliver the value
proposition?
 What key resources our
value proposition
requires?
 Main important cost positions
 Cost drivers
 Main revenue streams
 Revenue formula
 For what are our customers willing to pay?
 What key activities our
value proposition
requires?
 Get: How we acquire our
customer?
 Keep: How do we keep our
customer?
 Grow: How we convince
him to spend more?
 Who are our Key Partners /
Suppliers?
 Which key activities or
resources the key partners
provide

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On the right, we have things visible to the customers. On the left, we have
things that are not that easy to spot and define – the firm’s operations.
Key Partners Key activities
Key resources
Relationships
Channels
 What value do you deliver to
the customer
 Which problem are we solving
 How does it differ for
different customer segments
 Main customer segments you
are targeting
 How are we reaching our
customers?
 How do we deliver the value
proposition?
 What key resources our
value proposition
requires?
 Main important cost positions
 Cost drivers
 Main revenue streams
 Revenue formula
 For what are our customers willing to pay?
 What key activities our
value proposition
requires?
 Get: How we acquire our
customer?
 Keep: How do we keep our
customer?
 Grow: How we convince
him to spend more?
 Who are our Key Partners /
Suppliers?
 Which key activities or
resources the key partners
provide

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Click here to go to the video

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McDonald’s business model

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Let’s see how we can present the McDonald’s business
model in the form of Business Model Canvas.

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McDonald's actually has 2 main groups of customers
End customers eating
food at McDonald's
Franchisees
McDonald's customers

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Here we will mainly discuss the end customers who eat at McDonald's
End customers eating
food at McDonald's
Franchisees
McDonald's customers

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Let’s have a look at how we can describe the McDonald business model by
using the canvas model
Key resources
Relationships
Channels
 Food of a constant quality
that is served quickly and
consistently across the
globe at an affordable
price
 People on the go that
need a convenient place
to eat fast
 Budget customers
 Coffee goers
 Families & Children
 Youth
 McDonald’s restaurants
 Delivery service
 Well recognized brand
 Locations
 Standardized and well
described processes
 Food
 Payroll and employee benefits
 Maintenance & Depreciation for the restaurant
 Delivery Costs
 Revenue from own restaurants
 Franchising fees
 Royalties
 Rent from restaurants rented to franchisees
 Marketing
 Defining and supervising
the process of food
preparation
 Educating the staff in
restaurants (both owned
and franchised)
 Get: Being in places with
high traffic (malls,
highways etc.)
 Keep: Consistency of the
service, ads
 Grow: Add new reasons to
buy (breakfast, coffee etc.)
 Franchisees (Franchise
holders)
 Food Production Firms
 Landlords (shopping malls)

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Change the business model
– Netflix

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Netflix has gradually changed their business model
Pay per rent of DVDs
via mail
Renting in
subscription model
of DVDs via mail
Video on demand of
movies
Renting in
subscription model
of DVDs, Blu-Ray via
mail
Online streaming of
movies on all
possible device
Online streaming of
own & 3rd party
content on all
devices
Production of own
content

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Netflix started in 1997 as an e-commerce version of Blockbuster. They would
rent the DVD to people over the Internet
Key resources
Relationships
Channels
 Rental of DVD (no VHS)
similar to Blockbuster but
more convenient and also
longtail (non-novelties
titles)
 US households
 Their webpage
 Warehouses and logistics
 Capital to invest in the
DVDs
 Cost of processing the DVD in warehouses (rent, labor) – receiving and sending
 Cost of sending the DVD to the customers
 Purchase of new DVD to replace the broken ones or to meet the growing
demand
 Head Office (Purchasing Department, Marketing & Sales, cost of the website)
 Pay per rent model – you per pre # number of rented DVDs
 Late fees for keeping the DVD for loner
 Rates similar to Blockbuster
 Fast processing of orders
in the warehouse
 Purchasing – picking the
right DVD and quantity
 Keeping the website
operating
 Get: Their webpage, online
ads
 Keep: increase number of
DVDs and titles
 Grow: Mailing list –
convince to rent more
 Warehouse operators
 Supplier of DVDs
(wholesaler)

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In 1999 Netflix has implemented monthly subscription and removed late fees
Key resources
Relationships
Channels
 Rental of DVD (no VHS) of
almost all titles much
cheaper than Blockbuster
(no late fees)
 Something between
renting and owing (you
could keep specific title as
much as you wanted)
 US households
 Their webpage
 Capital to invest in the
DVDs
 Cost of processing the DVD in warehouses (rent, labor) – receiving and sending
 Cost of sending the DVD to the customers
 Purchase of new DVD to replace the broken ones or to meet the growing
demand
 Monthly subscription fees
 Fast processing of orders in
the warehouse
 Purchasing – picking the
right DVD and quantity
 Keeping the website
operating
 Get: Free trial, online ads,
Word of mouth
 Keep: increase # of DVDs and
titles, suggestions
 Grow: Mailing list – convince
to use more
(wholesaler)

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In 2007 Netflix has introduced a video on demand via Internet service
Key resources
Relationships
Channels
 Rental of DVD and Blu-ray
of almost all titles in a
subscription model
 Video on demand via
Internet
 US households
 Limited expansion outside
USA
 Their webpage
 Any device that can be used
to screen the movie including
mobile phone, play stations,
etc.
 Streaming Infrastructure
 Algorithms, data on
customer preferences
 Cost for keeping, processing and replacing DVDs,
 Cost of streaming movies to customers
 Fees to Movie / TV shows producers / right owners / studios
 Monthly subscription fees
 Streaming at the proper
quality the movies
 Signing deals with studios
 Fast processing of orders in
the warehouse
 Get: Free trial, online ads,
word of mouth (WoM)
 Keep: increase # of titles –
DVD and on demand
 Grow: Mailing list – convince
to add also video on demand,
recommendations
 Providers of servers
 Provider of necessary
software
 Movie / TV shows
producers / right owners /
studios
 Universities
(wholesaler)

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In 2011 Netflix has started also producing their own TV shows. The first big title
was House of Cards released in 2013
Key resources
Relationships
Channels
 Streaming video paid
services on all possible
devices
 Some content only
exclusively available on
Netflix
 Households in almost all
countries
 Their webpage
 Any device that can be used
to screen the movie including
mobile phone, play stations,
etc.
 Algorithms, data on
customer preferences
 Customer Understanding
 Ability to manage
production process of new
content
 Producing or acquiring own content
 Marketing the platform as well as own productions
 Fees to Movie / TV shows producers / right owners / studios
 Cost of streaming movies to customers
 Head Office (Purchasing Department, cost of the website)
 Monthly subscription fees – more than 1 plan
 Selection of the titles
 Signing deals with studios
 Supervising Content
Production Process
 Get: Free trial, online and
traditional ads, WoM,
partnerships
 Keep: produce or acquire
new content, mailing &
notifications - consume more,
and not cancel
 Grow: upsell
 Movie / TV shows
producers / right owners /
studios
 Executive producers /
Directors /
 Providers of servers
 Provider of necessary
software
 Universities

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Overview of different Business
Model innovation techniques

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Let’s look at the main innovation techniques that you can use
Key resources
Relationships
Channels
Jobs-to-be done
Blue ocean
Enabling Investments
Freemium, Free Trial, Free
Referral programs
Affiliate programs
Expand the brand
Expand the product
Simplify the product
Integrate the products
Divide the product into
smaller pieces
Digitalize the product
Bundle products
Simplify the processes
Automate the processes
Eliminate the processes
Crowdsource processes
Go up/down the value chain
Crowdsource resources
Own resources
Sales channel innovation
Transfer the cost to
customer
Transfer costs to suppliers
Turn cost into revenue
New revenue streams
New ways to capture the
value
Unbundle products
All roads lead to Rome
strategy
Substitute product

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Let’s see which methods has been using Tesla
Key resources
Relationships
Channels
Jobs-to-be done
Blue ocean
Referral programs
Expand the brand
Expand the product
Crowdsource processes
Own resources
New revenue streams
All roads lead to Rome
strategy

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Let’s see which methods has been using Apple
Key resources
Relationships
Channels
Jobs-to-be done
Blue ocean
Expand the brand
Expand the product
Divide the product into
smaller pieces
Bundle products
Own resources
New revenue streams
Unbundle products

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Segments

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One of the biggest sources of innovation is to play with customer segments. In this
section, we will discuss techniques that you can use to innovate in customer segments.

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Jobs to Be Done Enabling Investments
The Blue Ocean

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The Blue Ocean –
Introduction

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Let’s have a look at a Blue Ocean Strategy
 The strategy in which instead of competing in the current market segmentation
you look for a niche / market where there is no competition or very little
competition
 In this approach, you search for a business in which only a few firms operate and
where there is no pricing pressure
 In the Blue Ocean Strategy through value innovation, diversification, and low cost
you try to achieve significant and profitable growth of the company
 In the Blue Ocean Strategy you redefine the market and concentrate on non-
users.
 You try to create a center of gravity that will suck customers from other markets /
niches / strategic groups
Blue Ocean
Strategy
=

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Hotels
Online services
Retail
The Blue Ocean Strategy has been successfully implemented by many
companies from different industries
Entertainment
Transport
B2B

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There are few main characteristics of the Blue Ocean Strategy
Avoid head-to-head competition
Taping into non-users
No industry boundaries
Value innovation.
Break the value-cost trade-off
Looking for high profit and growth
opportunity niches
Align the whole business to pursue
diversifications
Low costs – you do not spend money
on things of little value
Creates quite often entirely new
markets

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The Blue Ocean –
Non-users

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The non-users can be divided into 3 groups
Current
Market
First Tier
Purchase only out of
necessity, are on the
edge of market and wait
to join
Second Tier
Non-users that ignore
your industry consciously
Third Tier
Non-users that have
never consider your
product

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Let’s have a look how these tiers look like for Yellow Tail – an Australian
wine that is much simpler and cheaper drink than regular wine
Wine
market
First Tier
Occasional wine drinkers
Second Tier
Drinkers of easier to
consume alcohols: beer,
drinks
Third Tier
All people who drink
water
Yellow Tail wine – easy to drink /does not require any
knowledge about wine

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There are few main characteristics of the Blue Ocean Strategy
Player 1
Player 3
Player 2
Player 4
Player 1
Player 3
Player 2
Player 4
Niche of
Blue Ocean

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The Blue Ocean Strategy –
4-action framework

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Bellowed 4-action framework which can be used to redefine and redesign
the current company strategy into the blue ocean strategy
Eliminate
Reduce
Raise
Create
All aspects that are not value-added for
the company and customers
Certain (not important to the customer)
aspects below industry standards
Additional value for the customers.
Which features should be above the
industry standard?
Innovative products or services. Create
things that the industry has never
offered

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The Blue Ocean Strategy –
6 paths to achieve it

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You can reach the Blue Ocean by taking one of the six paths. You can look
across
Industry
Strategic Groups
Buyer Groups
Complimentary Products
Functional / Emotional
Orientation
Time
Red Ocean Blue Ocean

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You can reach the Blue Ocean by taking one of the six paths. You can go across
Industry
Strategic Groups
Buyer Groups
Complimentary Products
Functional / Emotional
Orientation
Time
Red Ocean Blue Ocean

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0
20
40
60
80
100
Price Production
costs
# Food
products
Quality Brand Location Customer
service
Variety
Starbucks Coffe Competitors
Starbucks has been very successful in implementing the Blue
Ocean Strategy
Wide range of products
Customer experience – selling not the coffee
but rather the place to meet
High product quality - ethically, sustainably
grown coffee (C.A.F.E.)
Value innovation
High market penetration and a short distance
to the closest Starbucks
High standard service and low prices

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The company is also innovative in many fields of its activity
New flavors
Happy hours
Free Wi-Fi
Free birthday treat
Mobile ordering

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Starbucks has created strong accessibility. This is due to the fact that stores are
located close to each other to make it easier for customers to buy a cup of coffee

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CitizenM is an example of a company that has created a new market
space in the hotel industry
Relatively low prices
High standard – they kept what is
important from the 5-star hotels and
removed the rest
0
20
40
60
80
100
Price Front desk Restaurants Room type Room size Room
standard
Location Self check in
Luxury hotels Three-star hotels CitizenM
Value innovation
Build from pre-manufactured sleeping
rooms

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They created affordable luxury hotels which have great standards (on the level
of 5-star hotels). They were many things that they have added/raised to make
the experience similar to a 5-star hotel
High boutique standard
High quality of the sleeping environment
Good locations
Free extras

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CitizenM offers a stay at very affordable prices, on the level of 3-star hotels,
This together with a high standard creates a big competitive advantage. To
achieve this they had to eliminate or reduce some aspects
No front desk
No restaurants
No lobby
Limited room type and size
Lower prices than in a 5-star hotel

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Thanks to this they achieved great results
Occupancy rate – 90%
Labor costs – 50% lower
Cost of construction – 35%
lower
Construction time – down by
up to 50%
Premanufactured sleeping
rooms

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The Jobs to Be Done concept is a great tool to find a way to improve your
business or create a new business. That’s why we will discuss it in this section.

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Jobs To Be Done –
Examples
Jobs to Be Done – How to
use it to improve a product
The Jobs To Be Done
– Definition
Who is your competitor?
Jobs to Be Done –
How to find them
Jobs to Be Done –
How to use it to create a
new product

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Jobs To Be Done
– Definition

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Let’s start with a short definition
 When we buy a product we essentially hire the product to get a
specific job done.
 We define the “job” as the progress that the person is trying to
make in particular circumstances and area
 The very same job can be done by totally different products or
services
 Therefore, don’t fall in fall with your product and don’t look too
narrowly at the competitive landscape
 Be obsessed with the problem and the job that the customer hires
you to do
 The same product for the specific customer can perform different
jobs in different circumstances
Jobs To Be Done
Theory =

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Let’s see the process that will help you understand the Job To Be Done
for a specific group of customers
What progress the
person is trying to
achieve
What are the
circumstances of the
struggle
What are the
obstacles preventing
the customer from
progress?
Are consumers
making do with
imperfect solutions?
How customers
define a better
solution?
 You have to
understand what
are the functional,
social, and
emotional
dimensions of the
desired progress
 In other words how
the end result
should look like so
the customer is
happy
 You have to
understand the
circumstances in
which the struggle
is happening
 In other words you
have to understand
the specific context
of the customer
 When and where it
happens, what is
doing in the
meantime, and with
whom
 You have to
understand what
the customers
struggle with, what
obstacles prevent
him from achieving
the progress
 In other words what
is stopping him
from achieving the
progress he desires
 You want to know
whether the
customers are using
imperfect solutions
to their problem.
 Some customers
will use some sort
of workaround,
combine 2-3
separate products
or services to get
the job done
 There may be also
some sort of
compensating
behavior
 You should find out
how customers
define “quality”, in
what dimensions
the new product or
services has to be
 You should also
understand the
tradeoffs he is
willing to make to
get this better
performance

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Bear in mind that the customer hires the product more than one time
The Big Hire
The first moment of truth
 This is the moment when you decide
to buy the product or service in the
hope that he will get the job done
The Little Hires
Second moments of truth
 This is the moment (after the
purchase) when he puts the product
to use and can either get the
progress that he was hoping for or he
may be disappointed with the result
 If the disappointment is big and there
is a better alternative on the horizon
he will fire the product

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Jobs to Be Done
– Examples

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Coffee
Let’s try to define what jobs does the coffee
Helps me become
focused
I like the taste
It is an opportunity to
meet people
Acceptable break at
work
Warms me up
Wakes me up

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Facebook
Let’s try to define what jobs does Facebook for an average customer
Stay in touch with
people
An efficient way to
communicate
I use it to kill boredom
I can show off
I can see what my
ex-boyfriend does
Gives me adrenaline
boost

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Jobs to Be Done – How to use it
to improve an existing product

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Understand the Jobs
to Be Done
Define the changes
to your product
Implement the
changes and adjust
the organization
Change the
positioning and the
messaging
Keep Focused on the
Jobs to Be Done
 Define what
progress the
customer desires,
what he hires you
to do with your
product or a service
 Try to understand
also the
experiences the
customer seeks in
order to make the
progress
 Analyze the
functional,
emotional, and
social dimensions of
their desire for
progress
 List the obstacles
that are preventing
the customer from
achieving the
desired progress
 Estimate what is the
cost and benefit of
implementing it
 Decide which things
you will do in the
first order / what
obstacles you will
remove
 Start one by one
removing the
obstacles
preventing the
customer from the
desired progress
 Change the
organization of the
firm to be centered
around the Jobs to
Be Done
 Change the way you
communicate with
the customers
 Adjust your
messaging /
marketing towards
the job that you are
solving, the
progress you are
helping the
customer to achieve
 Adjust customer
experience
 Make sure that you
don’t try to satisfy
too many jobs
 Don’t dilute too
much your brand by
adding too many
new products and
services that are
not linked to the
main job
 Design the KPI
system to measure
how well you do the
job
 Adjust your
processes
 Adjust your
organizational chart
 Pay attention to
leading input KPIs

71
Jobs to Be Done – How to use it
to create a new product

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Understand the Jobs
to Be Done
Identify who is
currently doing the
Job
Create the prototype
of the product
Start selling &
marketing
Keep Focused on the
Jobs to Be Done
 Define what
progress the
customer desires,
what he hires you
to do with your
product or a service
 Try to understand
also the
experiences the
customers seek in
order to make the
progress
 Analyze the
functional,
emotional, and
social dimensions of
their desire for
progress
 List the firms that
deliver the progress
/ do the job
 Identify in what way
they fail the
customer
 Identify the non-
users that have the
problem but don’t
hire any product at
all
 Identify the
workaround used
by the customers
 Create the
prototype of the
product that you
can use to learn in
practice with the
customer
 Modify the solution
till you reach
product-market fit –
your product does
the job so well that
we majority of
customers would be
unhappy if your
product disappears
 Define what the
customers have to
fire to hire you
 Adjust the
positioning and the
messaging to the
jobs you have
identified
 Organize the firm
around the delivery
of the job much
better than current
alternatives
 Identify and use to
your advantage the
push and pull forces
that may support
the adoption of
your product
 Adjust customer
experience
 Make sure that you
don’t try to satisfy
too many jobs
 Don’t dilute too
much your brand by
adding too many
new products and
services that are
not linked to the
main job
 Design the KPI
system to measure
how well you do the
job
 Adjust your
processes
 Adjust your
organizational chart
 Pay attention to
leading input KPIs

73
Jobs to Be Done –
How to find them

74
There are 5 main ways to find the Jobs to Be Done
Observe jobs in your
own life
 Find a problem, a job that
is poorly solved or not
solved at all
 If you observe a small
number of customers
most likely there will be
others as well
Analyze
non-consumption
 In this method, we
concentrate on people
that don’t hire any
product or service
 In some cases, it may
suggest that the existing
solutions are not
sufficiently good so the
customers choose to do
nothing instead
 In other words Jobs to Be
Done exists but the
solutions are crappy
 Ask yourself a question
who is not using your
product and why?
 You can use a top-down
approach for that
Analyze
workarounds &
compensating behaviors
 In this method, you
analyze cases where a lot
of people are using some
sort of workarounds to
solve their problem and
achieve progress
 The workaround suggests
that the job is really
important to the customer
so he is using substitutes
or combining together
different products to get
the job done
Negative jobs
 Look for what people
DON’T want to do
 People are able to pay for
totally removing certain
things from their life
Spot unusual usage of
the product
 You can learn a lot by
observing how customers
use your product,
especially if the product is
used in a different way
than the company has
envisioned

75
Let’s have a look at some examples
Observe jobs in your
own life
Analyze
non-consumption
Analyze
workarounds &
compensating behaviors
Negative jobs
Spot unusual usage of
the product
Khan Academy
Sony Walkman
Airbnb hosts
Kimberly-Clark & briefs
(diapers for adults)
Open Table
ING Direct – accounts for
low net worth people
Procedures in Healthcare
(vaccination)
Udemy Teachers
Podcasters / YouTuber /
Bloggers
Cosmetics for men
Arm & Hammer –
Baking Soda
Arm & Hammer –
Baking Soda
GM – OnStar system
Autopilot in airplanes

77
Netflix
Let’s guess the main competitors of Netflix
HBO GO
Disney +
Hulu
Amazon Video
Amazon Prime
Other streaming platform
Cable channels
Traditional TV
providers
Traditional TV
Cinema
Cinema
Video on demand
Online platforms of
traditional TV
YouTube
Facebook
Games including
Twitch
Others
Other online entertainment

78
Coffee at Starbucks
Let’s guess the main competitors of a coffee at Starbucks
Tea
Juice
Water
Shakes
Other beverages at
Starbucks
Coffee at home
Coffee at work
Coffee at other places Other places for a meeting
Coffee at other
restaurant
Vending Machine
Working at home
Office
Co-work space
Others
Other places to work
Cinema
Restaurant
Walk in the park
Others

79
Enabling Investments –
Introduction

80
In many cases, your demand is limited by something that you cannot control
directly. In such cases, you may be interested in enabling investments.

81
Enabling investments help you drive the demand or sales by removing
the main bottleneck – lack of the demand
1 2 3 4 5 6 7 8 9 10
Market size Your capacity
Market size and your capacity

82
Enabling investment can be done in different places depending on
where the bottleneck is
Demand side Supply side Distribution side
Increase the demand from
current customers
Increase the number of potential
customers
Find new applications for your
products
Kill substitutes
Increase throughput of
bottlenecks
Increase the availability of
required resources and materials
Increase availability of potential
employees
Increase the throughput of the
distribution system
Create your own distribution –
existing channels
Create your own distribution –
new channels

83
In the next lectures, we will have a look at 2 case studies.
Retail chain for kids’ products Tesla

84

85
– Examples

86
Let’s have a look at how a retail chain for kids’ products can
do enabling investments to support the sales of its products

87
Let’s have a look at how a retail chain for kids products managed to
apply this strategy
Increase funding for programs
and services for expectant
families
Investments in businesses related
to children, e.g. kindergartens
Start selling your products to
older age groups
Develop care programs for
children whose parents work
professionally
Set-up recruitment and training
program for employees
Start cooperation with local
manufacturers
Automate warehouses and stores
Create new concepts to be able
to enter new regions
Expand into online and
marketplace
Create own vending chain or
lockers for parcels chains

88
Let’s have a look at how Tesla was doing enabling
investments to support the sales of its cars

89
Let’s have a look at how Tesla managed to apply this strategy
Convince governments and
regulators to support electric cars
usage
Develop infrastructure to
facilitate the use of electric cars,
e.g. the supercharger network
Invest in solar production
capacity (Solar City, Powerwall,
Solar Roofs)
Provide car insurance for Tesla
cars
Build the cars from scratch to
simplify it
Eliminate a large number of
intermediaries and create your
own components for the car
Build own factory for batteries
Own retail chain to sell cars
Service centers combined with
sales centers
Tesla Rangers – mobile
technicians who can service
vehicles from your house
Automate the work in the
factories (fewer employees
needed)

90

91
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
$190
$19

92
Value Proposition Innovation

93
Another great source of innovation is to work on the Value Proposition. We will
discuss in this section what techniques you can use to innovate the Value Proposition.

94
Expand the product Simplify the product
Expand the brand
Divide the products into
smaller pieces
Integrate products Bundle products

96
If you have a strong brand you can expand it by selling new
products. In this lecture, we will define how you can do it.

97
Brand expansion can be achieved by offering, under the existing brand name,
new products within existing categories, or even new categories of products
Brand A
Category 2
Category 1
New Category 3
Product 1
Product 2
Product 3
Product 4
Product 5
Product 6
Existing
New

98
Let’s have a look at Apple which has been very good in applying this
technique.
Apple
Mac
computers
iPad iPhone Apple watch Apple TV+
Airpods &
Accessories
# of units
sold
 20 M  49 M  217 M  20 M  40 M  85 M
Services

99
Apple also enters or will enter new categories that will become
substantial revenue sources
Apple
Fitness Healthcare
Financial Services
(Apple Pay)
Home
Alternative to
Amazon Echo
Apple Cars

100
Such a bold move has helped Apple almost triple its revenues in 10
years
46
79
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155
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165
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22
23
21
24
23
21
26
25
26 29
19
31
32
30
25
23
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18
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4
13
16
18
20
24 13
17
24 31
9
5
6
6
10
11 30
40
46
54
7
6
4
2
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
iPhone Mac iPad Other Products Services iPod
Apple’s revenues by products
In billions USD

101
Apple does not perceive itself as a computer production firm, but rather a technological
platform that is helping loyal consumers enjoy their lives more easily and fully.

102
Let’s have a look at some important moments in Apple’s history
1976
Apple I
1976
Apple Computer
Company in founded
1977
Apple II
1984
The Macintosh
1990
3 new Macintosh
models
2000
First retail store
2001
The iPod
1980
Apple III
1980
Company goes Public
1997
Apple Online Store
1998
The iMac
2003
iTune Store
2007
Launches the iPhone
2008
App Store
2010
The iPad
2010
The iPhone 4
2012
The iPhone 5
2015
Apple Watch
2019
Apple TV+
2020
Apple One
Apple Fitness +
Own Processors (M1)

103

104
New products within old
categories – Introduction

105
From time to time it makes sense to create new products within an
already existing category

106
There are plenty of reasons why in some cases adding new SKUs in an
already existing category makes sense
The low number of SKUs in
comparison with competition
The high growth rate for the
category
Low base
Blocking access to others
You need more SKU to be more
visible in a retail chain
Unused production capacities

107
New products expanding brand
– Introduction

108
Once your brand is strong you can add not only new SKUs within the
existing category but actually add a whole new category

109
Entering new categories is possible under certain conditions
You own the customer
You have high brand recognition
You have a high NPS score
New categories require the same sales
machine
Similar or higher margins to categories
you are selling now
New categories cannot endanger
current revenues
New categories have to be consistent
with your brand
Customers spontaneously already
think that you sell those categories

110
How to expand the brand
– Case Solution

111
After we have gone through research we got the following results. This suggests
that we should start with yogurt and yellow cheese
0
50
100
150
200
250
300
350
0 0,5 1 1,5 2 2,5 3
Market size
In million of USD
Attractiveness
(1-Low;3-High)
Cheddar
Cottage cheese
Yoghurt
Milk Desserts
(i.e. Monte)
Yellow (swiss)
cheese
Ice cream
Feta

112
Does it make sense to introduce new
services or products – Introduction

113
You have to remember that when you introduce a new product or
service it may have benefits but it can also cause problems
It can create new reasons to visit
the place
It can increase the frequency
New products can attract new
customers
New products can disturb the
delivery of the basic product
It can require additional assets or
training
It can repel the current customer
base from coming
It can increase margins
It may be not compatible with
your concept

115
The customer wants to achieve certain results, to get the job done. By observing
the whole context of using the product you can expand the product.

116
We will look at the car industry and we will try to expand the basic product, in
other words, the selling of a car. In this case, the basic product is obviously a car.

117
Car rental by the hours
Let’s have a look at the example of cars
Product expansion
Basic product Jobs-to-be-done Obstacles
Potential expansion of
the product
 Car  Moving from place A to B
comfortably
Self – driving cars
Subscription maintenance
service
Purchase of old cars
Car loan for 1,2,3 years
Chain of car repair shops
Car loan with insurance
Cheaper insurance offered by
car producer
No money
I have to repair the car & too
high maintenance costs
I do not know what to do
when car is old
Insurance is too expensive
I'm afraid to drive a car

118
Expansion of the product consist of 5 main stages.
Select a product Analyze
Define possible ways
to extend a product
Define possible ways
to extend a product
Monitor and control
 Select a product to
extend the length
of the Product Life
Cycle and to keep
customers
interested
 You can do it by
making small, or big
changes to a
product
 Analyze customer
behavior
 Specify the purpose
for which your
product is
purchased, what it
is used for
 Identify also the
obstacles that
customers have
before purchasing
your product (price,
application of the
product,
maintenance)
 Create a list of
obstacles for which
your product is not
being purchased
 Group the obstacles
and prioritize them
 Using data from the
previous step define
how you can extend
the product
 To define obstacles,
try to add two or
three possible
solutions
 Monitor and control
whether the
product extension
has a positive effect
on increased traffic,
conversions or sales

120
Simplicity is quite often the key to success. We will
discuss how you can innovate by simplifying the product.

121
The are 3 ways in which you can simplify products.
Simplify product
Limit the number of
available options
Remove frictions Simplify communication
Cognitive frictions
Emotional frictions
Interaction frictions

122
An example of a company that limits the number of available options in order
to simplify customers’ purchasing process is Apple.
Apple Samsung
Phones released in
2019
 iPhone 11
 iPhone 11 Pro
 iPhone 11 Pro max
 Galaxy Fold
 Galaxy S10+
 Galaxy S10
 Galaxy S10e
 Galaxy Note 10+
 Galaxy Note 10
 Galaxy A80
 Galaxy A70 (Dual SIM)
 Galaxy A20
 Galaxy A10
 Galaxy A30
 Galaxy A50
 Galaxy A9
 Galaxy A2 Core
 Galaxy J2 Core
 Galaxy J4 Core
 Galaxy J6+
3 17
# of phone models
released for sale in
2019

123
An example of a company that reduced interaction frictions with a
product is Amazon, which has introduced Amazon Go stores.

124
An example of reducing interaction frictions is Amazon Go stores that remove
many operations that you are forced to do in a typical store.
Traditional shopping process
Enter the store Collect items Check out & Pay Pack groceries Leave store
Amazon Go shopping process
Enter store Collect items Leave store

125
An example of a company that has reduced cognitive frictions is Uber. They have improved the
customer experience as well as have limited the customer's involvement in the entire process

126
Cognitive frictions were reduced by Uber. They have improved the customer
experience as well as they have limited the customer's involvement in the
entire process.
Traditional transport service (taxi) Uber

127
Traditional taxi service process
Find a taxi company
Call to the operator
to schedule the ride
Book the ride Wait for the taxi
Call to the operator
one more time
because no one
arrived
Get into the taxi and
explain the
destination details
Navigate the driver
around the city
Be late or ahead of
time because you did
not know how long
the ride will take
Pay with cash and
remember to tip the
driver
Ordering a taxi, cab before Uber was a tiresome process with many steps.

128
Select the destination
Select the pickup
location
Get into the Uber car
Pay by your credit
card
Uber service process
Travel to destination
on time
Uber has listened to the customer's needs. They have simplified and shortened
the service related to ordering a taxi and moving from place A to place B.

129

131
Many firms to increase their control over consumers create the whole ecosystem. In
this way, the customer has hardly any reason to check the competitor’s offer.

132
Integration of products means that they fit and work together. You have
experienced that on many occasions if you use Google or Apple products
…… ……

133
Let’s look at the ecosystem created by Apple. It will show you, how
they have integrated their products to lure, and keep customers.

134
Let’s have a look at the Apple ecosystem. Let’s first look at content and devices.
Devices that Apple sells to its
customers (Hardware)
Content that the customer
accesses via devices
Content generated by the
Customer (e.g. photos)
Apps
Content generated by friends
(e.g. via social media)
Movies
Music
Data about the customer (e.g.
location, temperature, steps)
Data about the world
Mac
iPhone
iPad
Apple watch
Apple car
Apple Fitness (e.g. bike like
Peloton)
Apple Home

135
Apple has not only created different options when it comes to devices, but also made sure that they are
integrated with each other. So, you can start doing something on your Mac, and finish it on your iPhone.

136
Apple made the life of its customers so easy, by integrating the products,
that most customers will be too lazy to leave this small mini world.

137
Let’s have a look at the Apple ecosystem. The second layer of the integrated
Apple ecosystem is the software
Content that the customer
accesses via devices
Apple’s presence
Software / Content
Content generated by the
Customer (e.g. photos)
Apps
Content generated by friends
(e.g. via social media)
Movies
Music
Data about the customer (e.g.
location, temperature, steps)
Data about the world
iCloud
App Store
Apple Music, iTunes
Apple TV+
Apple Fitness+
Apple Search
Mac
iPhone
iPad
Apple watch
Apple car
Apple Fitness (e.g. bike like
Peloton)
Apple Home

138
The fact that they are building an ecosystem is visible in their
communication

139
Building such a big, integrated platform is not easy. The best proof of that you can find by looking
at the competitive landscape. They compete with different players in different segments.

140
Their complex ecosystem has not been copied by others. They compete with
different firms in each segment
Mac
iPhone
iPad
Apple watch
Apple car
Apple Fitness (e.g. bike
like Peloton)
Apple Home
Apple’s competitors in
devices
iCloud
App Store
Apple Music, iTunes
Apple TV+
Apple Fitness+
Apple Search
software
Software / Content

141
As you can see, you not only integrate you products with each other,
but you also try to become an indispensable part of customer’s life.

142
By integrating the products they convince customers to spend more money
with them. Let’s have a look at how much 1 user can spend on products with
Apple
Cost of needed
Apple’s devices
= Cost of iPhone Cost of iMac Cost of iPad
Cost of other
accessories
+ + +
$ 5 600 = $ 1 400 $ 2 500 $ 900 $ 300
+ + +

143
Let’s have a look at why this strategy can be beneficial for your business
Allows customers to combine
many products with each other
Helps customers to easily switch
from one product to another
Helps to increase customer
retention
Decreases marketing costs
Increases the switching costs to
other solutions

144
Divide the products into
smaller pieces

145
One of the most underrated strategies is to
divide the product and sell it in smaller pieces.

146
Let’s look at some examples when this technique was successfully used
Pizza Music Cars
 Big Pepperoni pizza  Full album  Buy a car
 1 slice of pizza  1 song  Car leasing for 1 year
 Pizza Hut  Apple – iTunes  Banks
 Long-term loan firms
Original version of the
product
Divided products
Who has done it

147
Let’s look at some examples when this technique was successfully used
Events Clothes Furniture
 Event pass  Matching sets of clothes  Full set of furniture for
the room (e.g. dining
room)
 One-day pass  1-piece of clothes  Separate furniture items
that can be arranged
however you like
 Music Festivals  Retail companies  IKEA
Original version of the
product
Divided products
Who has done it

149
You can increase sales and product adoption by bundling
products. This can also work as a defensive strategy.

150
By product bundling, we mean that you group together multiple
products and you sell them as one set.
$ 5 $ 3 $ 2
+ + =
$ 10
$ 8

151
Apple One Telecommunication firms
+

152
Let’s have a look at why this strategy can be beneficial for your
business.
Increases the revenue and
margin per 1 customer
Allows customers to meet new
products /offers
Decreases marketing costs
Helps you address different
needs
Protects you to some extent
against the competition
You reach faster the desired scale
in new products

154
Another way to innovate is to turn a physical product into a digital one. In this
way, you can increase the value of the customer and reach new customers.

155
Let’s look at what was done in the case of books by Amazon.
Physical book Kindle digital
Audiobook
Book turned into online
course
Digital summary of the
book
Audio summary of the
book
Digital Bundle
Potential
Digital
Non-digital

156
Let’s look at what was done in when it comes to Star Wars movie series.
Movie
Computer games
Novels
Comic books
Digital
Non-digital
Accessories and gadgets
related to the film
Theme park attractions
Audio book
TV series

157
Let’s look at the fitness industry. For decades you would have to go to a gym to
sweat for hours. The digital revolution has also changed this industry altogether.

158
Let’s see what was done in the fitness industry when it comes to
digitalization.
Visit to the gym Fitness Apps
Interactive fitness
platforms (e.g. Peloton)
Treadmills
Stationary bikes
Digital
Non-digital

159
The process of creating a digital product consists of the following stages
Generate ideas on
how to digitalize the
product
Rank the ideas
Prepare detailed
analysis about
cannibalization
Pick the best ideas Implement
 Define how you
could transform
your physical
product into a
digital one
 Create a list of ideas
 Define criteria that
will help you select
the best ideas
 Prepare the ranking
of ideas
 Create a shortlist of
ideas that you may
consider
 Before you will pick
the best ideas check
whether your ideas
will not negatively
affect the physical
product
 Prepare the
detailed analysis
 Using data from
previous steps,
decide which ideas
are you going to
implement
 Choose only those
ideas that you are
sure will bring
tangible benefits
 Implement the
selected ideas
 Measure and
control the benefits
of your ideas

160
$190
$19

161
Innovation in Key Resources

162
Innovation in Key Resources
– Introduction

163
Some firms resort to Innovation in the Key Resources. We will discuss in this
section how you can beat your competition by innovating in this area.

164
In this section, we will talk about the following things:
Crowdsource resources
Own Key Resources

166
McDonald's
Let's see how the companies listed below create their own resources
 McDonald's business
model is based on
leveraging its product,
fast food, but also on
investing into own
properties that are leased
to franchisees often at
large markups
Tesla Amazon
Meat producers
Description  Due to the growing
demand for batteries and
the lack of appropriate
solutions on the market,
Tesla decided to produce
its own batteries in its
own factories
 Meat producers, in order
to standardize production
processes and reduce
costs, provide farmers
with their own animals
for breeding
 Amazon, in order to
create its own new
product, decided to buy
another company,
Wondery, that specializes
in the production of
podcasts

167
Let’s have a look at what situations you may decide to use this
technique.
The resource helps you control
the prices
By owning resources you can
slow down competition
You can stop the competition
from occurring
Own resources help you
standardize customer experience
Own resources help you reduce
costs

169
To grow the business in most cases you have to invest in assets,
resources. As an alternative, you can crowdsource the assets.

170
Let’s imagine you want to build a chain of hotels.
100 rooms $ 2M revenue
=
= $ 5M in Capex
=

171
If you want to get to $ 4M of revenues, you would have to invest $ 10M
in Capex.
200 rooms $ 4M revenue
=
= $ 10M in Capex
=

172
Alternatively, you can find the rooms among current owners of assets
and share with them the revenues.
1 room in 200
buildings
$ 4M revenue
=
= No Capex
=

173
Let’s have a look at firms that crowdsource resources.
Hotels
Moving from point
A to point B
Restaurants Last Mile Delivery
Warehouses /
Stores
Data

174

175
Innovation in Key Activities

176
You can also look at Key Activities and innovate in this area
as well. Let’s see how you can do that in practice.

177
Automation in Office
Make the Process Scalable
– Case Study
Automation –
General approach
Cost reduction Investment
– Case Study

178
Automation –
General Approach

179
In more and more cases you have to find a way to replace or support
people with machines to lower down production costs
Machines automating almost fully
specific actions
I.e. CNC
Transportation
I.e. Kiva – self driving robots that bring
the stock to you
Semi automatic solutions
Fully automated lines

180
For automation analyses, I propose the following approach
Measure current
costs
Find automation
solutions that has
similar capabilities
Analyze the payback
time of such a
machine
Check how it
influences the
operations
If it makes sense
propose the change
 Minimal batch size
 Setup time
 Variability of
products that can be
produced on the
machine / line
 Maintenance needed
 You may need to
switch the whole line
for some time
 You may need to
build additional space
 Most new machines /
lines are
underperforming in
the first period

181
There are some clues that something is a good candidate for automation
When do you have
chances to make a big
impact with
automation?
Demand for the product is erratic and
seasonal
A lot of people are involved
Long setups are needed to move from
product to product

183
Offices are the perfect place for automation. Let’s see what
you can automate and how you can do that in the office.

184
Let’s have a look at the examples of Office Automation
Put data in the cloud & use
intranet
Digital signatures & digital
acceptance
Digitalize the flow of documents
Online platform for training &
development
Automate reporting and data
analysis
Use Chatbots to help handle
customer complaints
Partially or fully automate
internal processes
Use big data and AI

185
Make the Process Scalable
– General Approach

186
Sometimes you have to make the process more scalable in order to be able to grow the
whole operations. Let’s see what it will give us and how it can be achieved.

187
Making the process more scalable can help you achieve a lot of things. We will
discuss this in this lecture and briefly go through methods that you can use
The process stops being a bottleneck
You require fewer resources and less
money to grow
The scalable procesess may become
competitive advantages
You may create new businesses that
will help you increase the firm’s value
With more scalable processes you can
grow faster

188
To make the process more scalable we will be using the following
techniques
Standardize
Describe the process &
train the people
Automate – the whole or
part of the process
Change the technology
Change the team doing
the process
Change the logic of the
process

189
Innovation in Cost Structure

190
Innovation in Cost Structure
– Introduction

191
Firms, unfortunately, overlook innovations that can be done on the cost side. Let’s see what
techniques can be used in this area and what have done some bold firms in this area.

192
Transfer costs to
suppliers
Turn costs into
revenues
Transfer costs to
customers

193
Transfer costs to customers

194
You can have a much simpler and more efficient business if you transfer costs to your
customers. The customer quite often does not notice or does not mind the additional effort.

195
To explain the concept let’s look at some basic calculations.
Revenue
=
Profit Costs
-
$ 200
=
$ 50 $ 150
-

196
Let’s check how much our profit can increase by shifting the cost of
producing and transporting one piece of furniture to our client.
Profit Revenue
=
Cost that cannot be
transferred
-
Cost that can be
transferred
-
$ 50 $ 200
= $ 140
- $ 10
-
Revenue
=
Profit Costs
-
$ 60 $ 200
= $ 140
-
$ 55 $ 195
= $ 140
-
Option 1 – You don’t
change the price
Option 1 – You lower
the price

197
Transferring costs to customers enables you to do 4 main things
Consequences of transferring
costs to customers
Enjoy higher profits Lower prices Simplify operations Simplify R&D
Capture more customers

198
One of the best-known examples is IKEA. They have managed to teach the customers
how to assemble furniture on their own. Thanks to that they have enjoyed huge growth.

199
Before IKEA you would get assembled piece of furniture
Before After

200
Selling a box of parts instead of assembled furniture enabled them to
do a lot of things
Furniture not assembled
Lower costs of
production
Lower
transportation costs
Fewer damages
They attracted new
customers
No assembly costs
Up-sell services
Smaller need for people
Bigger automation
You can put 3-10 more
furniture in 1 truck
You need less labor to
move the furniture
around

201
Let’s look at some basic calculations to see how it can work for
furniture.
Revenue
=
Profit Costs
-
Profit Revenue
= Assembly costs
- Transportation costs
-
-
Production costs

202
Once you send a box with parts instead of assembled furniture you can
increase profit despite selling at a lower price
Before
Profit Revenue
= Assembly costs
-
-
Production costs
$ 60 $ 130
= $ 20
- $ 10
-
-
$ 40
After
Profit Revenue
= Assembly costs
-
-
Production costs
$ 70 $ 115
= $ 0
- $ 5
-
-
$ 40

203
We have also seen a huge shift of costs to the customers in retail. It has started at the
beginning of the 20th century with supermarkets. It continues now with the use of technology.

204
We have moved from stores with traditional clerks to self-checkout in modern
supermarkets
Modern supermarkets with self-checkout
Traditional store
Cashless technology store
Supermarket with cashiers and store assistants

205
Let's see how the role of store service has changed over the past years
Traditional store
Supermarket with cashiers
and store assistants
Modern supermarkets with
self-checkout
Concepts like Amazon Go
Unload the delivery from the
central warehouse
Place the goods on the shelf
Collect the products needed
by the customer
Scan products and accept the
payment
Pack the products for
customer
central warehouse
by the customer
payment
customer
Done by the
Sales rep
Done by the
customer
central warehouse
by the customer
payment
customer
central warehouse
by the customer
payment
customer
Eliminated

206

207
You can also transfer some of your costs to your suppliers. In this way, you
can get higher margins or concentrate on more valuable activities.

208
Let’s check how much our profit can increase by shifting some costs to
suppliers.
Revenue
=
Profit Costs
-
Profit Revenue
= Remaining costs
- -
Costs transferred to
suppliers

209
Let’s look at an example. Transferring some costs may increase the remaining
costs but it helps boost the profits.
Before
Profit Revenue
= Remaining costs
- -
Costs that can be
transferred to
suppliers
$ 10 $ 130
= $ 100
- -
$ 20
After
Profit Revenue
= Remaining costs
-
20 $ 130
= $ 110
-

210
Amazon is great at transferring costs to its suppliers. Below the main
items that were transferred to suppliers
Costs
Cost of finding suppliers Standardization of goods Advertising Refunds
How they have
achieved it?
Description
 Marketplace
 Amazon has allowed 3rd
party sellers to sell via their
platform products
 In this way the don’t have
to find products, organize
supply chain, market them
to customers
 Prep Centers
 To be able to sell on
Amazon products have to
meet certain standards
 Prep Centers were created
to help Amazon Sellers
inspect inventory, prepare
inventory for Amazon, and
then ship the inventory
to Amazon
 This is paid by suppliers
 Amazon Ads
 Amazon still has to attract a
lot of traffic by spending
money on Google
AdWords, Facebook Ads
etc.
 Partially it is covered by
Amazon Ads – Amazon
charges suppliers for
ranking higher on Amazon
 Return centers
 A service whereby the costs
of returns are passed on to
the sellers, especially for
products whose value is
less than the cost of return

211
Let’s look at what type of activities, costs you can consider transferring
to your suppliers.
The activity that disorganizes
your operations
You don’t have the tools,
procedures to handle the activity
Peak activities that happen
infrequently
Your supplier has a much bigger
scale than you
The activity can be done cheaper
if it is done earlier
A supplier may be technologically
advanced
A supplier has cheaper labor
A supplier has a higher level of
automation

213
A very radical approach is to turn costs into revenues. In this method, you create a business
that helps you not only lower your own costs but can be also a source of revenues.

214
This method has been mastered by Amazon. Below their cost structure
in 2005.
73%
6% 5% 3% 2% 2% 2%
Product Costs Fulfillment Technology and
Content
Shipping Costs Marketing Payment
Processing
General and
Administrative

215
They have managed to turn most of them into revenues.
Type of cost Revenues created
Fulfillment by Amazon
Logistic costs
Web services Amazon Web Services (AWS)
Advertising
Product costs
Payment processing
Amazon Advertising
Amazon Kindle
Amazon Echo
Amazon Fire
Amazon Basics
Amazon Pay
Amazon

216
Now, let’s briefly look at when this type of innovation makes sense.
Your supplier sucks
Your primary business is not that
profitable
You have to have a big scale
You have solved a problem, that
others could not
You can constantly optimize costs

217
$190
$19

218
Innovation in Revenue Streams &
Sales channels

219
Fast effects can be achieved by innovating Revenue Streams or playing with the Sales
Channels. Let’s look at examples of techniques and case studies.

220
New revenue streams
Experiment with different
sales channels

221
sales channels

222
By changing sales channels you can reach new customers or create different business
models. Sales channels may require sometimes change in the product and your policies

223
Apple
 3rd party retail chain
Typical sales channel
 Own retail chain
 E-commerce
New sales channel
Tesla
 3rd party retail chain  Own retail chain
 E-commerce
Fitness clubs
 B2C  B2B – reach HR manager with salesforce selling
the fitness as employee benefits and perks
Software
 Salesforce / direct sales  Freemium model
 Content marketing & Inbound Sales
 Digital paid marketing
Games
 Retailer
 Digital distribution
 Platform 3rd party
 Own digital distribution platform
 In-app sales (via other games owned)
 Emailing & Loyalty program
Cakes
 Retail chains  Own franchising restaurants

224
Entering new sales channels has a lot of benefits
New revenue streams
e.g. Apple
You increase the number of customers
within your reach (catchment area)
Some channels may have lower costs
than the ones you are currently using
Some sales channels have a higher
efficiency
Some sales channels have a higher
retention

225
revenue streams

226
Another way to generate new businesses is to change the revenue stream. This
may mean how you charge your customer and for what you charge him

227
 The way you charge your customer for a service or a
product
 Here you also should define what you charge him for
 Revenue streams will impact your revenues
Revenue streams =

228
In the next lectures, we will explore this idea in more details
Revenue streams for milk –
case study
When to use specific
revenue streams?
Innovative selling / revenue
streams – Introduction
Case studies

229
Innovative selling / revenue streams
– Introduction

230
1-off / lump sum
payment
Instalments
Subscription
Payment / fee per usage
Payment / fee per result
Payment / fee per effort
Free
Freemium
Free Trial
Penalty
There are many potential ways in which you can claim your money

232
The best way to understand things is to start with an interesting example.
Imagine that you want to drink milk. Let’s see how the farmer can get the
money back

233
1-off / lump sum payment
Instalments
Subscription
Payment / fee per result
 Customer pays up-front for all the milk he will drink over the course of his life
 Alternatively he buys the cow and can milk the cow as long as the death does not tell them
and the cow apart
 You can drink milk as much as you want until the cow dies.
 Every month you pay installment which is a fraction of the cow’s value.
 After you pay off the whole value (last installment) you drink for free
 You pay every month a set fee.
 Within this fee you can drink as much as you want milk
 You can get out of the agreement anytime you want
 You pay for the glass of milk you have drunk. You can go to the farmer anytime you want and
drink milk.
 If you don’t drink you don’t have to pay
 You pay for the glass of milk only if your thirst was quenched
 If this did not happen you do not pay for this glass of milk
Let’s have a look at how the customer would have to pay for the milk in
the case of different revenue streams models

234
 You have an agreement with the farmer that he gives you max 2 glass as he believes that this
should quench your thirst. Usually, it is the case
 You pay him a fixed amount for that
 You drink for free as much as you want. You can even bath in the milk
 The farmer is secretly making photos of you drinking milk and using it to promote his
YouTube, Facebook, and Instagram account
 You can have for free 1/3 of the glass of milk
 Everything above that you have to pay
 For 1 week you can drink the milk for free but afterward you have to start paying
 If you don’t drink at least 7 glasses of milk a week you will have to pay a penalty
Payment / fee per effort
Free
Freemium
Free Trial
Penalty
Let’s have a look at how the customer would have to pay for the milk in
the case of different revenue streams models

235

236
When to use specific revenue
streams?

237
Let’s have a look under what conditions and in what industries you should use
the specific revenue stream model
1-off / lump sum
payment
 The most often used model, especially when the price is low, customers like
to change the supplier a lot
 This is similar to a one-night stand, so the strength of the brand is crucial
 If you have a strong brand that matters a lot for your customer this model is
for you
 Mainly used in FMCG, some SMCG, small services
When to use Examples
Instalments
 This model is often used with expensive items
 Going from lump sump to installments usually drastically change the
customer base size
 Mentally much easier to swallow than 1-off payments
 Great model for SMCG: TV sets, computers, furniture, houses
Subscription
 Holly Grail of startups
 It is often used for services that you will repetitively use over a long period
of time: mobile phone, health insurance, SaaS, Video-on-demand
 Gives you huge predictability of revenues and you concentrate on value and
content and less on marketing

238
Payment / fee per
usage
 This model is used when you are not able to predict the usage
 You set the price per unit of usage (i.e. time, natural unit, number of
uses, etc.) in a contract and then the payment is based on usage
 Widely used i.e. for electricity, water, etc.
Payment / fee per
result
 Here as a customer, you want to buy the specific result. You are not
interested in the effort
 Widely used in B2B especially in the services
 In advertisement, the result can be: views (CPM), clicks (CPC), leads
(CPL), sale (CPS)
Free
 Very often used in 2-sided markets and UGC when 1-side has free
access and the other one covers all costs
 Usually requires a big number of users
 Still you collect money somehow to support you: fees for
advertisement, fees for access, donations, etc.

239
Freemium
 This model goes usually hand in hand payment per usage or subscription
 Can be treated as a selling tactic
 Often used for digital goods especially software (SaaS)
 Very popular with mobile apps especially games where you create a virtual
economy
Free trial
 This model goes usually hand in hand with payment per usage or
subscription
 Can be treated as a selling tactic
 Often used for digital goods especially for B2C market i.e. video on demand
Penalty
 Penalties are used heavily as a part of other contracts
 Can be used also in cases when you want to motivate people to obey certain
rules based on behavior contracts
 Heavily used by the government, education and in many apps

241
B2C Services
Acquisition
Activation
Retention
Revenue
Referral
Dynamic pricing and no so low
prices
Unbundling
Charge for everything
Alternative revenue streams
Ryanair has been also very creative on the revenue side

243
DollarShaveClub disrupted the whole industry by introducing
subscriptions instead of irregular purchases
Acquisition
Activation
Retention
Revenue
Referral
FMCG
From lump sump to subscription
From retail chain sales to direct-
to-consumer distribution
3 subscription plans
Free handle (no entry barriers)
You can manage the plan
(frequency, when to receive}

245
Canva contrary to the majority SaaS in this space is shying away from
subscription and you can buy specific elements
Acquisition
Activation
Retention
Revenue
Referral
SaaS
Freemium
Fixed fee per element
SaaS

246

247
– Introduction

248
Some industries require you to innovate also in the area of Key Partners. Thanks to
that you can build a powerful competitive advantage. Let’s look at some examples.

249
When it comes to Key Partners we have 2 major innovations that we can
consider.
Key resources
Relationships
Channels

250
In this section, we will discuss going up or down the value chain
Go up / down the value
chain – When to use it
Case Studies
Go up / down the value
chain – Definition

251
Go up / down the value chain –
Introduction

252
The first step is to draw the value chain and check the margins
Transport and
Warehousing
FMCG producer Retail Chain
Supplier 1
Supplier 2
Supplier 3
Supplier 4
Producers of
raw materials
and
components
Elements of the value
chain that you want to
take over

253
Going down the value chain / downstream usually means getting closer
to the customer
Transport and
Warehousing
Supplier 1
Supplier 2
Supplier 3
Supplier 4
Producers of
raw materials
and
components
take over

254
Going up / upstream means going closer to the source of materials that
you use
Transport and
Warehousing
Supplier 1
Supplier 2
Supplier 3
Supplier 4
Producers of
raw materials
and
components
take over

255
When it makes sense

256
Going up or down makes a lot of sense if at least one of the below
conditions is met
Your supplier position is very
strong
Your customer has high
purchasing power
In other parts of the value chain,
you can get higher margins
You want to block competitors
You acquire players to show how
to improve their businesses
To increase the responsiveness of
your base business
Too much cash that cannot be
put to good use

257
Benefit System

258
Let’s see how this technique was applied by Benefit System – an operator of
Fitness Card that gives you access to different fitness clubs. It is partly covered
by employers

259
They had been constantly increasing the number of users… till the
Covid-19 Pandemic which killed more than 50% of their business
614 744 865 972
1 177
475 600
2015 2016 2017 2018 2019 2020 2021
Number of active sports cards users in Poland
In thousands of people

260
…which helped them growth 2x revenues and almost 4x EBITDA in 7 years. The
growth was killed by COVID-19 Pandemic
91 110 129 166 212
275
348
436
295
219
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenue of Benefit Systems S.A.
In millions of USD
10 9 14 15
27 35 44 44
-1
-17
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
EBITDA of Benefit Systems S.A.
In millions of USD

261
Let’s have a look at the Benefit System value chain…
Operator of the
fitness card
Fitness Clubs HR Managers
Developers
Landlords
Equipment
Producers
Others
Producers of raw
materials and
components
Financing Fitness Clubs
chain where Benefit
System is present

262
Benefit System has managed to enter other elements of the value chain
Operator of the
fitness card
Fitness Clubs HR Managers
Developers
Landlords
Equipment
Producers
Others
Producers of raw
materials and
components
Financing Fitness Clubs
chain where Benefit
System is present

263
$190
$19

264
Relationship

265
Relationship – Introduction

266
In many industries, we have seen many innovations in the Customer
Relationship. Let’s look at some examples and techniques that may prove useful.

267
Freemium Free Trial
3F – how do they differ
Referral programs
Free Affiliate programs

268
3F
(Freemium, Free Trial, Free)

269
Let’s start with a short definitions
Free Free Trial Freemium
 A product or a service is offered
to customers completely free
 The customer can use the
product/service without any
restrictions and time limits
 The company earns access to
customers and their attention,
which they devote to using a free
product
 Example: Gmail
 A product or a service is offered
to customers for free, but for a
limited period of time (a free trial
period)
 After the trial period, you have
to pay to have access to the
solution
 During the trial period you have
access to all functionalities of the
product
 Example: 30-day Gym free trial
 A part of the product or service is
offered to customers for free all
the time
 You have to pay to get full access
 Example: Dropbox
What firms
use it

270
Let’s look at how those 3 concepts differ
Time during which you
can use the product
For every
Limited
Part of the product
that you can access
Everything
Only selected features
Freemium
Free Trial
Free

272
In many cases, firms use the so-called freemium model to attract a big
number of new customers and let them use part of their product for free.

273
Let’s have a look at the Freemium concept
Company
Customer A Customer B
You get only small part of the product You get 100% of the product
Choose free option Choose premium option
Pay for the product

274
Below we present the main advantages of the Freemium concept
Attract more customers
Allows to gather information
about customers
Customers can test and become
more familiar with the product
or service
Helps in gaining a competitive
advantage
Freemium users act as the
brand’s ambassadors
Works very well when combined
with Referral marketing

275
Let’s have a look at the following examples
Media Sites
Content & Data
Aggregators
SaaS Public Goods
Healthcare
Education
Online versions of
newspapers

277
Free trial is another way to help attract quite a lot of customers by providing an opportunity
for the customer to try the product for free and see whether it’s something from him.

278
Let’s have a look at how the Free Trial concept works.
Company A
Product 1
Product 2
Product 3
Company B
 Sign up and use the selected
product for a certain period of time
 Pay for the product
after completing
the product-free
trail
 Choose a different
company to test
different services /
products

279
Let’s see what kind of firms use this approach
Physical products that you
can try at the store
Software (SaaS)
Physical products that you
can try at home

280
Below some examples of firms that use free trial
Media Sites
Streaming
Platforms
SaaS Consumer Goods Public Goods
2-sided
marketplace
Healthcare
Education
Samples of
products

282
Surprisingly, a lot of businesses can thrive despite offering their
products for free. Let’s see how it is possible.

283
Let’s have a look at how the free concept works based on an example of
Facebook
 Time (Attention) and data that help them
target customers
 Free and unlimited source of content for customer
 Inventory of customer’s time
sold to other firms
User
Other companies
 Other companies pay Facebook for adds

284
Let’s have a look at how the free concept works based on an example of
Wikipedia
 Private donors, as well as other
companies, can support Wikipedia
development
Customers
Volunteers
 Volunteers and people who use this
site from across the world create,
contribute and edit the content
Donors
 Free and unlimited source of
content for customers
 Become a donor

285
Let’s see in what cases the free model may be an interesting option.
Mass products (usually for
millions of users)
Mainly digital products
Media sites
Public goods
You can sell the attention to
another group of customers
There is a way to monetize the
attention
User Generated Content

286
Let’s check which firms use the free model.
Media Site
User Generated
Content Businesses
SaaS 2-sided markets
Public Goods Data Aggregators
Education
Healthcare
Podcasts
Blogs

288
 Referrals occur when one person recommends a business
or a provider to another person
 We can also say that it is a process in which companies
reward customers for spreading the word about their
product or service
Referral program
=

289
Let’s have a look at how the referral program works
Refer your friends
Great!
Your friends become
customers
You and/or your
friends get something

290
Below are the main advantages of referral programs
Low cost / Low effort
High rate of retention
It takes only one to know
one
Allows to reach different
groups of customers
Allows to scale the product
or service

291
Let’s look at some examples of referral programs
Examples of Referral
programs
Tesla Dropbox Evernote Airbnb
Referral program
description
 Customer and
anyone using the
referral link can each
earn 1,000 miles of
free Supercharging
with the purchase of
a new Tesla
 Each car referral also
gives a chance to
win a Model Y
monthly or Roadster
supercar quarterly
 Customers can
provide Dropbox
with a referral link
and receive 32
referrals.
 Dropbox will
automatically
reward customer
with 500 MB per
referral, resulting in
a total of 32 x 500
MB = 16 GB of extra
online storage
 Customers earn 10
points for the first
three referrals.
Whenever a
referred friend buys
Premium, the
customer can earn 5
points which can
then be used
 A referred friend
will be given one
month of Evernote
Premium just for
getting started
 The Airbnb referral
program allows
customers to earn
promotional coupon
credits toward
future homes/
experiences
bookings by
referring friends to
become new users
on Airbnb who will
also receive
promotional
coupons

293
 In affiliate programs an affiliate earns a commission for
marketing another person's or company's products
 The affiliate simply searches for a product they enjoy, then
promotes that product and earns a piece of the profit
from each sale they customers make, using the affiliate’s
reference (usually a code or a link)
Affiliate program
=

294
An influencer creates a piece of content. It can be a post on his or her blog, a
movie that he or she puts on YouTube, or his Facebook and Instagram account.

295
Let’s see how the affiliate program works
Show an ad or affiliate
link on your website,
blog or social media
Visitors to your website
click the ad or links
The link takes them to
the partner's website
A customer makes a
purchase on the
partner's website
An affiliate network or
the partner records the
purchase and details of
the transaction
The purchase is
confirmed
The transaction is
credited to you
You get paid your
commission

296
$190
$19

297
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