Business Model Value Matrix

While not specifically limited to business models, the notion of value proposition often sneaks into many discussions on business models. Just like a business model is not a strategy (a business model is "internal" while a strategy deals with outdoing competitors and is thus "external" to the firm), a value proposition is not a business model either. However, in respect to business models, it is often apparent that many managers, founders and even consultants get lost in the details of a specific business model and have a difficult time articulating the business model in terms of what it offers to the customer/end-user in respect of existing solutions/alternatives/products/services.
As I was struggling with how to facilitate the "simplification" (some may say grossly simplify) the value-proposition aspect of a given business model the matrix below actually came to me in a dream at around 5am (I know, quite sad). I have given it the very sexy name of "Business Model Value Matrix" but if someone has a better idea for a name please let me know.

The X-axis (columns) is the value offered to the customer while the Y-axis (rows) is the price to be paid, both are comparative to existing products/solutions on the market.

An example could be a Hyundai car which now offers across most categories "the same for less" or even "more for less". Another example could be LG as it tries to break into the smartphone market by offering "more for less".

Note that there is still some level of subjectivity to be considered. For example, a start-up which offers an on-line MBA entrance exam prep course for €150 which is in competition with a brand-name prep service which charges €1500 would probably qualify its business model as "the same for much less", i.e. the same service for a significantly lower price. The brand-name service would probably qualify the start-up's value proposition as "much less for much less" (maybe even "much much less for much less" - not an option in the matrix as is). An MBA candidate might see the service in competition with freely-available on-line resources and/or the cost of buying a prep book for €50, thus qualifying the value proposition of the start-up as "the same for more".

As you will have probably noticed, I found I had to add an extra column and row called "Different" for truly innovative products or services. Anything "different" in terms of manner of payment or value proposition usually involves customer education and can obfuscate the "perceived value" in the eyes of the customer who may, very simply, not know how to compare this to anything already on the market.

An example would be the BetterPlace electric car which offers customers an electric car with pricing plans based on kilometers (or miles) driven per year. Otherwise stated, the pricing of the car is similar to the pricing of a mobile phone based on usage rather than an upfront cost of ownership. Better Place sees this as offering "more for less" while most consumers (or should we say "subscribers"?) might say this is "different for different" - meaning that they have a really difficult time understanding the total cost of ownership and thus the value proposition.

Another example might be "car sharing" plans like "Auto-Lib" in Paris, France. You pay a yearly subscription and have the right to use an electric car without additional payment for an hour at a time (primarily for errands and short trips). When compared to having to own a car for similar use this is an example of "less for a lot less" (slightly less practical in terms of availability and having to accept some constraints but at a significantly lower cost of ownership).

Using the matrix has had a light-bulb effect for many people I have used the matrix with and it continues to help entrepreneurs in particular get a grasp on what they are actually offering potential customers from the customers point of view.

Comments, suggestions, caveats or critiques welcome.

Getting started

I have started this blog to share ideas on business models - an area which I have been increasingly interested in over time. The more I delve into marketing, strategy, entrepreneurship, start-ups and all things business, I have gained an increasing respect for the business model and am now convinced that it is the key determinable and determinating element which defines the success or failure of a product, company or industry.

As anyone who is interested in this area quickly discovers, there are many competing ideas on what a business model is, what it is composed of and how best to think about it. One interesting take on business models came from Zott, Amit and Massa (2010) who as part of a working paper published by IESE of Spain took a look at the existing literature and noted that a business model has been referred to indiscriminately as an architecture, conceptual tool, description, framework, method, representation, set, statement, structural template... No matter what we call it though, it is clear that it is garnering a lot of attention in business today and hopefully this blog will contribute "a little something" to the discussion...

If you're interested, I do invite dialog, sharing of ideas, book suggestions, alternative approaches, scathing critique and unabashed flattery - as the reader sees fit... Enjoy!