Business Models: Value Proposition, Segments, Channels, Relationships and Revenue Streams
Domain 2 covers the customer-facing half of the Business Model Canvas (Osterwalder & Pigneur, 2010). Questions ask you to build, repair or criticise a canvas, or to select a revenue model and justify it with numbers.
Value proposition
- The bundle of benefits that solves a customer job, relieves a pain or creates a gain.
- It must be distinct from competitors' offers and testable, not a slogan.
Customer segments
- Mass, niche, segmented, diversified, and multi-sided (platforms serve two or more interdependent segments).
- A segment is valid only if it is distinguishable, reachable and willing to pay.
Channels and customer relationships
- Channels: own vs partner, direct vs indirect. Five phases - awareness, evaluation, purchase, delivery, after-sales. Choice trades cost against control.
- Relationships: personal assistance, dedicated support, self-service, automated, communities, co-creation.
- Relationship ≠ channel: the channel is the touchpoint, the relationship is the type of link maintained.
Revenue streams
- Transaction vs recurring revenue; fixed pricing (list, product feature, segment, volume) vs dynamic (negotiation, yield management, real-time, auctions).
- Models: asset sale, usage fee, subscription, renting/leasing, licensing, brokerage, advertising.
Worked example
A coworking space in Inca serves two segments. Freelancers: hot desk at €150/month, self-service booking, Instagram and word of mouth; 30 desks yield €4,500/month but with occupancy risk. Small firms leaving Palma: private office at €450/month, dedicated community manager, direct sales; 12 offices yield €5,400/month on annual contracts. Reasoning: one building, two value propositions. Offices anchor fixed costs with stable, contracted revenue but demand relationship investment; hot desks capture upside and build the community. The recommended mix uses offices to cover the break-even and desks as the variable margin.
Traps
- Confusing a revenue stream with a revenue model.
- Writing "all customers" as a segment.
- Forgetting that multi-sided platforms need a separate proposition per segment.
- Listing channels without matching each to a purchase phase.