To recap, according to Michael Rappa; “In the most basic sense, a business model is the method of doing business by which a company can sustain itself – that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.”Alex Osterwalder and Yves Pigneur say that; “A business model describes the rationale of how an organization creates, delivers and captures value.”
Today we will continue our conversation about business models by focusing on the second question that our definition of a business model raises; how does the business deliver value? An entrepreneur should be able to tell us the process by which the value that his business creates gets delivered to its target customers.
Given a reasonably well developed customer value proposition, our entrepreneur must now decide how that value is going to “be put in the hands” of the people that will become customers of the business. The process of delivering the product or service that the entrepreneur has developed involves several distinct phases; Learn, Buy, Get, Use, Pay and Support. Employees of AT&T are believed to have developed the acronym LBGUPS as a means of remembering the phases of this process as it relates to AT&T’s products. It is most effective to think of LBGUPS as a continuous and circular process.
- Learn – when new customers first become aware of the product or service and acquire information and knowledge about how they may benefit from its use. Typically the entrepreneur accomplishes this through some sort of marketing, sales and public relations activity.
- Buy – when customers decide to make a purchase after having learned about the new offering and communicate the desire to act on their decision to someone in a position to initiate the next phase of the process.
- Get – when customers actually take delivery of the new product. This might happen in a store. It might happen online. It might involve shipping the product to the customer. If the customer is buying a service then this typically happens in person, or the service could be delivered remotely.
- Use – when customers actually use or consume the product, or benefit from the service.
- Pay – when customers pay for the product. This might happen simultaneously with buy. Sometimes there’s a time-lag between buy and pay.
- Support – when customers are provided with additional information that is aimed at resolving any problems they may have encountered during any of the preceding phases. Support should serve as an opportunity to encourage customers to remain, or to come back the next time they need to purchase a similar product or service. This is the role of technical support, customer service and customer relations. Done well, support should lead right back to learn.
Our entrepreneur must ask, and find answers to a number of questions while going through the process of delivering value to customers. What is the most effective channel for marketing, sales and public relations? Where should we place our product or service in order to enable evaluation by potential customers as they make the buy decision? How do we put the product or service in a customer’s hands once that customer has made a purchase?
What do we need to do to ensure that the customer uses our product after they have bought it and we have delivered it? How do we ensure that our customers are paying us, in full and on time? What is the mechanism by which we get paid by our customers? What problems might our customers encounter, and how should we help them resolve those problems in order to ensure that they come back to learn more out our other offerings and buy more from us in the future?
Often, each question that the entrepreneur seeks to answer will give rise to other questions that must be answered as well. This process requires trade-offs. It might be too costly to attempt to exploit every possible marketing channel and so the entrepreneur must choose only a few out of many. An over elaborate support structure might prove too expensive to maintain over the long term. Also, that might create bad-habits that the company’s revenue structure has not been designed to carry without tipping the company into a position where it is experiencing losses, this touches on the issue of pricing – more on that in the upcoming column.
Ultimately it is critical that the entrepreneur understand how the business delivers value. Remember, a business model describes how an organization delivers its value proposition to its customers. Do you understand the process by which this happens for your company? Do you know what steps you can take at each phase of the LBGUPS process in order to arrive at an outcome that favors your company? If you have answered “No” to any of these questions, then it is time to do some thinking.
Let’s talk again in two weeks. On deck? Business models – capturing value (part 3 of 4).