business model innovation
All initial meetings, discussions, or workshops regarding a business model innovation ought to first define the business model. This model should be one that is well understood by everyone in the organization. All stakeholders during this stage must begin from the same point and discuss the same thing. The goals here are to design simple, relevant, and understandable concepts without necessarily oversimplifying the technicalities of how the organization operates. Business model concepts have become a shared language that allows firms to conveniently describe their business models enabling the creation of new strategic alternatives. Defining business models is best attainable through identifying the model’s basic building blocks. Building blocks concept is used to describe and evaluate an organization’s business model as well as that of competitors. These blocks present the logic of how the business intends to generate income. They been tested across the world and are in use among notable firms such as IBM and Deloitte.
In 1964, two entrepreneurs Bill Bowman and Phil Knight, actualized their dream of owning their business by forming a sports shoe company, Nike. This Beaverton, Oregon headquartered firm, has grown to become the leading global supplier of sports shoes and producer of sports equipment. Nike’s business model is among the great drivers of the shoemaker’s growth. To better understand Nike’s business model, it must be broken down into building blocks. Nike’s customer segmentation, its multiple revenue streams, value proposition, customer channels, and relationships are the shoemaker’s main assets that have enabled it to become the market leader in sportswear and associated products.
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Customer Segments
This building block highlights the different groups of persons or entities a firm aims to reach and serve. Customers are a critical component of any business model since business requires profitable customers to survive over the long term. To better satisfy their customers, businesses categorize them into distinct segments based on everyday needs, behaviors, and other characteristics. A business model may define one or several large or small customer segments XX 25. A business must take a critical stand on which segment to serve and the ones to ignore. On arriving at this decision, the business model can well be crafted in consideration of the specifics needs if the chosen market segment. Customer segments are attainable where the customer needs are distinct, and they require different channels, different relationships, profitabilities, and are willing to pay for such differences XX 26. There are different types of customer segments, namely mass market, niche market, segmented markets, and diversified markets, depending on each company’s business model.
Nike has had its customers segmented into four categories, namely demographic, geographic, psychographic, and behavioral segmentation. For demographic segementation, Nike employs the age-group, gender and itss customers’ financial statements as the basis of diffrentiation the market XX (https://gradesfixer.com/free-essay-examples/market-segmentation-market-target-and-market-positioning-of-nike-company/)GF. The shoe supplier seperates its products by different age groups between the ages og 15-55 years and gender. In its stotres, Nike displays three products cageries, male products women products and kids products to allow for a better shopping expoeroice. Foer its geographical segemnetaation, Nike has stores spread out across the world and is keen to familize with each country’s culture and its citizen’s lifestyle habits. For instance Nike launches winter sneakers and clothing for European customers during winter. Psychographic segementatiom is also critical to Nike since it enables it to provide their customers with a variety of peoducts to match their interests and meet their standrads XX. Nike behavioural segmentation is also critical to its business model because it makes it possible for the shoe maker to provide benefits to sutsomers. It does by enabling an active lifestely weith comfortable footwear, clothing and durable sports equipement.
Revenue Streams
If customers are the heart or any business model, the revenue streams are the arteries that bring in all the incomes from such customwers. All firms access all its customer segments and ascertain for which value each is willing to pay. The various answers to this question allow the firm t generate one or varius multiple streams form each of the customwer segements identified XX 36. Each segemnet may consist of varyih priving mechganisms such as fixed list prices, auctioning, baragaining markwt dependednt and volume depemdemt. All business models comprise of either of the following revenue streams: transaction revenues raised for one time customer purchases or receurring revenues resulting from ongoig payment to eiter deliver a value proposition to customers or for the provision of post purchase support XX 36. There are several ways through which firms generate revenue streams namesly asset sale, usage feessubscription fees,leasing, liecensung , brockerage fees and advertsing.
Nike primary business entails the designing , manufacturing, mareteing and selling of athletic footwear, clothing, equipment and accessories. The majority of Nike’s revenues are derived from the sale of shoes to its wholesale clientele in North America. Direct to cosumer sales and extensive opertions in China have significantly comstributd to Nike’s growth. Below is a visual chart depicting Nike’s revenue and EBIT across each of it segments.
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Over the 2019 financial period Nike reportd a net income of $40 billion on $39.1 billion revenue. Revenue rose shaprly by 7.5% in costrats to the 6% reported in the 2018 period xxx (https://www.investopedia.com/articles/markets/080415/how-nike-nke-makes-its-money.asp). Such impressive results were drawn from three market segemnets NIKE Brand; Converse; and Corporate, by which the sports apparel company operates. NIKE brand is further broken down into geographical segments North America; Europe, Middle East & Africa; Greater China; Asia Pacific & Latin America; and Global Brand Divisions xx(https://www.investopedia.com/articles/markets/080415/how-nike-nke-makes-its-money.asp). Alone, the NIKE brand constitutes 95.1% of the firm’s total revenue. To better track is revenue streams Nike further divides its revenues along its main product lines and distribution channels that is, footwear, apparel and equipment.
Value Proposition
This building block deceribes the bundle of products or servives that add value for a specific customer segement. It is the reason why customers turn to one company over another and it serves works sove a customer issue or satify a need among customers XX 28. Each value proposition comprose of a selected bundle of products or services that caters for the demads of a specific customer segement. Value prepositions vary in terms of what they deliver to customers. Consequently, a value proosittion is an aggregation or bundle of benefits that a firm offers its customers XX 28. It creates value for customer segments through a distinct mix of elements addressing the segement’s needs. The values may be quantitative such as price and speed of delivery or qualitative through addressing design and customer experience. Innovation , brand/status, customization, design , price and accessibility are some of the elements that contribute to consumer value.
Nike presents its customer segments with four value propositions namely acccesibiloity , customization, brand/ status and innovation. Nike creates accessibility to its customers across the globe by presenting them with numerous options to choose from in an extentenive peoduct catalogue. Nike has made several acquiristions in both the footwear and clothing companies since it went public. For instanc, Nike acquired Hurley in 2000 a well established surfwear brand that reaped massive rrevenues up until 2019 when it was sold off. Additionally, Nike also acquired Converse brand in 2003 which the then president Thomas Clarke said was aimed at expanding the brand portfolio xx (https://www.wsj.com/articles/SB105778918424757500). Nike also places a lot of emphasis on innovartion through its research lab thathass been behing Nike cutting edge products. Customiation is also a key value proposition by Nike. Customer are availed with option of personalizing various aspects of their shoes as well as socks through NikeID service XX (https://www.cleverism.com/company/nike/). Nike has also created a strong brand/ status for itself as the leading seller of athletic footwear and apparel globally.
Customer Channels
This building block concerns how a company communicates with and reaches its customer segemebts to enable the delivery of its value propositions. Combinedly, a firm’s communication, distribution, and sales Channels are its interface with customers XX31. The channels function as touch points and paly an important role in customer experience. They raise awareness of the firms product and services, help customers evaluate the company, deliver value propositions to customers and provide post-purchase customer support XX 31. Business must find the right mix of channels to satisfy how customers want be served in the delivery of the value proposition. Firms have the option of designing and using their own channels to reach their customers , utilize partner channels or through a mix of the two XX 32. Private channels can be direct through for instance an inhouse sales force or a website or could be indirect though retail stores owned and operated by the company.
Nike’s distribution channels can be divided into two main categories. One of these entails the selling products to wholesalers in the United States and international markets (https://marketrealist.com/2019/10/analyzing-nikes-distribution-channels-and-retail-strategy/). This channel constitutes Nike’s largest distribution channel. The other distribution channel for Nike entails direct to consumer sales also referred to as DTC sales. This category comprises of online and factory retail outlets and ecommerce sales through Nike official website xx(https://marketrealist.com/2019/10/analyzing-nikes-distribution-channels-and-retail-strategy/). Additionally, Nike distributes its merchandise through eCommerce companies such as Amazon. The online selling component using Nike Direct is the apparel firm’s fastest growing distribution channel. Nike also creates category specific retail destinations through partnerships with footwear retailers such as Intersport xx (https://marketrealist.com/2019/10/analyzing-nikes-distribution-channels-and-retail-strategy/). However, sales to wholesalers is the largest revenue category at Nike.
Customer Relationships
This building block describes the type of relationships a company establishes and maintains with specific customer segments. The marketing team should advise on the best type orf relationship the firm shpuld establish with each customer segment which can range from personal to automated XX33(). Customer relationionships help in customer acquisition, retention and accele3rating sales. For instance at their inception mobile network operator customer rlationships used aggressive acquisition strategies such as issuance of free mobile phobne XX 33. However when the market became saturated operators shifted focus to customer retention and increasing average revenue per user. The customer relationships incorporated in a company’s business model strongly influences the overall customer experience. The several type of customer relationships used for each customer segment include personal assistance , self-service, dedicated personal assistance, automated services, communities and co-creation.
Nike is a customer centric organizations and all its innovations and operations revolve around the consumer. According to Nike’s CEO Mark Parker xx (https://www.forbes.com/sites/gregpetro/2016/07/08/nike-just-does-it-keeping-an-eye-on-the-customer/#2a7517a256da) it’s the shoe company’s obsession with serving its customers that sharpens its growth and fuels its expansion. Customers play have a decision making role in Nike’s product development process. Nike goes a long way to assess what its customers value. Customer value is the defferential betweeb what the customer gets from a produ t and what he/she has to give up in oorder to get it XX (https://www.forbes.com/sites/gregpetro/2016/07/08/nike-just-does-it-keeping-an-eye-on-the-customer/#2a7517a256da). Another significant great asset to Nike’s customer centric focus is its website. Runners have a dedicated space where they can sharec photos of their runs and history of their runs on maps (https://www.forbes.com/sites/gregpetro/2016/07/08/nike-just-does-it-keeping-an-eye-on-the-customer/#2a7517a256da)XX. They can also pass them on to their friends, comment and learn of upcoming events. Nike through such cpaabilities make their customers want to vuste their site everyday and engage with frinfs anf the shoe company. Nike is able to gain valuable insights into its customers needs which it then incorporates into new peoduct designs. Nike also sponsors athletic bodies to gain access to atheletes and better understand thiwer needs.
An innovative business model is a common occurecce among most succeful businesses in the US and the world over. One among such business whicg from a humble shoe importer to become the leading global footwear with diverse clienetel and multiple product lines for each of these. Nike’s business model comprises of 5 distinct buildimg blocsks that have fueled Nike’s growth. Customer segemetation , revenue streams, value propsotion, customer channels and customer relationships are the Nike’s building blocks and its main assets that have enable it to become the market leader in sportswear and associated products.