FFB Designing Business Models for the Nigerian Market

Designing Business Models for the Nigerian Market

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Outline

What are Business Models (BMs)?

Understanding the Nigerian Market

The Business Model Canvas

BM Design Tools

Business Modeling Process

BM Classwork

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Credits

Alexander Osterwalder (Ph.d) | www.BusinessModelGeneration.com

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Classwork: Mobile-App Business Model?

www.businessmodelgeneration.com

Cost structure Revenue streams

Key resources

Key activities

Key partners

Value proposition

Costumer relationships

Costumer segments

Channels

Text

Text

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What are Business Models?

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What are Models?

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A Model is a simplified version of something

What are Models?

Models improve our understanding of real world objects and eliminate

unimportant details

A Business Model describes the rationale of how an organization

creates, delivers, and captures value.”

Create Deliver Capture

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What is this?

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Understanding Nigerian Market

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● Economic growth averaged 7.4% annually over past decade, driven by the non-oil sector (i.e. telecommunications, construction, wholesale and retail trade, hotel and restaurant services, manufacturing and agriculture).

● Government expected to reach target inflation of <10% in 2013.

● Economic growth has not cut poverty nor created necessary jobs. About two thirds of the population live on <US$1 per day and unemployment rate is about 24%, up from 21.1%.

● Unemployment in the 15-24 age group, about 40%%; for 25-44 years, about 25%.

● Informal economy account for a large proportion of employment.

PEST Analysis

Political Economic

● Relatively stable political climate.

● Violence in the North by extremist groups is greatest source of concerns

● Corruption levels remain high, undermining snail-paced economic reforms

● Growth expected to be sustained

● Private and informal sector employs 80% of economy

● Access to and high cost of finance remain major constraint

● Dilapidated state of infrastructure

● Over-dependence on oil

Social Technological

● Indicators on health and education remain weak

● Expanding middle class

● Relatively high youth population

● Still high poverty

● Increasingly successful telecoms sector

● Increase in mobile telephony, internet usage, and e-commerce

● Trends point towards embrace of technology to drive growth

Selected Economic Indicators 2010 2011 2012 2013p

Real GDP growth 7.8 6.7 6.9 6.6

Real GDP per capita growth 5.3 4.1 4.4 4.1

CPI inflation 13.7 10.2 10.1 8.4

Source: World Bank Database, Economist Intelligence Unit, Africa Economic Outlook

Major Sectors (by contribution to GDP)Agriculture: 35%; Mining and Quarrying: 34%; Wholesale & Retail: 16%; Finance, Retail Estate & Business Services: 6.3%; Manufacturing: 2%0.0

2.04.06.08.0

10.012.0

Real GDP growth (%)

Western Africa - RealGDP growth (%)

Africa - Real GDPgrowth (%)

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Nigerian Market Analysis: Macro-Economic Overview

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Nigerian Market Analysis: Macro-Economic Overview

High economic growth rate– Nigeria’s economic growth has averaged about 7.4% annually over the past decade – Growth remained robust in 2011 at 6.9%, driven by the non-oil sector; 6.9% projected for 2012

Exponential population growth– Population of about 158 million, represents large consumer market (72% of population < 30 years) – Excellent regional distribution of eight “anchor” cities, each with populations exceeding one million

Urbanization and the rise of the middle income earner– About 74.2 million Nigerians currently live in urban areas, with urbanization progressing at ~3.5% p.a.– By 2020 more than 70% of Nigerians are projected to live in cities– Growth in the number of emerging middle income earners/consumers with disposable income

Encouraging environment for foreign investment– Though Nigeria ranked 137th in the World Bank’s “Ease of Doing Business Index,” certain strategic moves

by the government to encourage foreign participation. – High recipient of FDI in Africa– Organizations in new industries can obtain pioneer status granting tax exemptions for first 3-5 years

Source: World Bank, Ciuci Consulting

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Nigerian Market Analysis: The Nigerian Consumer

Analysis of Consumer Buying Patterns, 2015 est. (N’b)

5,974

1,090

778637

376 338

865 Food & Bev. 59%

Clothing & Footwear

11%

Health & Med. Serv.

8%

Household Goods &

Serv. 6%

Alcoholic Bev. &

Tobacco4%

Comm.3%

Misc. Goods & Serv.

9%

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Loyalty to BrandPerceived quality of productsPerceived value relative to priceNot necessarily drawn to particular manufacturer

ReligiousNigeria is most religious country in the world (90% of population confess to a form of religion)Consumers are influenced by religious practices

Price Sensitive70% of Nigerians live below the poverty line of US$1.25 a dayMostly price sensitiveInnovations revolve around small packaging of consumablesDiscount retail stores moving demand from informal retail

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• A review of the Hofstedes Cultural Dimension scores for Nigeria reveals:


Power DistanceExistent hierarchies / class separate individuals along divides (income, education, etc.)Businesses may successfully adopting market segmentation / product differentiation strategies

IndividualismConsidered collectivistic society; people belong to and have long-term commitment to societies, families, religious, or other institutions Mass marketing approach targeted at identified niches may be advised

Masculinity/FeminismMasculine society, individuals are driven by competition, success, achievementRetail chains took advantage by positioning stores at status locations, making them attractive to upwardly mobile middle/upper-class consumers

Uncertainty AvoidanceHigh preference for avoiding uncertainty and preferring to make bulk purchases especially when observed economic trend show probable price increase or scarcity

Long Term OrientationNigerians have short-term orientationLittle propensity to save, intense pressure to show off social status usually geared towards achieving short term results

Hofstedes' Cultural Dimension

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Growing Internet Population− Highest in Africa, currently at 26% of population and growing rapidly− Few are active user of e-commerce

E-Payment System Readiness− Growing use of credit/debit cards, e-funds transfer services, recharge cards

Growing sophistication of computer use− More people now own smartphones, PCs and tablets. Sophistication expected to improve

Enabling legislation and enforcement− Currently emerging: no enabling legislation− Other issues include data protection, privacy, legal evidence, jurisdiction, etc.

Nigerian Market Analysis: E-Commerce Readiness

E-Commerce Delivery Infrastructure− Improving Internet access & infrastructure− Poor transport and supply chain network

Buyers Attitude to Ecommerce− Many people are unwilling due to risk of fraud− Younger population warming up to e-business

Activities of Current Market Players− More deals & other sites springing up− Key e-tailers include Jumia, Konga & DealDey

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Nigerian Business Models: Key Considerations

Navigating Regulatory Environment− Need for proper understanding of policies of government agencies. General policy formulation is

unpredictable, need to be proactivity

Understanding of Competitive Landscape− Competitive landscape is averagely positive, ecommerce models gaining maturity; need for

government support for enabling legislation and infrastructure

Human Capital− Recruiting skilled manpower is often an issue; need for extensive training programmes depending on

business strategy

Access to Financing− 70% of financing for businesses in Nigeria come from retained earnings; consider accessing cheaper

external financing or patient, risk capital from investors

Infrastructural Gaps− Basic infrastructure is poor; need to allocate additional budgets− Need for proper understanding of supply chain/logistics infrastructure to support ecommerce model;

more time and resources may be required than expected

Government Bureaucracy− Registration of business, regulatory approvals may take longer period than expected− Multiple layers of screening may be required

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Block 1: Customer Segments (CS)

Defines the different groups of people or organizations

an enterprise aims to reach and serve

Mass market• Focus on one large group of customers

with broadly similar needs and problems

• Often found in consumer electronics

Niche market• Cater to specific, specialized Customer

Segments• Often found in supplier-buyer

relationships

Segmented• Distinguish between market segments

with slightly different needs and problems

• E.g. retail arm of a bank

Diversified• Serves two unrelated segments with

very different needs and problems• E.g. from online retail to cloud

computing (Amazon.com)

Multi-sided platforms (or markets)• Two or more interdependent segments• Free online news and newspaper

company can leverage advertisers for two products

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Block 2: Value Proposition (VP)

Newness• Satisfy an entirely new set of needs

that customers previously didn’t perceive

Customization• Tailoring products and services to

specific needs of individual customer or Segments, recently through co-creation, mass customization

Design• A product may stand out because of

superior design. In fashion and consumer electronics, design can be a particularly important

Performance• Improving product or service

performance

Getting the job done• Provide value by helping customer get

certain jobs done. E.g. Rolls-Royce providing maintenance service

Brand/status• Value in the simple act of using and

displaying a specific brand• Wearing a Rolex watch signifies wealth

Price• Offering

similar value at a lower price to satisfy price-sensitive Customer Segments

Describes the bundle of products and services that

create value for a specific Customer Segment

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Block 2: Value Proposition (VP) cont’d

Describes the bundle of products and services that

create value for a specific Customer Segment

Cost reduction• Helping customers reduce costs• Salesforce.com sells a hosted CRM

which relieves troubles of buying, installing CRM softwares

Risk reduction• Reducing risks when purchasing

products or services. For Used car buyer, one-year service guarantee reduces risk of post-purchase repairs

Accessibility• Making products and services available

to customers who previously lacked access

Convenience/usability• Making things more convenient or

easier to use • iPod and iTunes offered customers

unprecedented convenience

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Block 3: Channels (CH)

Describes how a company communicates with and

reaches its Customer Segments to deliver a Value

Proposition

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Block 4: Customer Relationships (CR)

Describes the types of relationships a company

establishes with specific Customer Segments

Personal assistance• Interaction with real customer

representative during sales process or after purchase, onsite, point of sale, call centers, email, or other means

Dedicated personal assistance• Involves dedicating a customer

representative to a client

Self-service• Company provides all the necessary

means for customers to help themselves

Automated services• Mixes sophisticated form of self-service

with automated processes

Communities• Use of user communities to become

more involved with customers/ prospects and to facilitate connections between community members

Co-creation• Involves co-

creating value with customers.

• Inviting customers to write reviews

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Block 5: Revenue Streams (RS)

Represents the cash a company generates from

each Customer Segment

Asset sale• Derived from selling ownership rights

to a physical product

Usage fee• Generated by the use of a particular

service. The more service is used, the more customer pays

Subscription fees• Generated by selling continuous access

to a service

Lending/Renting/Leasing• Created by temporarily granting

exclusive right to use a particular asset for a fixed period in return for a fee

Licensing• Generated by giving customers

permission to use protected intellectual property in exchange for licensing fees

Brokerage fees• Derived from intermediation services

performed on behalf of two or more parties

Advertising• Results from

fees for advertising a particular product, service, or brand

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Block 6: Key Resources (KR)

Describes the most important assets required to

make a business model work

It allows the company offer its value proposition

Physical• Physical assets such as manufacturing

facilities, buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks

Intellectual• Resources such as brands, proprietary

knowledge, patents and copyrights, partnerships, and customer databases

Human• People are more prominent in certain

business models – competence required

Financial• Need for financial resources and/or

financial guarantees, such as cash, lines of credit, or stock option pool

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Block 7: Key Activities (KA)

Describes the most important things a company

must do to make its business model work

Production• Designing, making, and delivering a

product in substantial quantities, superior quality

Problem solving• Relate to coming up with new solutions

to individual customer problems

Platform/network• Business models with a platform as a

Key Resource are dominated by platform or network related Key Activities e.g. eBay

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Block 8: Key Partners (KP)

Describes the network of suppliers and partners that

make the business model work

Strategic alliances• Between non-competitors

Competition• Strategic partnerships between

competitors

Joint ventures • Develop new businesses

Buyer-supplier relationships • Assure reliable supplies

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Block 9: Cost Structure (C$)

Describes all costs incurred to operate a business

model

Cost-driven• Focus on minimizing costs wherever

possible

Fixed costs• Remain the same despite the volume of

goods or services produced

Economies of scale• Cost advantages resulting from

expansion

Value-driven• More focus on value creation

Variable costs• Vary proportionally with the volume of

goods or services produced

Economies of scope• Cost advantages resulting from larger

scope of operations• One activity supporting multiple

products

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The Business Model

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The Business Model

Key Partners

Key Resources

Key Activities

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The Business Model

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Cost Side Value Side

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BM Design Tools

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Design Tools: Empathy Map

Identify Customer Segments

Select A Promising Segment

Define Customer Profile Use Empathy Map

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Design Tools: Ideation

More like Brainstorming?

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Design Tools: Others

Ideation Visualizing

Scenarios Prototyping

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Design Tools: What is this?

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Design Tools: What is this?

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Evaluating Your Business Model

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Evaluating Your Business Model

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Business Modeling Process

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These are main objectives of business model innovation

Modeling Objectives

Satisfy market: Fulfill an unanswered market need (e.g. ccHub, Tata)1

Bring to market: Bring a new technology, product, or service to market or exploit existing intellectual property (e.g. Nespresso)

2

Improve market: Improve or disrupt an existing market (e.g. Bharti Airtel, Skype, Amazon.com retail)

3

Create market: Create an entirely new type of business (e.g. Google)3

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Business Modeling Objectives: Challenges

► Finding the right model

► Testing the model before a full-scale launch

► Inducing the market to adopt the new model

► Continuously adapting the model in response to market feedback

► Managing uncertainty

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Business Modeling Challenges: Solution

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Adapt and

modify the

business

model in

response to

market

reaction

Implement the

business

model

prototype in

the field

Generate and

test viable

business

model options,

and select the

best

Research and

analyze

elements

needed for the

business

model design

effort

Prepare for a

successful

business

model design

project

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The Design Process

Mobilize Design Implement ManageUnderstand

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Classwork

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Case Study: Mobile-App Business Model

www.businessmodelgeneration.com

Cost structure Revenue streams

Key resources

Key activities

Key partners

Value proposition

Costumer relationships

Costumer segments

Channels

Text

Text

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Comments | Concerns | Questions

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Quaking Aspens is a social enterprise focused on providing business

solutions to high-potential SMEs in Africa.

Our focus is to embrace SME entrepreneurs as they aspire to attain

efficiency, pursue new markets, visible growth, and profitability.

Our teams are made up of experienced, multi-disciplinary professionals

from various fields in consulting.

Michael Olorunninwo

[email protected] | +234(0)8037199590

May 2013

FFB Designing Business Models for the Nigerian Market

Business

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