Deconstructing Business Model Canvas
May 18, 2022
BUSINESS MODEL
May 20, 2022
Introduction:
The business model can be defined as the most essential aspect of the performance of an organization since it highlights the integral components of an organization. It acts as a guiding framework for executing various operations of the company and includes references to sources of funding, the revenue streams, products and services offered by the company, and the target customer segments. The following assessment would be focused on the deconstruction of the business model of the jet.
The assessment would be initiated with an overview of the organization by highlighting the industry in which it is operating, the products and services facilitated by the company, and the market for its products and services. The report would also present an illustration of the business model by using the business model canvas to identify the relationship between various aspects of the business model. The assessment would also ascertain critical success factors for Jet, elements of downside risk, and recommendations for change in the business model from a personal perspective.
JET Company Description
Jet (Jet.com) is an online shopping marketplace operating in the e-commerce industry. The organization serves the retail market and is owned by US retail giant Wal-Mart. The company was established in April 2014 by Marc Lore, Nate Fraust, and Mike Hanrahan and has its headquarters in HOBOKEN, New Jersey (V. Rarr, 2018). The existing employee strength is estimated at 10000 which implies formidable human capital resources for the organization. The company was acquired by Wal-Mart in September 2016 thereby becoming a subsidiary of the latter.
The services provided by Jet are based on the rationale that customers would favor higher waiting times if the product prices are reduced or are provided with incentives. Therefore, it serves users by helping them to access the products offered by third-party merchants in return for membership fees (V. Rarr, 2018). However, the acquisition of the company by Wal-Mart resulted in the exclusion of membership fees.
The business model of JET
The use of a business model canvas is responsible for providing benefits such as a clear illustration of the functional aspects of an organization that are represented in the form of different building blocks of the canvas (Bull & Ridley-Duff, 2018). Deconstruction of the business model of Jet could be presented by using the different components of the canvas as follows.
As per Bull & Ridley-Duff (2018), the first building block in a business model canvas reflects on the customer segments that are associated with the evaluation of specific aspects of the segments such as composition, product and service alternatives as well as behavioral attitudes (Bull & Ridley-Duff, 2018). The customer segment that can be identified for Jet refers to online shoppers who want products at lower prices.
The online shoppers want the convenience of delivery of products at their doorsteps within a limited time but are also willing to compromise on the time in return for price incentives on the products. The customer segment could also be associated with group leverage and the global consumer market targeted by the parent company Wal-Mart. The group leverage would also be associated with the characteristic of searching for lower pricing to purchase products in bulk.
Value propositions form the second building block in a business model canvas and are reflective of the problems of customers which are addressed through the services or products of a business. The value propositions have to be prepared according to the specific persona of the customer segments. In the case of online shoppers which form the major customer segment of Jet, the value proposition is access to a wide range of third-party merchants for purchasing products at lower prices (C. Roach, Ryman & White, 2014).
The company utilizes a real-time pricing algorithm to develop customer-centric pricing for the products on its e-commerce site. The value proposition for the merchants is based on the flexibility of distribution that allows them to reduce their shipping and delivery costs. This factor is liable to increase the probabilities for the interrelationship between the value propositions for both segments as the reduction in logistics costs could be iterated in lower product costs.
The channels aspect of the business model canvas (BMC) is identified in the form of different pathways utilized by an organization to convey the value proposition to customer segments. Channels could also be identified in the entities used for providing products and services to the customers. Jet utilizes the channels of social media, its website, and the mobile application (Glova, Sabol & Vajda, 2014).
Customer relationships are identified in the BMC as the various approaches that can be used by customers for interacting with the organization throughout the product and sales lifecycle. Jet utilizes its customer support services as well as social media channels for sustaining contact with customers and obtaining feedback regarding the plausibility of the services of the organization and errors in service delivery (Izak, Mansell & Fuller, 2015).
The revenue stream building block of the BMC is reflective of the specific channels through which the company can obtain its revenue. This factor in the business model of an organization can be profoundly associated with significance as it is evident that revenues are necessary for the sustainability of an enterprise (Mikhalkina, 2016). The revenue stream comprises the membership fees paid by users as well as the registration fees for companies that sell their products on Jet. Advertisements are also accounted as promising sources of revenue streams.
The key activities included in the business model canvas reflect profoundly on the measures taken by an organization for delivering its value proposition to defined customer segments and for the execution of other significant competencies such as marketing and accounting. The key activities in the case of Jet could be identified in the form of focusing on innovation in its service platforms alongside ensuring the sustainability of intellectual, financial, physical, and human resources (Nillesen & Pollitt, 2016).
The key resources are also identified as another significant aspect of the business model canvas of an organization and can be defined as the strategic assets necessary for conducting the key activities and delivery of value propositions. The key resources identified in the case of Jet include digital and physical content retail operations and a formidable employee base of 10000 (Wainstein & Bumpus, 2016). These factors enable the organization to address the competition from retail and cloud domains with a promising long-term outlook.
Key partnerships for Jet could be identified in the various third-party merchants that register themselves on the site for sales of their products. It is also essential to observe the implications of the partnerships with sources of funding such as Google and Goldman Sachs.
The cost structure identified in the case of Jet is primarily based on a negative operating cycle, maintaining economies of scale and scope as well as expenses on the marketing efforts of the organization. The commission on advertisement as well as the costs of the technological framework implemented by Jet for its services are also involved in the cost structure.
Business model relationships:
The review of the BMC of Jet suggests that customer segments and the value propositions are interlinked and the relationship could facilitate prolific insights for competitive advantage. This interplay is responsible for determining the key activities and key resources to be used in the business model of the organization (Izak, Mansell & Fuller, 2015). The customer segment aspect of the business model canvas is also responsible for the identification of the revenue streams as well as cost structure for the company.
Critical success factors of JET:
It is imperative to focus on the critical success factors for an organization to ensure sustainable performance and in the e-commerce industry, the critical success factors could be identified in the following manner (C. Roach, Ryman & White, 2014).
Customer retention is a formidable critical success factor since the primary rationale of Jet’s operations is vested in providing e-commerce products at lower prices. Therefore customer retention would be necessary for continuing its operations despite losses.
Partnerships are crucial for Jet since they involve sources of funding as well as the merchants who will be providing their products to customers. Jet has to focus on obtaining better third-party merchants to improve its reach among customers (Glova, Sabol & Vajda, 2014).
Risks
The notable downside risks identified in the case of Jet refer to the two-part pricing model that creates ambiguities regarding the capability of the company and the partners to negotiate product pricing alongside realizing cost-effectiveness as compared to other eCommerce giants such as Amazon. The competitors of Jet also face setbacks in terms of differences in margins. The concerns of price competitiveness could also be accounted for as downside risks in the case of Jet (C. Roach, Ryman & White, 2014).
Conclusion and recommendations:
The review of the business model canvas of Jet suggested clear insights into the different building components of the BMC. It is essential to introduce flexible modifications in the business model to address the downside risks. First of all, the company should include changes in the customer segment, value proposition, key resources, and key activities. Customer segment reforms would imply the inclusion of elderly people and housewives and integrate their persona to introduce variations in the value propositions. It is also essential to introduce significant changes in the key activities, especially in the form of marketing by leveraging the brand identity of partners, especially the parent company Wal-Mart. The company could also leverage the key resources of Wal-Mart to improve its technological infrastructure that can improve the efficiency of online and retail operations.
References
Bull, M., & Ridley-Duff, R. (2018). Towards an appreciation of ethics in social enterprise business models. Journal of Business Ethics, 1-16.
Roach, D., Ryman, J., & White, J. (2014). Culture, conduct, and innovation: a deconstruction of market orientation. Journal of Research in Marketing and Entrepreneurship, 16(2), 128-145.
Glova, J., Sabol, T., & Vajda, V. (2014). Business models for the internet of things environment. Procedia Economics and Finance, 15, 1122-1129.
Izak, M., Mansell, S. F., & Fuller, T. (2015). Introduction: Between no future and business-as-usual: Exploring futures of capitalism. Futures.
Mikhalkina, T. (2016). Cognitive perspectives: conceptualizing the business model (Doctoral dissertation, City, University of London).
Nillesen, P., & Pollitt, M. (2016). New business models for utilities to meet the challenge of the energy transition. In Future of Utilities Utilities of the Future (pp. 283-301).
Rarr (2018). Acquired for 3.3 Billion Dollars by Wal Mart – Jet.com Business Model. Unicorn. Retrieved 24 March 2018, from https://unicornomy.com/jet-com-business-model-acquired-walmart/
Wainstein, M. E., & Bumpus, A. G. (2016). Business models as drivers of the low carbon power system transition: a multi-level perspective. Journal of Cleaner Production, 126, 572-585.
