Designing Business Models for the Nigerian Market

1. Designing Business Models for the
Nigerian Market
Quaking Aspens

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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
2.0
4.0
6.0
8.0
10.0
12.0
Real GDP growth (%)
Western Africa - Real
GDP growth (%)
Africa - Real GDP
growth (%)
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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
778
637
376 338
865
Food & Bev.
59%
Clothing &
Footwear
11%
Health &
Med. Serv.
8%
Household
Goods &
Serv.
6%
Alcoholic
Bev. &
Tobacco
4%
Comm.
3%
Misc. Goods
& Serv.
9%

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Nigerian Market Analysis: The Nigerian Consumer
Loyalty to Brand
Perceived quality of
products
Perceived value
relative to price
Not necessarily drawn
to particular
manufacturer
Religious
Nigeria is most
religious country in
the world (90% of
population confess to
a form of religion)
Consumers are
influenced by
religious practices
Price Sensitive
70% of Nigerians live
below the poverty
line of US$1.25 a day
Mostly price sensitive
Innovations revolve
around small
packaging of
consumables
Discount retail stores
moving demand from
informal retail

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• A review of the Hofstedes Cultural Dimension scores for Nigeria reveals:
Nigerian Market Analysis: The Nigerian Consumer
Power Distance
Existent hierarchies /
class separate
individuals along
divides (income,
education, etc.)
Businesses may
successfully adopting
market segmentation /
product differentiation
strategies
Individualism
Considered 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/Feminism
Masculine society,
individuals are driven
by competition,
success, achievement
Retail chains took
advantage by
positioning stores at
status locations,
making them
attractive to upwardly
mobile middle/upper-
class consumers
Uncertainty Avoidance
High preference for
avoiding uncertainty
and preferring to make
bulk purchases
especially when
observed economic
trend show probable
price increase or
scarcity
Long Term Orientation
Nigerians have short-term orientation
Little 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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The Business Model Canvas

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The Business Model Canvas

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The Business Model Canvas

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The Business Model Canvas

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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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The Business Model Canvas
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
Michael.Phurtune@gmail.com | +234(0)8037199590
May 2013