What is a business model?
A business model describes the entire procedure of creation, delivery, and capturing of organizational values in both economic and social aspects. It represents core aspects of the business which include strategies, organizational structure, purpose, operational processes, policies, infrastructure, and business practices. The entire functioning of the company is based on this business model as it provides guidelines to the organization to carry out all its activities. Thus there is a need to define the business model of any organization at first in an explicit manner to avoid all the discrepancies at the first end.
Related: Importance of a business model
A business model directly focuses on customer needs as it is this particular aspect along with product differentiation strategy, i.e. to introduce a new product to make sure that company can capture optimum market share.
This model also specifies customer groups through market segmentation to directly focus on those market sectors that will provide maximum return to the associated product. A business model can also be held responsible for defining distinctive competencies of the company that will ensure that the company is positioned at a highly appropriate and differentiated place in the market. The broad differentiator is the USP (Unique Selling Proposition) which allows a company to differentiate its product from its competitor’s product.
Related: Business Models: A Complete Guide
Different types of business models
Business strategy for hidden revenue
In this model, users are not required to pay for the services provided; nonetheless, the business still generates revenue in other ways. Like, Google doesn’t charge its customers to use the search engine; instead, it makes money through advertising dollars that companies spend to bid on terms. Google, Facebook, Instagram, and Twitter, as examples.
The razor and blade industry
In this strategy, one product (the razor) is offered at a discount while a related product (the blade) is offered at a premium. A printer and cartridge business model is another name for it. . A fresh ink cartridge replacement, for instance, is an ongoing cost for consumers while the cost of an inkjet printer was only a one-time investment. The business model works well if you have a foundation of repeat clients and can induce customer lock-in.
Examples include video games on the Xbox or PlayStation, HP printers, Nespresso coffee makers, and AT&T mobile phones with a 2-year commitment. Use this strategy if you require recurring sales of an associated product that can bring in a steady stream of income.
The reverse Razor and Blade business strategy
In contrast to the razor blade model, the business model. It involves providing inexpensive goods to entice buyers to purchase expensive goods as well. This business model employs a one-time offer strategy for the premium product and, over time, increases revenue from ancillary items.
Apple, for instance, uses this business strategy flawlessly. While the iPhone, iPad, and Mac all have premium prices, Apple’s App Store and iTunes charge fair prices for apps, movies, songs, and other content.
The direct sales industry
In this business model, goods are marketed directly to consumers in private conversations or informal gatherings like the Tupperware house parties. Every sale includes a commission for the salesman. Even though technology has mostly replaced the direct sales approach, many businesses still prefer to provide a personal touch to their clients.
Examples include Tupperware, Avon, Arbonne, and other personal care and nutrition companies.
The economic model for affiliate marketing
In this business model, businesses profit by highlighting, evaluating, and endorsing the goods and services of other businesses. Websites that review products come to mind. These websites are compensated based on the sales opportunities they generate for their partner businesses. NerdWallet, Capterra, MoneySavingExpert.com, and the wirecutter are a few examples.
A business model for consulting
The consulting business model is used by organizations that offer consulting services by hiring competent and experienced individuals and assigning them to projects for clients. These businesses frequently bill by the hour or charge a percentage of the project’s total cost if it is completed. This strategy is the foundation of multi-billion dollar companies like Mckinsey and Boston Consulting Group.
Examples include software or website development companies, Deloitte, Mckinsey, and BCG. Having a consulting business model is a great approach to charge clients if you are a subject matter expert (SME) in a sector and the project’s duration is unclear (based on changes in the client’s requirements).
A business concept based on agencies
In this project-based business model, a third-party company is hired to carry out a certain task. Businesses that lack internal knowledge typically employ agencies to find a specialized solution for their requirements. Recall Mad Men? an acclaimed Netflix series with a client-focused focus on an advertising agency. Digital marketing, design & architecture, surveys, promotions, media, public relations, branding, website development, social media, etc. are some examples of specialist agencies.
As an illustration, consider TBWA Media Arts Lab (Apple’s go-to advertising firm) and Leo Burnett Company (notable customers include United Airlines, McDonald’s, and Kellogg’s).
The business model for online education
This business model targets the educational sector, including students and teachers, and enables them to access educational resources through flat course costs or subscriptions. You may describe it as a hybrid of the freemium, course fee, and subscription-based business models. Examples include Khan Academy, edX, Coursera, Udemy, and LinkedIn Learning.
A commercial concept for instant news
This concept focuses on rapidly exchanging and updating news without a middleman. Businesses that follow this model offer trustworthy, open channels that enable reputable main or secondary sources to deliver breaking news or important announcements straight to their audience.
Some social media networks have become the go-to resource for fast news from authoritative authorities like presidents, company CEOs, and so on in recent years. Twitter is the best example, for instance. By looking at the top trending hashtags, users may access the news instantly.
Business concept with many brands
This strategy is built on selling more than two products, which are nearly identical yet compete with one another and are associated with the same company but bear distinct brand names. To grow an empire and achieve scale economies, this is done. Examples include Procter & Gamble, Unilever, and Nestle
A business model for e-commerce
E-commerce is a straightforward but extremely successful business strategy that enables buyers and sellers to interact and conduct business online.
Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C), and Customer to Business are just a few examples of the various e-commerce business models. Examples include Walmart, OLX, eBay, Alibaba, and Amazon.
A business concept based on the distribution
This strategy is used by businesses that connect with their clients through one or a few main distribution channels.
Enterprises that employ this model offer channels via which businesses can sell to consumers, such as dealers, brokers, supermarkets, and retailers. For instance, Unilever invests the majority of its income in ensuring proper distribution.
Drop-shipping as a business strategy
a profitable and innovative business strategy. Drop-shipping is when a business owner works with numerous suppliers and wholesalers to sell their products online when a customer places an order on a retailer’s website, the wholesaler drops-ships the ordered goods from the manufacturer to the customer. In this instance, the business owner hires a third party to handle all of the shipping and logistical requirements so that no inventory is required to be kept on hand.
Pro tip: With little initial investment, it’s a great method to launch a niche e-commerce company. Several examples are Doba, Oberlo, Dropship Direct, and Wholesale 2B.
A business enterprise model
Enterprise business models are entirely dependent on closing large agreements, and they solely target and concentrate on large clients. It is based on complicated sales with a sizable clientele. similar to how Fortune 500 clients typically have budgets in the billions.
Example: Boeing, Raytheon, SpaceX, and Goldman Sachs is an examples of Enterprise business models because their sales motion is targeted towards very large business enterprise customers or governments.
A business model for social enterprises
This approach is founded on the tenet that businesses should produce profits without harming anyone and that some of those revenues should go toward charitable endeavors to raise the standard of living for people.
An illustration is the Italian luxury label Brunello Cucinelli, which contributes around 20% of its income to charitable organizations.
Direct-to-consumer business models, number
The direct sale of products to end users is made possible by this business strategy. To keep customers, marketing and advertising strategies must be highly effective. One of the biggest advertisers in the world and the finest example is Unilever.
The family business model
A family-owned business is managed by a family and whose decision-making is overseen by two or more family members. The company’s management is transferred to the heir, who will then delegate control to their offspring.
Examples: Ford, Walmart, Estee Lauder, Prada, and Comcast. Because their sales strategy is directed at very large business enterprise customers or governments, companies like Boeing, Raytheon, SpaceX, and Goldman Sachs are examples of enterprises.