What is Business Model? Definitions, Examples, Types, Importance and Marketing on business model in 2024?

 

Business Model

 A business model is a business plan for generating revenue and profits. This is a summary of the company's customer service program. It includes strategy and implementation.

A business model describes a wide range of formal or informal models that companies use to describe different aspects of business behavior, such as operational processes, organizational structures, and financial forecasts.

Definitions

Although the concept was proposed as early as the 1950s, it was not widely accepted until the 1990s.

In much business literature, this concept has been given many informal definitions.

"	A business model is a theoretical tool that contains a large number of business elements and their relationships and can describe the business model of a particular company. It shows where a company is valued in one or more of the following areas: customers, corporate structure, and, for-profit and sustainable profitability, the customer network that produces, sells, and delivers value, and relationship capital.	"
—Osterwalder, Pigneur, and Tucci (2005)

When people use the term business model in the literature, two different meanings are often blurred: one author uses it simply to refer to the specific ways and means of how a company conducts business, and the other author puts more emphasis on the model aspect meaning. The two are essentially different: the former refers generally to the way a company conducts business, while the latter refers to the conceptualization of that way. 

Proponents of the latter point of view have proposed several reference models consisting of elements and their relationships to describe a company's business model.

After the business model is established, the next stage of the " business plan " can be entered.

Concepts of Business Model

There are many versions of the conceptualization of business models. There are varying degrees of similarities and differences between them.  proposes a reference model with nine elements based on synthesizing the commonality of various concepts. These elements include:

• Value Proposition: The value a company can provide to consumers through its products and services. The value proposition confirms the utility of the company to consumers.
• Target Customer Segments: The groups of consumers the company targets. These groups share certain commonalities that enable companies to create value (in response to these commonalities). The process of defining consumer segments is also known as Market Segmentation.
• Distribution Channels: The various channels a company uses to reach consumers. Here is how the company develops the market. It relates to the company's marketing and distribution strategy.
• Customer Relationships: The connections a company establishes with its customer base. What we call customer relationship management (Customer Relationship Management) is related to this.
• Value Configurations: The configuration of resources and activities.
• Core Capabilities: The capabilities and qualifications a company needs to execute its business model.
• Partner Network: A network of cooperative relationships formed between a company and other companies to effectively provide value and realize its commercialization. This also describes the scope of the company's Business Alliances.
• Cost Structure: A monetary description of the tools and methods used.
• Revenue Model: The way a company creates wealth through various Revenue Flows.

The design of the business model is an integral part of the business strategy. The implementation of the business model into the company's organizational structure (including institutional settings, workflow, human resources, etc.) and systems (including IT architecture and production lines, etc.) is a part of Business Operations. 

Two confusing terms must be clearly distinguished here: Business Modeling usually refers to business process design at the operational level; while business model and business model design refer to The definition of business logic at the strategic level.

Many of the business models mentioned now use the Internet and mobile Internet as the medium, integrate traditional business types, connect various business channels, and have a new business operation and organizational structure model with high innovation, high value, high profitability, and high risk. Simply put, it's how a company makes money.

Types of Business Model

Examples of service industry models

Generally speaking, business models in services are more complex than those in manufacturing and retail. The oldest and most basic business model is the "Shopkeeper Model", which is to set up a store and display its products or services in a place with a potential customer base.

A business model is a description of how an organization performs its functions and a general outline of its main activities. It defines the company's customers, products, and services. It also provides information on how the company is organized and generates revenue and profitability. 

Together with the company strategy, the business model dominates the major decisions of the company. The business model also describes the company's products, services, customer markets, and business processes.

Today, most business models rely on technology. Entrepreneurs on the Internet have invented many new business models that rely entirely on existing and emerging technologies. Using technology, companies can reach more consumers with minimal cost.

With the progress of the times, business models have become more sophisticated. The "Bait and Hook" model - also known as the "Razor and Blades" model, or the "Tied Products" model - emerged in the early 1900s. 

In this model, basic products are sold at very low prices, often at a loss; consumables or services associated with them are very expensive. Examples are razors (bait) and blades (hooks), cell phones (bait) and airtime (hooks), printers (bait) and ink cartridges (hooks), cameras (bait), photos (hooks), and so on. There is an interesting variation on this model: software developers distribute their text readers for free, but charge hundreds of dollars for their text editors, such as Adobe Reader for PDF readers and Adobe Acrobat for editors.

In the 1950s, new business models were created by McDonald's and Toyota; in the 1960s, the innovators were Wal -Mart, and Hypermarkets. 

In the 1970s, new business models emerged in the operation of FedEx Express and Toys R US toy stores; in the 1980s, Blockbuster, Home Depot, Intel and Dell; in the 1990s, Southwest Airlines ( Southwest Airlines), Netflix, eBay, Amazon.com, and Starbucks. And unthought-out business models are a serious problem for many dot-coms.

Every business model innovation can bring a company a competitive advantage for a certain period. But as time changes, the company must constantly rethink its business design. As the (consumer's) value proposition shifts from one industry to another, companies must continually change their business models. A company's success or failure ultimately depends on whether its business design meets the priority needs of consumers.

Business model innovations

When an organization creates a new business model, the process is called business model innovation. There has been a series of reviews on the subject, the latter defining business model innovation as "the conceptualization and implementation of a new business model".    This may include developing entirely new business models, diversifying into other business models, acquiring new business models, or transitioning from one business model to another transformation can affect an entire business model or an individual, or the combination of its value proposition, value creation, and delivery, value capture elements, and the alignment between elements.

The concept helps in analyzing and planning the transition from one business model to another. Frequent and successful business model innovation can improve an organization's ability to adapt to changes in its environment, and if an organization can do so, it can become a competitive advantage. 

Examples

Mark Johnson expanded on Clayton Christensen's approach in Filling the Empty Space: Renovating the Business Model for Growth and Development.

In particular, he correlated the typology proposed by Christensen with existing companies for ease of reference ^[7] :

• An affiliate club involves sales only to members of a group. The manufacturer of co-branded credit products MBNA works on a similar model. (English).
• Mediation in transactions to receive a percentage of profits. The Century 21 real estate agency works on this model. 
• Bundling, i.e. selling related products or services together. This model is common in fast food outlets that sell multiple individual meals as meals, or the online iTunes Store.
• The cellular communication model involves many service packages targeted at different consumers. An example of a telecommunications company operating on this model is Sprint Telecom.
• and YouTube video hosting work on the crowdsourcing model. It involves outsourcing content creation to users in exchange for access to other users' content.
• Disintermediation - work without intermediaries in markets where they are traditionally present. In their industries, this model was used by medical consultation WebMD (English) Dell Corporation.
• In piece-selling, consumers own parts of the product they need at different points in time.
• Freemium service providers provide limited functionality for free and charge fees for access to the full product or additional services. This model is common among Internet services; the social network LinkedIn works on it.
• Leasing makes expensive products and services available to a wide audience. This model is used by dealerships that rent expensive cars or by Xerox Corporation, which offers a print document management infrastructure as a service.
• Low-cost carrier ( eng. Low-touch; eng. low-cost carrier, low-cost airline, also eng. no-frills carrier, a discount carrier, budget carrier ) - reduces the cost of expensive goods and services by eliminating additional services and scaling. This approach is used by Walmart and IKEA. See low-cost airlines.
• The reverse cycle of production implies the pre-order of goods and services and payment before receipt. A typical example of using this model is Amazon.com
• Pay-as-you-go is used by some ISPs and electricity, heat, and gas companies.
• The Razor and Blades model takes its name from razors with replaceable blades and involves selling a product at a high cost with a low margin and income from the sale of consumables. Another example of a similar model is printers and ink for them.
• Reverse razor and blade companies capitalize on the core product by offering low-cost add-ons. Apple uses this approach in conjunction with the iPod and the iTunes Store, Amazon sells e-books for the Amazon Kindle.
• Reverse auction - Bidding for the right to sell a product or provide a service, in which the lowest bidder wins. Freelance websites work according to this model.
• The product-to-service model involves selling not a product, but the function of that product as a service. For example, IBM provides software as a service model, and Zipcar provides hourly car rental.
• Standardization of the solution to any problem makes it possible to sell an easily reproducible and inexpensive product or service instead of a unique one. According to this model, the American Minute Clinic is developing.
• In a subscription model, the user regularly pays a fixed fee for access to a product or service. An example of a subscription service is Netflix.
• Companies based on the user community model can generate income both through membership fees and through advertising. The professional platform for business angels and startups AngelList works according to this principle.
• Value Added Business Model - A change (modification) to an existing product by a company to resell it with added value, usually to end-users as a new product.