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Business models; a brief description and nine examples
Have you been looking for photos of nice looking youngsters dedicated to the modelling profession to take a few snapshots next to your company logo? Let’s hope not, because this article has nothing to do with that!
When we talk about business models, we could say, in a very brief way, that it is the global plan that defines what products and/or services the company is going to offer, how it is going to offer them, which public it is going to target, how their product will be sold and how to obtain income. The business model encompasses a wide range of factors, such as defining the characteristics of the products to be sold, foreseeing how to reach customers, the forms of advertising and promotion that will be used, the target audience to which the product will be aimed, etc.
It could be said that there are almost as many business models as there are companies in the world. But surely this won’t do you much good. Although each company has its own personality and therefore its own model, different types of business can be typified according to various factors, such as how to obtain income or the type of customers they target. Let’s see some of them.
This curious name comes from a business model in which two or more parties (groups of customers), which are in principle not related to each other, need to interact in order to obtain mutual benefit, process during which the company that makes it possible, obtains some kind of benefit. Although it may seem a bit odd, there are a large number of relevant companies that work on the basis of a business with two or more parties involved. For example, Google connects users who are looking for information with other users – usually companies – who need the former to access their offers. In this type of model, a “network” effect will usually be generated that will grow rapidly once the first stages of expansion are over, since the more users there are on one side, the more the number of users on the other side will generally increase, and vice versa.
Everybody knows what a franchise is. This is a very widespread model with a long tradition. It consists of reaching agreements with third parties to sell our products, using our commercial methods, our brand and our company image, in exchange for a financial compensation (usually a percentage of the invoicing and/or a fixed fee). There are thousands of examples, especially in the food sector.
Long tail business
It is a model that does not seek to generate a large volume of sales from a small number of mass consumer products, but goes to the opposite end. It consists of offering a wide range of less common or more specific items that will have few individual sales, but that will provide a large amount of revenue when added together. One example of companies that perform well with the long-tail model is e-commerce, which often have huge product catalogues – often very peculiar – for sale.
Very fashionable in recent years. It is a model in which the user is offered a part of the service free of charge and is charged for more complete or advanced services. To achieve this, it is usually necessary to obtain a large number of clients, since usually only a few will be willing to go beyond the free part of the service and pay for an extra. Do you want examples? A huge amount of the apps you can find today are offered under a freemium model.
It’s a long-standing type of model. It is about offering a product or service to which the consumer will be bound and for which they will pay on a regular basis. This model provides recurrent revenues. However, to sustain it, it is necessary to offer products or services that give real value to the customer, or else they will end up unsubscribing. The subscription fee for a newspaper or magazine, or even an electricity supply contract are some examples of a subscription model.
This is electronic commerce (and in this case we can’t say it’s always been like that, because even if it seems the opposite, it has been very little time with us). A modern version of the traditional shops or supermarkets at street level, which offers its products online and in which the logistics of home delivery plays a fundamental role. It can be used to offer both mass consumer products and “long tail” products. Its growth in recent years is unstoppable.
This is a very particular form of e-commerce, in which only electronic selling has to be dealt with. The supplier is in charge of storing the product, and also both supplying it and sending it to the final customer. In order to maintain this type of business, it is not usually necessary to invest large amounts of money. However, the margins are usually narrow and it will not be easy for you to control the service quality.
Although it has been around for a long time, it is a model that has been reborn thanks to the Internet. It consists of promoting third-party products and receiving a commission based on the sales achieved. For it to work online, huge amounts of traffic will normally be required. Many of the pages dedicated to analyzing products and providing a link to the company’s marketing page can serve as an example of an affiliation model.
Peer to peer
This is a booming system and a variety of the “multi-sided” model, in which individuals are brought into contact with each other. In general, the company usually earns revenue from advertising or charging small commissions, for example when doing business with individuals. Multiple popular platforms today operate on a peer-to-peer basis, such as those that connect people who want to buy or sell second-hand products.
These are just some of the many business models, both traditional and more modern, that can exist. In addition, a new business model is emerging every day. You, dear reader, may even be about to create a new type that doesn’t exist yet.
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