Business models

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A model to make money

Any business that plans to make money does so by applying a business model (no matter how simple this is). Business models go from the most simple to the most complex.

The value chain

One of the simplest models is the 'buy stuff / add value / sell it'. This is the classic model adopted by shops (the added value is simply the geographic proximity and accessibility to the product for the end user).

Give printer and sell the cartridges

Much more advanced models exist, for example the so called 'razor and blade' model, which is called after the business model used by razor manufacturers. This model is basically to sell the razor cheap (and therefore make little or no money on it) and to earn money with the sales of the blades later. This quite common model now exists in a variety of settings.

Invest in the meantime

Another model which is used my big distribution companies is as follows: They first buy their products of their suppliers, but they've negotiated to only pay for it two months later. They then sell these products in their supermarkets to clients which of course must pay immediately. The big idea is to invest the money during the two months it is available (ie before they give it to their suppliers). At big scales (like national supermarkets) this model is incredibly efficient as it allows the supermarket to sell the products at lower prices than their competitors (because in fact they make little or no profit from the actual sales) while making a lot of money. Competition doesn't resist long and once gone the supermarket can slowly put prices back up in order to win on both boards at the time (investment and sales).

Advertising

Another popular model in the media (including) internet arena is the advertise model. This model generates revenue via advertising, which means that the people directly paying are the advertisers. This model is of course obvious on TV and radio and is now common on internet (although other incomes are generally necessary in this case). Concerning internet, the belief in this model is in part responsible of the collapse of the internet after its explosion at the beginning of the century. This happened because people (including investors) thought that the only important thing was to generate traffic on the site. This traffic would then be transformed into cash via advertisement. This lead to these internet companies which were investing a lot of money in developing sites with the only goal being attracting visitors (some actually financing large TV advertising campaigns for this) and with no other potential model than that of advertising. When finally it turned out that advertisers weren't going to spend the expected money on advertising the whole system fell down because these companies had no other plan to make profit.

Miscellaneous other business models (needs descriptions…)

Below is a large list of miscellaneous business models. More details on much of these can be found on the web.

  • The subscription business model: magazines, cell phones, annual software licences, …
  • The pyramid scheme business model: like following except money isn't really made from the product but rather from enrolling (new entrants for example must by the startup package…)
  • The multi-level marketing business model: use independents to sell the product (with commission) and find new people to sell the products (commission on products sold)
  • The network effects business model: the value of the offer comes from its number of users (ebay, copains d'avant, facebook, …)
  • The monopolistic business model: one unique vendor for a given offer
  • The cutting out the middleman model: suppress portions of the value chain (B2C, e-business, amazon, …)
  • The auction business model: sell things to the person willing to pay the highest price
  • The online auction business model: sell things to the person willing to pay the highest price
  • The bricks and clicks business model: integrated both online and offline presence (order online and fetch and local store: la redoute, …)
  • The loyalty business models: make customers loyal and come back (with quality, CRM, …)
  • The one shot business models: make money and forget loyalty
  • The collective business models: share resources between organisations with common needs
  • The industrialization of services business model: use industrial techniques in servicing (scale economy, quality control, …)
  • The servitization of products business model: make customer rely on long term service, transform product into service (car rental, …) , …
  • The low-cost carrier business model: eliminate accessory services to reduce costs (low cost airlines, …)
  • The online content business model: create an online offer copying an offline offer (amazon)
  • The freemium business model: get basic offer for free and pay for advanced offer
  • The premium business model: offer products to high end consumers which wish to differentiate (luxury cars, …)
  • The forced buy business model: sell a product which people are forced to buy (laws, survival, …)
  • The JCD business model: provide a product for free and use it as an advertising support, the advertisers indirectly pay for the product by paying for the advertising (Décaux bus shelters, …). This works for products which are highly visible (urban equipment, vehicles, …)

Making more money

It is important when analysing a business to take into account the diversity of available business models and maybe to invent new ones. It might be possible for a low profit business to improve revenue this way and for efficient companies to leverage new opportunities.