What is a Business Model?
A Business Model forms the foundation of any business and decides it would span out in the future. It is a logical flow of various processes that underlie and support the business system to create a substantial value. A successful model incorporates a proper understanding of and synchronisation between the following - i) Key Resources and Activities ii) Costs iii) Value Proposition iv) Customer Segments v) Distribution vi) Partners vii) Revenue and Profitability.
Popular Business Models
- Customers need to pay a recurring payment every month.
- Netflix, Disney+, Amazon Prime
- Companies combine similar products and sell them as one, at a price point lower than a single piece.
- Adobe Creative Suite, FMCG Products
- Lets users enjoy a certain set of features for a limited duration, and when users get accustomed to these, they would like more of them regularly and hence shell out more for full access.
- LinkedIn, Spotify, Skype
- Firms allow customers to purchase the service rather than the product providing it.
- Uber, Ola, Lyft
- Users across the world, rather than in-house employees, run and manage the business. It is built on the content shared by users - User Generated Content.
- Wikipedia, IMDB
- Established businesses to expand their network, lend their capabilities to the franchisee, purchase, and reproduce the business.
- McDonald's, Starbucks, Dominos
Let's now shed some light on some unheard of, unusual business models, some of which are going strong while others faltered along the way.
Category 1 - Pay What You Want (PWYW)
Before proceeding further, I would like to think of a few scenarios
- Suppose one fine day, Dominos cannot fulfill its 30-Mins Guaranteed Delivery Promise - what will you as a customer do?
i) Follow the Rulebook?
ii) Pay the delivery guy a minimal amount?
iii) Pay the stated amount?
- What about the person who drills holes in your belt? Does he/she ask you for a specific amount for the same?
- What about the Donation Boxes placed at temples, next to billing counters? Do they come with an amount explicitly mentioned on them?
What's happening here? The section below would throw some light on it -
Under the PWYW Model, the firms leave the pricing part at the discretion of the customers. Now you might wonder, this might seem a bit foolish, as there will be many who would pick an item/avail a service and walk away with the same. But this is not always the case because as human beings, we are governed by our norms of fairness and honesty, and there are high chances that we would pay for the product based on certain parameters, namely i) quality, ii) service experienced and iii) similar products of other brands.
But there's a catch over here - the PWYW Model would be better suited to an online business, rather than a physical environment, owing to the reduced marginal and overhead costs incurred in the former, such as the absence of a physical environment, electricity, etc.
For instance, an online Headset business saw customers pay close to the suggested price or at a price mark closer to the headset's actual cost. The brand reported a 30% increase in Return On Investment (ROI).
Whereas, a well-known food chain in the U.S.A. found it difficult to sustain the same, since they were operating out of a physical setting. The concept invited anyone and everyone to the outlet - the impoverished section of the society. This led to a flurry of complaints from the existing customers. It destroyed the exclusivity the food chain was initially known for, and the uninvited guests took advantage of the concept and chose not to pay. Their business took a beat on the financial front and had no choice but to get back to their original operating method.
Category 2 - Accommodate Anywhere and Everywhere
How can one forget to include Hotels / Resorts while planning out their travel itinerary? Travellers need a place of accommodation to settle and relax after a long and eventful day, and this is where our protagonists come into the picture. Leveraging on the same comes a firm that extends this very accommodation to someone else's home, a tent, a cottage and even a treehouse. This has paved the way for a whole new set of businesses to emerge to cater to travellers' needs.
One needs to register their listing on the site, and Voila, you can now invite travellers to your abode and get paid for renting it out to them. To encourage repeat business, there is a review system in place that allows visitors to post their feedback for other travellers to help them make an informed decision.
The buck doesn't stop here, as the benefits that come with this type of a sharing system are aplenty. It gives an opportunity to build relations, break cultural barriers, and, most importantly, get a peek into the local life by simply being in a local's home.
Category 3 - Always-on-the-Move
In a country like India, where buying furniture is a process that involves a complex web of calculations and where ''ownership'' as a concept is deeply rooted in the minds of the Indian customers, this firm's business model has put concerted efforts to bring about a gradual change in how Indians look at furniture.
What is so unique about it?
Well, one can now rent furniture through the firm's website and make the traditional long-drawn process a quick, smart, and low-risk affair.
But why rent ''furniture''?
The brand has answers for this too - i) Live Better Right Now ii) Have Everything at your Disposal without Buying and iii) Change, as your Needs Evolve.
By piggybacking on to the latest trend of ''shared economy'', and various other factors such as - rising disposable incomes, the influx of the millennial population, and profound influence of Western culture, the brand, through their innovativeness, has struck the right chord with its customers.
Category 4 - Turn-the-Tables
Now, what does this mean? This is where firms transfer their responsibility - product ideation and creation- into their customers' hands. Surprised? Well, this model has been there for quite some time and owing to its success, has seen major brands across the globe embed this concept into their business model.
What is this Reversal of Roles?
It will be the customers who would design the raw product/idea/prototype and the ones that would garner the maximum votes/likes from the members of the brand's community, would be further scrutinised by the management, who would then filter out the best ones, in terms of recent trends and profitability, and transform them into finished products.
Based out of Chicago, this brand is into the online business of graphic-designed t-shirts and apparel. It is an online community that comprises artists and designers, wherein close to 1,000 ideas are selected every week, and the best ones are shortlisted through progressive rounds. It is more of a contest, wherein members of the brand's community fight out for the top spot and are suitably awarded. The selected designs' creators get their names featured on the end-product, which are then distributed globally - ''recognition''. Moreover, the brand shares the profits earned with them - in the form of ''royalty''.
Category 5 - Pay for the Time Spent
How many of you remember your visits to the nearby Cyber Cafe, wherein one used to pay for the time one spent browsing the Internet?
Latching on to the same lines, a Delhi-based food joint does not charge its customers for what they eat but for the time spent in consuming their meals. They set a minimal rate on a per-minute basis and have been doing quite well for themselves. Well, if you are a quick eater, this might be the perfect place for you.
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Q. What is a Business Model Canva?
Ans: It's a strategic tool that comes in handy when creating one for an existing/new model. The various parameters mentioned in paragraph one must be considered while designing one.
Q. What is the ROI?
Ans: Refers to Rate on Investment, wherein a high ROI means that the gains attained are favourable compared to the costs incurred.
Q. Who are Millennials?
Ans: Anyone born between 1981-1996 is a Millennial, and are the ones who are constantly evolving in their tastes and preferences, and are driving the market.
Ans: Refers to a concept wherein both the brand and the customers are seen joining forces to create a new product.
Q. What is Royalty?
Ans: Amount paid by the party to the product's owner from profits it gains out from its commercialisation.