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What is Business Model and its types?

Home Articles What is Business Model and its types?

A Business Model is a plan of the company to employ resources and efforts in the innovative idea and transform it into practical profit generating company. To develop a new business a businessman or woman has to develop a creative business plan which is feasible to implement to attract investors and raise funds for the development. It is a conceptual structure that provides visibility to the company and explains the procedure of operations, money making and the manner to achieve the desired goals of the company. All the processes and policies of the company are designed according to the business model.  Thus, it provides a rationale to the company and describes how a company would create, deliver and capture the value for itself and its customers. The business model must have the following three parts on which the success and sustainability of the company depends:

  • Every information or decision related to designing and manufacturing the product.
  • Every information and decision related to the selling of the product, requiring the target market and distribution channel.
  • The information and decision related to the customer of the company, manner of payment and how a company will make money.

Types of Business Models: There are different types of business models, which are as follows:

Manufacturer business model requires conversion of raw material to final goods and sell it to intermediaries such as wholesaler or retailer or some manufacturers directly sell the products to the final consumer. Example of direct sellers is general electric, 3M, Ford.

Distributor business model is the intermediary business to generate profits through purchasing the goods and services from manufacturers and sell it to the final consumers.

The Wholesaler is the intermediary between the manufacturer or retailer and transfer the products. It can also sell the goods and services directly to the consumer.

Retailer plays the role of intermediary between wholesaler and customer. It buys the goods and services from wholesalers and sells them to the final consumer. For Example, Amazon, Tesco.

The Franchise does not create any new product. It uses the parent business model of some brand and operate the business on the brand name of other company and pay royalties in return. For Example, McDonald's, Dominos. 

Brick and Mortar is the traditional business model, in which a manufacturer, retailer or wholesaler directly deals with the customer face to face at a particular physical place such as office, shop or a store.

E-Commerce is an upgraded business model of Brick and Mortar that operates through the web store on the internet. 

Bricks and Clicks: A business model that operates through different physical and online existence. A buyer can directly purchase goods and services from store, shop or office of the manufacturer or an intermediary. Contrarily the customer can place an order of such goods and services by clicking on the website of the company.

Freemium is the business model which provides free goods and services to the customer and charge a certain premium if a consumer requires some add-ons.

Subscription: The subscription model requires registration of the customer on the official site of the company to avail certain goods and services. This business model has a high customer retention rate for the long term and generates higher returns through repetitive sales. For example, Netflix.

Data Selling: With the increasing use of the internet, the data has been accumulated on it in a huge amount. Which advent the new business model named as data licensing business model which sells the data for analysis, advertisement and other purposes.

Agency is the business model showing the relationship between agent and principle. In which principle is the owner of the business and agent representing the principle in the market and sell products. The relationship between principal and agent is enforced by the Agency regulation Act. 

Affiliate Marketing is the commission based model in which affiliate promotes goods and services offered by the particular company and influence its followers or friends and relatives to buy such products and charges commission form the company.

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