1. Critically evaluate the purpose, components, and functions of business models with reference to both traditional and newer sustainable or technology driven models in a contemporary organization. In your answer discuss how traditional and newer sustainable, or technology driven business models may differ from each other.
2. Analyse and compare the business model of Alibaba with that of a traditional retailer such as Farmers Trading store OR Briscoes, explain Alibaba’s complexities and the ways in which it uses technology to generate revenue.
A business model is nothing but the method of doing business in to generate revenue from the customers. It just narrates the way in which the business works. This model includes the A to Z about the business ranging from the investment, the target audience, the marketing strategy, production techniques, partnership information and revenue generation. The term “business model” made its first appearance in an academic article that was published in the year 1957 (“What Is the Purpose of a Business Model?” 2016). The business model contemplates the market in every angle possible that it must be sure of it in theory before investing actual money on the business. The business models have clear description of what the business sells or offers, who the consumers are and what they require to be satisfied.
The purpose of a business model is to determine how the business would operate and result in making money for the investors. It should consider who the customers are and how the revenue is generated. This serves as an official document that carries all the necessary information of the company and its functions. The business models are all about creating a demand and a value for the target audience in the market (“Business Model: What It Is and What It Is Not”, 2016). The people who run the business must know their customers and the model are to be made with respect to the preferences of the consumers. Knowing the key business processes that are involved in the business is of primary importance. The business must have some uniqueness in the competitive market. The propositions that the business has must be strong enough to sustain among the competitors. This would determine the degree of your importance among the consumers (Osterwalder & Pigneur, 2013). The purpose of the business model is to achieve the objective of the business.
The various components of a business model are the resources people, knowledge, technology and other assets which assist the business activities. The resources like raw materials and finance are the foremost components of a business. Manpower is the next component which executes the goal of the business. Nowadays technology has become a vital component of the business model and has made the business smarter, faster and perfect (Osawa, 2016). There are many assets like websites; machineries, technological tools and storehouse also form the important components of the business model. A business has several processes involved in its operations like acquirement of goods, establishing a store for showcasing it to the consumers, fixing prices and thus selling. There should be enough thought put out in the business model to create a demand for the products or services through proper marketing among the customers. The audience would never go for the products unless they are attracted towards it in some way. The partners of the business like dealers, suppliers, delivery men are also considered as the valuable components of the business model etc. (Lunquist, 2009). Above all, knowledge is considered to be the inevitable component of the business model. Unless there is knowledge and creativity, a business cannot survive. Clearly, there must be some innovation to stand out from the crowd of businesses that rise and fall in the market.
There are many functions of a business model. The business model creates value for the users of the product. It also identifies a market segment which is useful to the consumers. It defines the structure of the value chain needed by the firm. It specifies the methods to generate revenue for the firm. The cost structure and the profit potential for the product are estimated by using the value proposition and the value chain structure. It identifies the competitors in the market and also shows the position of the firm with the knowledge of suppliers and customers. Moreover it helps in formulating a new strategy to overcome the rivals in the field (Zhou, 2013).
Traditional business models lacked the usage of technology and communication. Formerly, the business models were not much sophisticated. It was like bait and hook business model or razor and blades business model. In this model one product is sold at a low price and another product is sold as a complementary good or freebee. For example, razors and blades. Razors were the baits and blades were the hooks (Hedman & Kalling, 2003). The customers could be enticed to buy the product by giving them the product for a free trial. Tying was another model in which the customers are tied to buy an undesired product along with their desired product. For example, a low quality pencil with a washing soap.
The traditional way of doing business slowly changed with the emergence of advanced technology and communication. It improved the productivity and efficiency of the business. Of late, all businesses adapted the change brought in by the information technology and the internet. The technology enables the customers as well as the businesses to access to a lot of data and information. The business models for the music recording and news industries were changed completely because of the internet. Many traditional businesses failed because of the entry of dot.com in the 20th centuries (Gilbert, Henske & McGahan, 2010). Today business planning, marketing, shipping and communication are made efficient with the use of technology.
Traditional business model was designed for a longer time. But the change in the technology is so fast that the technology driven business model has to be changed very often, at least once in six month. The technology has brought lots of benefits for the management such as minimizing the cost of production and maximizing the profit. In the beginning of the early twentieth century, the business people used landline phones and posts to communicate with the customers (Osterwalder, 2004). But nowadays instant messaging is possible through various technical tools like email, mobiles and couriers. The image of the products is accessed by the customers for verification through mobile and the customers’ orders are delivered the next day through courier. This was not possible in the traditional business model (Chesbrough, 2010). All businesses have to adapt to the change in the technology to survive in the competitive business market.
Alibaba Group Holding Ltd is a private Chinese ecommerce giant that tops the business market in retailing. It is an online retailer in China but the biggest online retail company in the world when taken into account the immense business that is being handled in the website. This company has more than 350 million active users as of 2015. The Alibaba can be explained as a perfect blend of websites such as Amazon, eBay and Paypal with Chinese characteristics. The model of business that Alibaba handles is that it does not acquire any sort of good from the suppliers but acts the role of a middleman and just connects the customers with the sellers. This can be compared very much to the eBay’s business model. The business model of this company comprises three web portals such as Alibaba, Taobao and Tmall (Johnson, Christensen & Kagermann, 2008). All these websites are ecommerce website just connecting the various types of buyers with the sellers. Taobao is one of the biggest websites of Alibaba in which there are nearly a billion products and a whopping sum of 7 million sellers in this website alone. The highlight of Taobao is that merchants selling their products in this website need not pay any money to sell their products over the website. Instead they have to pay Alibaba for the purposes of advertising. This model is targeted for small merchants and Tmall on the other hand is for bigger companies where even Apple opened a store recently (“India Suppliers, Factories, Traders, Manufacturers from the world’s largest online B2B marketplace-Alibaba.com”, 2016). Tmall had an annual promotional day to reward buyers with discounts called “the singles day” in 2009 and it was a humongous hit. This model is much like that of eBay’s. The sellers pay a small amount to the company so as to have listings and have access to tools like checking the number of visitors for their listings, page views and reviews placed by the customers and so on. The website also earns revenue through online payment portals. The key point that needs to be noted is that Alibaba does not have warehouses of any sorts and only handles the website alone. The other important element in the business model of Alibaba is its relationship with Baidu, a leading search engine in China. This search engine would not show any results from Taobao and Tmall as it blocks the Baidu’s spider from indexing the sites. This way, the shoppers have to no other choice but to go directly to the website to see check their product needs. This is how Alibaba generates revenues through online advertising as the search results have ads on the side of the websites in Taobao and Tmall (Gupta & Bijlani, 2012).
Briscoe on the other hand is one of the biggest retail companies in New Zealand. The Head Quarters of this is situated in Auckland. The main retailing that it does includes home wares and sporting goods in its stores al around New Zealand. The physical retailing is one of the most difficult fields to survive in currently with the advent of ecommerce and online retail stores. Even if it manages to struggle through there are numerous competitors that are already having huge successes before them. This company is associated with nearly 50+ brands that come from a variety of suppliers and dealers (“Alibaba Group”, 2016). The company was established in the 1970s and with that it has generated a whole lot of consumer base with its authenticity. Even though this is a publically listed company most of the shares are owned by RA Duke Trust. This business model was purely based on the perspective of the consumers and the value creation with innovations in the home wares and the sporting goods. Rodney Duke was the person who took the company when it was in huge loss in the year 1980 and made it profitable in the coming years (Fernando, 2016). He has literally toiled so much in the retail industry that he was able to make the business profitable again under his management. The aspects of the business model of Briscoe is that it follows certain codes of conduct that appeals to the customers that prefer the company over other brands that are available in the market. The company’s primary motto is to be truthful to the customers no matter what their selling strategy is. They wanted to abide by the law and never to surpass it even in the littlest of amounts. They valued their customers the most and built a trust and a brand name so trust worthy that they would be remembered in the years to come (Chesbrough, 2010).
This shows how the business models of both Alibaba and Briscoe differ a lot as they are both in the retail business but follow two entirely different types of business models. The thing is to select which model appeals to be comfortable for the shareholders and the business CEOs to work on the company. The Briscoe has been in the market for over 5 decades and has not relatively touched the revenue generated by Alibaba as the website is instantly available to anyone in any corner of the world (“Alibaba Group”, 2016). But Briscoe is a physical store that needs to be established in different parts of the country in order to be available for the customers to be accustomed. This shows that the digital era is slowly wiping of the traditional ways of business models. This is how the global business market operates. It changes overnight and it is the duty of the CEOs and the people of various companies to keep them updated on the changes that happen day-to-day. The era that has begun for the online retailing would one day be the sole leader in the retailer stores where there would simply be manufacturing units and warehouses (Gupta & Bijlani, 2012). We would be ordering stuff from our homes with the press of a button and the logistics will deliver the products to our doorstep. It is not very far away.
References
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