Understanding Business Models: Types, Importance, And Characteristics

Importance of Business Models

Question:

Discuss about the Different Business Models for Financial and Social.

A business model explains the basis, by means of which an organization develops, delivers and gains value. The various types of values gained by businesses are financial, social and many more. According to Casadesus-Masanell &Ricart, (2011) the basic and essential component of a company business strategy is to create business model design. The literature review also describes the importance and role of business model in business. It also describes the various types of business model which can be applicable to a business. In the modern era of businesses, models like B2B, B2C and many more introduced to have the flexibility in business. The business models is direct and indirect description to showing company’s objective including vision, mission, core values, strategies and many more.

The importance of business model lies in conduct of the business which will be providing value to customer or induces or motivates them to pay for the value and converting monies by customers into revenue. According to Osterwalder & Pigneur, (2010) this will reflect company purpose of fulfilling the needs of customers, by which customers wants it, and ensuring delivery to customer in best way, and earning profit. The business models are given importance as company’s future ultimate value will be delivering services to customers only. The business models are used in describing and classifying businesses as well as used by managers to explore out the opportunities of future development and growth. Moreover the finest business models used by managers in best way give the best results to company.

The business models implemented in organization mainly depends on the technology standards in organization. The top levels committee in companies can create an entire new business model which is technology efficient as well. As well as it should also reach to mass number of people with minimised cost (Zott, Amit & Massa, 2011). A properly framed business generally provides clarification in a business process. To recognize and develop value from a new perspective, a newly started business needs well-structured model which will transfer applying latest technology in business into sales of business.  The capability of a business model depends mainly on the development of business model itself indicating its ability to deliver socially valuable products, amenities, livings, and recovering the cost of resources. This actually depends on various factors like adjacent environment the business model should manage, project in hand needs new market entrance or market development.

Types of Business Models

An opportunity to scale will rely upon a blend of factors, for example, working out sound dissemination and deals capacities. According to Afuah,  (2014) a few models can scale up rapidly, however many require years, or decades, to get just before ever notwithstanding being reasonable for scaling up; accordingly, microfinance took over 30 years, and contract to cultivate over 50 years.

And for emerging business in the markets there need to recognize and establish new forms of models. In new businesses models as well as innovation is significant to the success of the business. The proper application of innovation and models in products and services of business makes the business run in long run with profits.

Characteristics of business models:

1. Excellence is difficult to copy- By working up a key separating factor like great execution; the business models creates solution to obstructions in market which will enhance their benefit and will give competition to contenders (Bocken, et al., 2014).
2. Successful models are moved down hard by reality- As companies are surrounded by the premise of precise client input (Baden-Fuller & Morgan, 2010). The cost arrangement would be good with the income earned. Be that as it may, many companies do not have a proper comprehension of where they make income, why clients favour their item or administration over the contenders and which clients really bring income.

In direct sales model, deals of products and services are produced income through a set-up of the salesman is done who directly sold the products to customers. Usually, no established merchandising store exists under a direct sales business model. Moreover, individual salesmen are linked with a vast parent association and provided with the instruments to emerge as entrepreneur business person (Demil & Lecocq, 2010). A direct sale happens through introductions or exhibitions of the services and products in a one-on-one situation or among a meeting at a prospect’s household or business. Businesspersons in direct sales acquire a segment of their deals, while the business supplying the products captures major part of income. Organizations, for instance Avon, Arbonne and Herbalife are cases of the direct sales plan of action.

The disadvantages of direct sales business model are time-consuming are limited coverage, expensive method and much more. The limited coverage in direct selling blocks the way a business can expand in the market. Especially small companies can cover only one market at particular point of time, also depending on sales person they employ. It is also time-consuming as sales representative have to spend on an average one hour on every deal to finalize it. It creates inconsistency for companies to explore more market. It also as well as expensive for a company to employ direct sales as the method of the business model as salaries an incentive of sales representative becomes the factor of cost of production.

The franchise business models make a business a franchise in which a business can be a producer, wholesale or retail outlet. According to Gillis & Castrogiovanni, (2012) the kind of plan of action a business take relies upon the business it purchases, yet with the establishment plan of action there is dependably the additional component of the establishment organization. Franchising additionally fuses the fundamental types of plans of action inside its own structure. It is also reported that a business can buy a franchise straightforwardly from the franchise organization, or it can get it from an principal establishment merchant that is authorized to offer franchise in that locale. Therefore, a business has to utilize the distributor, wholesale or retail outlet show inside the establishment plan of action. Franchise holders receive a share of the income produced by their localities, and the franchisor gathers licensing subscriptions in addition to a proportion of income generation from the franchisee. Prevalent businesses which are reliant on the franchise business model for progress comprises of McDonald’s, Subway and Starbucks.

Direct Sales Model

The disadvantages of franchising are dependence on franchisor, on-going support, and scope. The main disadvantage of franchising is total dependence on franchisor as they exert a huge degree of control over franchisee allowing lesser flexibility to them which creates inconvenience for franchisees to explore (Koen, Bertels & Elsum, 2011). Besides the fees and charges, other charges like royalty and share of revenue also need to be shared with the franchisor. And moreover, advertisement cost is also paid by business taking franchisee only. The on-going support is also in the very case is provided to the dealer which creates difficulty for a business to clear the misunderstanding.

For companies that are providing individual or corporate facilities via the Internet, the freemium plan of action is general. Under a freemium model, organizations give away services at no cost to the customer as an approach to set up the establishment for future communications. An organization offers an essential level management with the customers and also provides advanced benefits as additional items or promotional free services at some cost. The freemium model tends to function probably for internet-based organizations with little client acquirement costs and high lifetime esteem. Spotify and Skype both work under a freemium plan of action.

The disadvantages of freemium model is never a hundred-per-cent chance that a free client will change over to a paying client and that is one of the fundamental disadvantage of the freemium model. The customers of a specific item may locate similar highlights that are offered in the premium version in competing organization for nothing or at bring down cost and that will pull clients away. The opposition is always increasing, in this manner if a client isn’t happy with a product/benefit that is offered for no cost, those clients are without a doubt has chances to go for paid premium version. For example, majority share of photography centred iPhone applications are offered for no cost with essential channels that enable clients to alter photographs, and still customers can buy premium channels. Moreover, that premium form might be offered for nothing by a competing photography application.

A manufacturer receives raw materials and develops the product. This model is applicable to businesses which accumulate goods from work in progress parts. For example, Dell Processors will be regarded as a manufacturer because it gathers parts of the computer from other part developer company (Massa & Tucci, 2013). A manufacturer can pick to characterize its products straight to its consumers, or it can subcontract deals to one more business. Manufacturers can sell their products like foodstuffs, aircrafts, household goods, mobiles phones and much more to other manufacturers which in turn will be sold to end customers. Manufacturers can market their goods to their customers either directly (wholesaler) or indirectly (Advertisement). 

Franchise Business Model

One of the drawbacks of beginning an assembling organization is the overhead expenses related with doing as such (Teece, 2010). An organization that makes products put money on paying for marketing, materials, and work, while – unless the item is completely new – contending with different organizations offering comparative merchandise. This for the most chances prompts low net revenue and making producing an unsafe business unless the plan of action is carefully conceived.

Companies that work in an industry where customer acquiring costs are high may work under an enrolment or repeat revenue business model. The objective of an enrolment design of activity is to hold customers under a whole deal contract and secure rehashing pay from repeat purchase of a services or products of company (Amit & Zott, 2012).

Businesses working on the net create a membership model which needs the client to agree to accept programmed instalment designs, and they may charge a termination expense for an agreement those closures preceding the pre-set time span. Credit evaluation associations, for example, Experian and Equifax use a membership model of business.

The disadvantages of subscription model are offering a curated set of items month on month includes a mess in work. It is unquestionably a colossal test to make a similar feeling of preference for the clients consistently. Moreover having this sort of a model is inside and out an alternate ball game will bring to the table help to the clients as a group. And troublesome supply chains as the outsider coordination’s incorporate drop shipping, stock stockroom frameworks and marking of the bundle that will be conveyed makes the subscription model a difficult one.

A distributor in business is one who buys items specifically from a producer for selling either it to retail outlet or to the market customers. For illustration, customer will prefer buying hardware parts from a producer that gives offer and gives discount as well in retail outlets. According to Sanchez & Ricart, (2010) an automobile dealership which will sell or trade in fresh autos would prefer buying vehicles straightforwardly from the producer and then selling it back to the overall population. Wal-Mart Department Stores qualifies as a distributor as it buys item directly from the producer.

The main disadvantages of the distributor are the management of warehouse, limitation of expertise, sloppy response and requirement of sales personnel. The warehouse maintenance normally requires company’s own dissemination focus or distribution centre to hold finished stock. This implies owning or leasing a building, enlisting work to oversee capacity, shipment and coordination, paying utilities a commonly require owning particular circulation focus or stockroom to hold finished stock (Phan & Vogel, 2010). Regardless of the possibility that a distributor rapidly delivers items out the door when clients put orders on the web or on the telephone, but a distributor can’t get an item delivered as quick as a client as it can get it from a nearby retailer.

Freemium Model

Nowadays as businesses are changing there came e-business models which changed the scenario of business from traditional selling to online selling.

The business-to-consumer or B2C, the core of e-business gives products precisely for retail consumers on the internet. Amazon.com is a case of a B2C show. According to Dasilva & Trkman, (2014) the e-business just developed a web based personality through which it delivers a choices of products to buyers. Most B2C models produce revenues from synchronize deals and furthermore is known as electronic retail shop.

The business-to-business, or B2B, business model incorporates associations using the Internet to coordinate exchanges with one other. B2B e-business gives to more than 85 part of part of all electronic exchange, as showed by the U.S. Census Bureau. The guideline reason behind this is the versatile nature of B2B trades (Storbacka, 2011). B2B trades are multifaceted and as often as possible incorporate distinctive trades at every movement of the products arranged.

Consumer-to-business, or C2B, is a fresh e-plan of action in which buyers make esteem and need of products. According to Wilson, et al., 2012 invert trades are a characteristic for C2B models, in which consumer’s contacts and deliver his own costs for items. The ticket site Priceline.com is example of a C2B e-business model. Shopping locales, for instance, cheap.com, gilt.com, and ruelala.com likewise are C2B (Abdelkafi, Makhotin & Posselt, 2013).

Consumer-to-consumer, or C2C, e-business models empower purchasers to carry on as purchasers and merchants in outsider encouraged online commercial centres. According to Coombes & Nicholson, (2013) craigslist is a case of an outsider commercial centre. The e-business company connects the buyers and dealers to exchange business. Different cases of C2C sites incorporate eBay and PayPal. A C2C demonstrate creates revenues in several ways, including promotion charges, contribution or association expenses, commissions and exchange expenses.

Conclusion

The literature review analysed about a business model definition, how it can adopt various business models while starting the new venture or expanding the existing business. The various models which it can adopt are franchising, manufacturer, distributor, freemium and much more. The above models have advantages and implication according to every business situations. And in last part of the review, the e-business models have been discussed which are nowadays very popular and adopted by a business to create goodwill amongst customers.

References:

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