Business model and why are they important

• How do we generate revenue? (Revenue Streams)

Business models are important for several key reasons:

• Clarity and Focus: They provide a clear and concise understanding of how the business operates, both internally and externally. This clarity helps everyone within the organization understand their role in the value creation process and aligns efforts towards common goals.
• Strategic Planning: A well-defined business model serves as a foundation for strategic decision-making. It helps identify key areas of competitive advantage, potential threats, and opportunities for growth and innovation.
• Communication and Alignment: It facilitates effective communication with stakeholders, including investors, employees, partners, and customers, by clearly articulating the company's value proposition and how it intends to generate profit. This alignment is crucial for securing resources and building strong relationships.
• Innovation and Adaptation: Regularly reviewing and refining the business model allows companies to adapt to changing market conditions, technological advancements, and evolving customer needs. It encourages innovation in value creation, delivery, and capture.
• Performance Measurement: The business model identifies key drivers of value and cost, providing a framework for tracking performance, identifying areas for improvement, and making data-driven decisions.
• Competitive Advantage: A unique and effective business model can be a significant source of competitive advantage, allowing a company to differentiate itself from rivals and capture a larger share of the market.

The 7 Business Models in Chapter 12 Connect McGraw Strategic Management

While the specific list might vary slightly depending on the edition and focus of the chapter, Chapter 12 of a Strategic Management textbook often covers common and influential business models. Based on typical strategic management frameworks, the 7 business models likely include:

1. Freemium: This model offers a basic version of a product or service for free, while charging a premium for advanced features, functionality, or usage. The goal is to attract a large user base with the free offering and then convert a percentage of them into paying customers.
2. Subscription: Customers pay a recurring fee (monthly, annually, etc.) for continuous access to a product or service. This model provides predictable revenue streams and fosters long-term customer relationships.
3. Advertising: The company generates revenue by selling advertising space or time to third parties. The value proposition is often providing content or a platform that attracts a large and engaged audience.
4. Peer-to-Peer (P2P): This model facilitates direct interactions and transactions between individuals or businesses, often through an online platform. The platform provider typically earns revenue through transaction fees, subscriptions, or advertising.
5. Wholesaler/Distributor: This traditional model involves purchasing goods in bulk from manufacturers and selling them to retailers, who then sell to end consumers. The wholesaler/distributor adds value through logistics, storage, and market access.
6. Retailer: This model involves selling goods or services directly to end consumers through physical stores, online platforms, or other channels. Retailers focus on merchandising, customer service, and creating a convenient shopping experience.
7. Agency: The company acts as an intermediary, connecting buyers and sellers and earning a commission or fee for facilitating the transaction. Examples include real estate agents, travel agents, and recruitment agencies.

A Firm's Current Business Model That Should Be Changing

A firm whose current business model should be significantly changing in the next few years is traditional brick-and-mortar retail.

Example: Consider a mid-sized clothing retailer with a significant number of physical store locations. Their current business model likely revolves around:

• Value Proposition: Providing a tangible shopping experience where customers can see, touch, and try on clothes, along with in-person customer service.
• Customer Segments: Local customers within a certain radius of their stores.
• Channels: Primarily physical retail stores.
• Customer Relationships: In-store interactions with sales associates.
• Revenue Streams: Direct sales of clothing and accessories in their stores.
• Cost Structure: Rent, utilities, staffing for physical locations, inventory management, etc.

Why This Model Should Change:

Several factors in the evolving market landscape necessitate a significant shift in the traditional brick-and-mortar retail business model in the coming years:

• Rise of E-commerce: The continued growth of online shopping offers consumers unparalleled convenience, selection, and often lower prices. This puts immense pressure on physical retailers to justify the in-store experience and compete on price.
• Changing Consumer Behavior: Consumers are increasingly omnichannel, expecting seamless experiences across online and offline channels. They research products online before visiting stores, expect online ordering with in-store pickup, and demand personalized experiences.
• Technological Advancements: Technologies like augmented reality (AR) for virtual try-ons, personalized recommendations powered by AI, and sophisticated data analytics offer online retailers significant advantages in understanding and serving customers.
• Sustainability Concerns: Consumers are becoming more conscious of the environmental impact of their purchases, including the energy consumption and waste associated with traditional retail operations.

What is a Business Model and Why Are They Important?

A business model is a conceptual framework that outlines how a company creates, delivers, and captures value. It essentially describes the logic of how an organization operates and sustains itself. It answers fundamental questions like:

• What value do we create for our customers? (Value Proposition)
• Who are our target customers? (Customer Segments)
• How do we reach and interact with our customers? (Channels, Customer Relationships)
• What key activities do we need to perform to deliver our value proposition? (Key Activities)
• What key resources do we require? (Key Resources)
• Who are our key partners? (Key Partnerships)
• What are our cost structures? (Cost Structure)