What is a business model? Types and peculiarities

According to the book “Business Model Generation” by Alexander Osterwalder and Yves Pigneur, a business model describes the basis on which a company creates, delivers and captures value. However, with new technologies and the advent of the internet, it has been coined in a more specific way. It is used as a more flexible tool than the business plan for strategic planning.

A business model therefore carries out these actions through a complex set of interdependent routines that are discovered, adjusted and nuanced.

In short, it is the skeleton of the business activity to determine what is to be offered to the market and how it is proceeding.

Types of business model

All business models are structured around the idea of providing value to the customer and responding to their needs in a way that is different from that of the competition. However, value can be provided in many ways: simplifying things for the customer, reducing costs, providing a polished image or eliminating a problem or risk, among others.

There are many types of business models, from strategic business models to expansion, investment, growth or operational models:

  • Chain production system models with cost reduction. Example: car
  • Bait and hook’ model: offer a very cheap product so that the customer pays for spare parts. Example: printer cartridge
  • Franchise model: although profits are shared, the business is extended without risking own capital. Example: restaurant
  • Freemium model: free basic services with a charge for additional services or improvements. Example: online games
  • Subscription model: generates recurring income. Example: Netflix
  • Model that eliminates intermediaries: cheaper prices to the end customer.

How to design a business model

When creating a company’s business model, innovation must be the basis for innovation, both in the offer and in the solutions provided. In this way, the business model reformulates concepts and redesigns processes.

A business must define its target customer segment and what the communication, distribution and sales policy will be. Furthermore, the resources, the reaction to changes and the profitability of the project must be taken into account.

The following are the different phases in the design of a company’s business model:

1. Define distribution channels and competitive advantage.

With this step, you can find out how the product will be delivered to the customer in an effective and safe way. Consideration should be given to the communication strategy that will influence its promotion and dissemination. In addition, question why the business idea could be better than the competition.

2. Market and user analysis

These analyses provide an overview of the competition and the market in which the new business will enter. Within these analyses, the potential market for a given product or service must be established, as well as discovering the potential customer and his or her needs.

3. To come up with a strategic and innovative design

This vision allows you to get the best out of the future business and meet the needs of potential customers. New technologies, various applications and market trends must be taken into account in order to incorporate the most efficient functions and tools into the business model.

4. Conduct market research

The characteristics of the market must be investigated to determine the factors that have the greatest presence and influence on it, detecting opportunities and areas for improvement. With these market studies, the viability of a new product or service is known, as well as the acceptance it may have.

5. Determine the price, sources and know the strategic alliances

How the relationships with business partners and suppliers will be is one of the first steps in developing a business model, as well as the analysis of how much money the customer will pay to buy the product or service. For this, it is necessary to observe the market situation and to know how much a company will have to earn in order to make profit margins.

6. Define the value proposition

The value proposition must be original and in line with customers’ needs and desires. The business model must include questions about the needs of the user to be served.

The Business Model Canvas resource

It is worth highlighting the use of the Business Model Canvas for the design of a business model, a tool that appears in Osterwalder’s book and which has opened up new possibilities and ways in this process. One of its potentialities is that it organises the main elements of a business project in a very visual way.

The Business Model Canvas consists of nine sections:

  • Market segments
  • Value propositions
  • Channels
  • Customer relationships
  • Revenue streams
  • Key resources
  • Key activities
  • Key partnerships
  • Cost structure

Business model vs. aesthetic design

The business model establishes relevant issues for its undertaking and maintenance in the market in order to know the user and the market in which it operates.

On the other hand, the aesthetic design, although relevant because it is the first step to arouse interest, focuses its action on the steps that must be carried out afterwards. Aesthetic design can be very changeable and adaptable to needs, moments and changes.

Once this comparison has been made, it is clear that the business model makes it possible to determine certain basic aspects for the company.

Create a business model with INFINITIA

Before creating a new business model, at INFINITIA we analyse how to innovate in the already established models and the potential of the basic idea. With this business analysis service, we can know what will be its impact on the market and propose strategic solutions.

Thanks to the previous business analysis carried out by Infinitia’s team, we can achieve a solid value proposition that ensures the viability of the company as well as determine how it will be structured. Before these steps, we listen to you and investigate your business, the competition and other characteristics that may influence the project.

Our strategic and multidisciplinary team is able to establish the most suitable business plan model for you. At Infinitia we maximise results, discover your strengths and improve those areas where there are failures.

In short, to achieve the best business model for your company it is essential to develop a strategic design, implement innovation strategies and determine the approach with which challenges are addressed.

At Infinitia we work together with you and solve your problems as if they were our own. Contact us if you want to find the business model best suited to your wishes, needs and objectives.