Exploring Business Models in Marketing: Strategies for Success
A business model is a company's core strategy for profitably doing business. It describes the rationale of how an organization creates, delivers, and captures value in economic, social, and cultural contexts. The 7Ps of the Marketing mix model—a key framework for marketing strategists—include Product, Price, Place, Promotion, People, Process, and Physical Evidence. These elements form the core tactical components of a marketing plan.
Types of Business Models
To start a business, you don't have to invent an entirely new model. The vast majority of businesses use existing models and refine them to find a competitive edge. Here are some commonly used business models:
Advertising
The advertising business model has been around for a long time and has become more sophisticated with the transition from print to online media. This model revolves around creating content that people want to read or watch and then displaying advertising to your audience. You have to satisfy two customer groups: your readers or viewers, and your advertisers. An advertising business model can sometimes be combined with a crowdsourcing model where you get your content for free from users.
Examples: CBS, The New York Times, YouTube
Affiliate
The affiliate business model is similar to advertising but uses links embedded in content instead of visual advertisements. For instance, if you run a book review website, you can embed affiliate links to Amazon within your reviews. This allows people to buy the book you are reviewing, and Amazon will pay you a small commission for every sale you refer them.
Example: Amazon's affiliate program
B2C, B2B, C2B, C2C
Understanding the acronyms:
B2C (Business to Consumer): Direct sales to the end-user. B2B (Business to Business): A business sells its product or service to another business. C2B (Customer to Business): Customers sell directly to a business. C2C (Customer to Customer): Consumers sell directly to other consumers.7 Elements of a Strong Business Model
To build a strong business model, consider these key elements:
Identify your specific audience. Establish business processes. Record key business resources. Develop a strong value proposition. Determine key business partners. Create a demand generation strategy. Leave room for innovation.Common Business Models
Here are some specific business models you can use to start your business:
1. Advertising
The advertising model involves creating content that people want to consume, and then displaying advertising to your audience. This requires satisfying two customer groups: readers or viewers, and advertisers.
2. Affiliate
This model uses links embedded in content to drive sales. You earn a commission for every sale that another business makes through your referral.
3. Brokerage
Brokerage businesses connect buyers and sellers and help facilitate a transaction. They charge a fee for each transaction to either the buyer or the seller, or both. An example is a real estate agency.
4. Concierge/Customization
This involves adding a custom element to an existing product or service, making every sale unique for the given customer. An example is custom travel agents who book trips and experiences for wealthy clients.
5. Crowdsourcing
Crowdsourcing allows you to bring together a large number of people to contribute content to your site. An example is Threadless, which lets designers submit t-shirt designs and gives the designers a percentage of sales.
6. Disintermediation
Disintermediation involves selling directly to consumers, sidestepping middlemen, to lower costs and build a direct relationship with your customers.
7. Fractionalization
Instead of selling an entire product, you can sell just part of it. An example is timeshares, where a group of people owns a portion of a vacation home, allowing them to use it for a certain number of weeks each year.
8. Franchise
This model involves selling the recipe for starting and running a successful business to someone else, often with access to a national brand and support services.
9. Freemium
A freemium model offers a product or service for free and charges for premium features or services. An example is MailChimp, which offers a free basic service and charges for premium features.
10. Leasing
Leasing involves providing customers with a product for a period of time, and they need to return the product at the end of the lease. Examples include leasing cars and office equipment.
11. Low-Touch
Low-touch business models involve providing fewer services to reduce costs, like budget airlines and DIY furniture sellers like IKEA.
12. Marketplace
Marketplaces allow sellers to list items for sale and provide customers with tools to connect to sellers. An example is eBay.
13. Pay-as-You-Go
This model charges customers based on actual usage, like paying for electricity or cell phone minutes. An example is water companies charging for actual usage.
14. Razor Blade
Sell a durable product at a low price to increase sales of a high-margin disposable component, like selling a razor handle cheaply to encourage blade purchases.
15. Reverse Razor Blade
Offer a high-margin product and promote sales of a low-margin companion product, like offering a high-end computer and selling low-cost printing software.
16. Reverse Auction
Present your lowest prices to buyers, who can choose the lowest price offered. An example is LendingTree for mortgage comparisons.
17. Subscription
Charge a subscription fee for access to a service, like Netflix for streaming entertainment.
By understanding and leveraging these business models, you can build a strong marketing strategy that aligns with your core business objectives.