Unit 1 - Business Basics
Learning Target 3: I can describe the types of business models
A business model is how a business plans to make money. Originally there were four basic types of business models and they were manufacturing, distributing, retailing and franchising. Since then we have also seen the invention of new models such as freemium and subscription.
When a business determines its business model it is not set in stone and a business must be adaptable to changes in the business environment and consumer needs which may result in them changing their business model. A great example of this is Microsoft. When they first started selling Microsoft Office you have to pay a lot of money for a CD that you loaded onto your computer. Every time a new version came out customers would have to buy a new CD. Now they offer a monthly subscription to the same product you purchased years ago. Over time Microsoft had to adopt a subscription based model to their current business models of manufacturing and retailing in order to sell more products to their customers.
Manufacturers will take raw materials or preassembled materials and make them into a product. Manufacturers originally sold to distributors or retailers but not will sell directly to the customers. Some examples of them not selling direct to the customer are food products such as Frito Lay, Kemps, and Kraft. Manufacturers started selling direct to customer in order to maximize profit margins while keep the cost the customer at the same price.
Distributors will purchase products directly from a manufacturer for resale to retailers or directly to the customer. Examples of a distributor would be your local Ford and Chevy dealership.
Retailers will purchase products from distributors and then sell them to the customer. Examples of retailers would be Target, Best Buy and Amazon. In the past retailers had a physical brick and mortar store. Today with the internet, a retailer does not need to have a physical location for customers to buy their products.
Franchisers can be any of the above business models. In a franchise business model the owner of the franchise sells the rights to use their business model to individuals who will operate under the same business name but will operate their business to the exact specifications of the franchise business owner. This can go as far as having to order all products through the franchise owner for merchandise and marketing materials. In a franchise business model the owner of the franchise will often times set prices, determine sales promotions as well as operating hours. Examples of franchises are Jimmy John’s, Anytime Fitness, and Sport Clips.
Freemiums are a business model that is predominately web based, although it does not have to be, where a service or product is offered free. The hope is the free service will prompt customers to pay for premium service or advanced features. Newspapers and magazine websites are great examples of the freemium business model.
Subscription business models are where a customer is charged a fee to gain access to a service. Examples of this type of business model would be Microsoft 365, Netflix and iCloud.
There are actually even more business models than we have listed. Read this article to learn more about some other types of business models. http://www.game-changer.net/2015/01/28/a-cheat-sheet-of-19-different-types-of-business-models/#.WWN50Ny1ttQ
MAKE THE CONNECTION: Research the following companies and explain what their business model was and what it is now.