Business Model Canvas and Types: Traditional & Emerging

Posted on Jan 17, 2025 in Business Management and Marketing

Business Model Canvas (BMC)

Definition: The Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual chart with elements describing a firm’s or product’s value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.

Components:

  1. Value Proposition: It answers the question of what product or service is being built and for whom. The value proposition identifies the pain points or needs of the customers and outlines the benefits and features that solve those issues.
  2. Customer Segments: This refers to the different groups of people or organizations that a company aims to serve or sell to. A company can have more than one customer segment with specific needs, characteristics, and behaviors.
  3. Channels: It’s about the ways that a company uses to reach its customers, deliver its value proposition, and sell its products or services. Channels can be physical (e.g., sales reps, stores) or virtual (e.g., website, social media).
  4. Customer Relationships: This refers to how a company interacts with its customers to build and maintain relationships. It includes activities such as customer support, training, and feedback collection.
  5. Key Resources: This is about the most important assets a company needs to make its business model work. Key resources can be physical (e.g., equipment, facilities), intellectual (e.g., patents, trademarks), or human (e.g., skilled workforce).
  6. Key Activities: These are the essential tasks a company must perform to make its business model work. Key activities can be:
    • Manufacturing
    • Marketing
    • Product development
  7. Key Partnerships: This refers to the external entities that a company partners with to make its business model work. Key partners can be suppliers, distributors, or other companies that provide essential resources or capabilities.
  8. Revenue Structure: It’s about the ways that a company earns revenue from its products or services. Revenue can come from different sources, such as one-time sales, recurring subscriptions, or advertising. The revenue structure determines the pricing and monetization strategy of a company.
  9. Cost Structure: It outlines all the expenses that a company incurs to create, deliver, and sell its products or services. The cost structure includes fixed costs (e.g., rent, salaries) and variable costs (e.g., raw materials, shipping).

Traditional Business Models

Types:

  • Manufacturer
  • Distributor
  • Retailer
  • Franchise

Manufacturer

The manufacturer business model utilizes raw materials to create products that are then sold in the market. This type of business model involves the assembly of pre-manufactured items.

Distributor

A company fitting the distributor business model would be a business that buys products directly from a manufacturing company. This business would then resell the products directly to consumers or to a retailer. The distributor often acts as one of the middle points between a manufacturer and the general public.

Retailer

A company following the retailer business model purchases products from the wholesaler/distributor. It then sells the inventory to the public.

Franchise

In this setup, the company buys the franchise of a very successful brand and promotes the brand’s services/products to the general public. The franchise segment is a popular way to build awareness across geographies.

Emerging Business Models

What Is It?

Emerging business models are the new, disruptive ways organizations are using technology to adopt alternative revenue streams and diversify their offers. By crossing industry boundaries and integrating with customers’ lifestyles, organizations are changing expectations across the board to stay relevant.

Subscription-based business models (e.g., Netflix, Spotify)

A subscription business model is one in which customers are charged a recurring fee for access to a product instead of a one-time expense. This recurring fee is often paid monthly or yearly, and the customer is often given the choice of which frequency to purchase at.

Subscription model examples
  1. Streaming services
  2. Monthly subscription boxes
  3. Software subscriptions
  4. Magazine subscriptions
  5. Food services
  6. Health & wellness
Benefits of Subscription Models
  1. Predictable revenue stream – Better forecasting
  2. Recurring revenue – improve updates to ensure client loyalty
  3. Stronger & long-term customer relationships – Because of the continuous update cycle of subscription-based software, your ability to respond to customer feedback in a timely manner and build the relationship is improved.
  4. Lower customer retention spend
  5. Easier demand forecasting
  6. Opportunities for upselling/cross-selling.

Sharing economy business models (e.g., Uber, Airbnb)

A Sharing Economy involves a business model where assets or resources are rotated, reused, and shared between different individuals and businesses.

Platform business models

It’s important to remember that a platform is a business model, not just a piece of technology. A lot of people make the mistake of conflating a platform with a mobile app or a website, but a platform isn’t just a piece of software. It’s a holistic business model that creates value by bringing together consumers and producers.

Freemium Business Model

A combination of the words “free” and “premium,” freemium is a type of business model that offers basic features of a product or service to users at no cost and charges a premium for supplemental or advanced features.

Key Takeaway
  • Freemium models are especially popular among software applications and internet-based businesses.
  • This type of business model has the advantage of acquiring a large set of initial users, especially when there’s no cost associated with trying out an app or a service.
Pros
  • Companies can easily acquire potential users and collect their user information and data
  • They can make revenue on ads and boost their own business numbers to enhance the application
Cons
  • Free users never convert to paid users
  • Too many features on the free version may prevent users from upgrading to a premium version
  • Users may get tired of a free version that doesn’t offer additional bells and whistles