Business Models

What a business model is and how analysts read one: the customers (who), the offering (what and why), the channels (where), the pricing (how much) and the organisation and value chain (how), plus the profit logic behind them; the main pricing models; the conventional business models and their variations; and how business model innovation, digital technology, network effects and platforms reshape industries.

1. 1. What a business model describes: customers and offeringA business model is a plain description of how a business works: who it serves, what it sells and why customers buy, where it sells, how much it charges and how it is organised to deliver, and the analyst should build that picture independently rather than take management's word for it.Free13 min
2. 2. Channels: how the offering reaches customersThe channel strategy, selling and delivering through intermediaries, directly or through both, shapes revenue, cost behaviour, risk and comparability with peers.12 min
3. 3. Pricing: power, premiums and price discriminationWhere a firm can price depends on competition and differentiation: commodity sellers take the market price and compete on cost, differentiated sellers enjoy pricing power, and most firms use price discrimination through tiered, dynamic, value-based or auction pricing to charge different customers different amounts.14 min
4. 4. Bundles, razors, freemium and subscriptionsFirms with several or complex products use bundling, razor-razorblade and add-on pricing; firms chasing scale use penetration, freemium or hidden-revenue pricing; and many offer use without ownership through subscriptions, leasing, licensing and franchising.13 min
5. 5. Value proposition, value chain and profitabilityThe value proposition is why customers choose the firm at its price; the value chain is how the firm is organised to deliver it; and the profit logic shows how prices and volumes cover fixed and variable costs, now or at greater scale.14 min
6. 6. Conventional business models and their variationsMost companies run one of eight long-established models, or a combination or industry-specific variation of them such as contract manufacturing, value added reselling, licensing and franchising, and where a firm sits in the supply chain shapes how it handles risks such as input price shocks.14 min
7. 7. Integrated case: two firms, same industry, different risksTwo companies selling the same product can have opposite business models, and the way to compare them is to name each model, then ask how its cost structure, suppliers and pricing power respond to the same shocks.15 min
8. 8. Business model innovation, network effects and platformsNew business models, often launched by new entrants using new technology, become tomorrow's conventions; digital technology made location matter less, outsourcing and targeted marketing easier and network effects far more powerful, giving rise to one-sided and multi-sided platforms.13 min