Nine components of business model

As a business strategy business model has a crucial role to play in defining the entire business chain. There are nine components in a business model. Before outlining them let me give you definition of business model:

Investopedia defines business Model as “The plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs”.

1.     Identify/Create market need:   Look at the market place; there may be a specific need that remains un-fulfilled; or may be that the current supply of products does not give optimum results. Conversely, you can create a need that does not already exist but could offer more convenience.

2.     Design product to satisfy this need: Second component relates to how you satisfy the need that you have already identified or created. This involves lot of thinking, technology, engineering skills and stipulating parameters of quality and technical specifications. Excellent features of the product, its un-failing quality, convenience it offers and finally its capacity to integrate seamlessly with existing systems are some of the concerns need to be addressed

3.     Introduce product to market:            Third component has everything to with what the market bears. Your business model must involve activities covering release of the product as test marketing or as a beta version to be improved later on. The depth of market along with its willingness to accept & adopt your product is a key criterion in-built in your model. If ever failure occurs the business model must provide honourable retreat or withdrawing and introducing it with modifications later.  If the outcome is indeed successful you have to begin a marketing campaign aggressively

4.     Price & discounting:  You can either choose to come up with a lower price for basic product and higher price scales applicable for use of advanced features or you can introduce at a market skimming price so that you can evade competition in the short – run. Your business model must also address the concept of discounting price scheme for bulk purchases, wholesalers, business partners or buyers under agency arrangements

5.     Selling & commission:      Fifth component is how to set up sales and how much you are willing to share as commissions with dealers and business partners. In most business models these re- sellers, business partners, dealers and agents who get double benefits: one under price and the other under sales.

6.     Delivery & stand-by:         Though it is the sixth component in our discussion, it is the most critical one that can damage relationship with re-sellers or direct buyers. Time, mode, quantity and delivery schedule are matters that cannot be pre-determined in any business. Nonetheless, it must be brought in as a standard element when product is sold. I do not suggest any uniform delivery mode as none exist in today’s context. What your business model must provide is the optimum manner in which you will handle delivery. Stand-by procedures often follow the delivery schedule and must come into force as and when you detect snags in delivery

7.     After-sales: The seventh component is after-sales; your business model must stipulate after-sales terms covering replacement, repair and product warranty.

8.     Review:    You must build the eighth component of review in the business model so that after successful conclusion of a business transaction and thereafter you continue to review the sale by being in touch with the re-seller or direct buyer

9.     Flexibility:        The ninth compartment is to bring some degree of flexibility into your business model; all the above eight components are flexible and not rigid as sacrosanct. When the need arises you must be able to tweak your components quickly and get the operations going. You are not the one who should bicker acrimoniously on price and sales terms when a big deal is in the offing. By the same token you will not throw away time tested business model for the sake of a single non-repetitive deal.

Cheers!

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog: Business Strategist