Types of business models

Summary: Let’s look at the different types of business models commonly used by entrepreneurs and in various industries.

There are many types of business models and they fit different businesses. As there are various types of business models, let’s see the basic types that most companies fall into as well as other models adopted in today’s time.

Basic types of business models

Manufacturer

Image: Clipart Panda

A manufacturer takes raw materials and creates a product. A manufacturer can also assemble pre-made components into a product.

A manufacturer may sell its products directly to end-consumers or it can sell to another business that acts as the middleman.

Example: Dell Computers can be considered a manufacturer because it assembles its computers from parts made by other companies.

Distributor

Image: Freepik

A distributor purchases products directly from a manufacturer and resell to retail outlets or to the public.

For example, a car dealership would purchase vehicles directly from the manufacturer and sell them to the general public.

An auto dealership that deals in new cars would purchase vehicles directly from the manufacturer and sell them to the general public.

Retailer

Image: Inside Retail Asia

A retailer purchases product from a distributor or wholesaler, and then sells those products to the public.

Example: Guardian, Watson, Giant, Tesco

Franchise

Image: Shutterstock

Instead of creating a new product, franchising is the practice of using another organization’s business model that has already been successfully developed.

pay ongoing royalties

Examples: McDonald’s, 7 Eleven

Other business models

Bricks and clicks business model

Image: Shutterstock

A company that conducts business both offline (bricks) and online (clicks). This model allows the user to order products online, but lets them pick up their order at a local store.

This model provides the flexibility to do business on-and-offline. While having a physical store for customers, the offline presence also allows businesses to reach out to more consumers and a bigger market.

Example: Tesco which has physical stores nationwide now allows you to do your grocery online and have your grocery delivered to you.

Nickel and dime

Image: Global Finance

With this model, cost-sensitive item will be at charged as low as possible and then charge for every other minor services.

Price the most cost-sensitive item as low as possible and then charge for every little extra.

Example: AirAsia is an example of this model in which the flight ticket is at a lower price while they charge others things such as food and baggage.

Freemium

Image: Flickr

The Freemium business model is popular and common on the Internet. 

The model offers a basic service to consumers for free such as 30-day free trial while charging for premium services for instance add-ons or advanced services to paying members. This way, customers can be more comfortable with accessing your service for free and decide before making a purchase. It is a great way to build relationships with customers and as a way to establish the foundation for future transactions.

One of the greatest advantages to a freemium strategy lies in its ability to be a marketing tool for your service, which helps early stage startups scale by attracting a user base without costly ad campaigns.

Example: Spotify is a great example where the free version has ads in between songs but with the premium service, you can listen to songs without the interruption of the ads.

High touch

Image: Clipart

A high-touch business requires human interaction. This is more of a “person-centric” model in which the relationship between a salesperson or other individuals have a major impact on the sale and retention of the customer.

With this business model, customers place trust and partnership with a company. In a broader sense, any trust-oriented or relationship-driven business is “high touch.”

Examples: Professional services such as consulting firms, wealth management, financial services businesses, accounting firms. Personal services such as hair salons is also a high touch business.

Low touch

Image: Wikimedia Commons

“Low-touch” business requires minimal involvement or assistance from employee in selling a product or service.

As a customer, you are buying the product or service, and don’t place much value in the individual selling it to you.

An advantage to this model, it will be a lower cost for you to acquire customers as hiring and maintaining a sales team can be expensive.

Examples: Ikea

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