Business models draw from many subjects related to business such as marketing, operations, finance, economics, strategy, and entrepreneurship.
In short, business models spell out the method used by companies to do business in order to sustain themselves or generate profits. Business models can also help the business understand where the business is experiencing challenges or difficulties that need to be overcome.
Therefore, an effective business model is based on developing the strengths that are required for a business to succeed. Some key issues related to a strong business model are locating customers that are of high value, providing customers good value, and helping to deliver substantially high margins. A good business model also helps to avoid certain pitfalls which can undermine a business, such as difficulties in providing satisfaction to customers, problems maintaining the position of the business in the market, and trouble generating funds for the growth of the business.
Acquiring Customers of High Value
This does not necessarily mean that you need to acquire affluent customers, but it does mean that you need to acquire customers that meet requirements such as being easy to find, are willing to try out your product, are willing to be charged for your product, and are capable of sustaining the level of business needed for you to attain your goals overall.
Your customers may not necessarily comprise solely of the users of your merchandise or service. They could also include distributors, retailers, manufacturers or anyone else that you might sell your product. In case the users of your goods or distributors do not fit the above profile, you can still acquire customers of high value by forming alliances or partnerships with other businesses.
Providing Customers High Value
There are several methods of creating high value for your customers which will lead to your business attaining a competitive edge in the market. These may include providing unique benefits and features that are advantageous to the customer, creating better systems of distribution via retail or other channels, providing complete solutions to customers by forming coalitions with other business enterprises, using efficient manufacturing methods or options in pricing to lower the price, and providing more customized options, a broader spectrum of products, and quicker delivery.
The increasing importance of the internet as a channel of commerce and outsourcing has helped companies become increasingly willing to form creative partnerships to cater to the needs of customers. In addition, this has lead to all industries devising innovative strategies of doing business that involve technology and the Internet. While this does offer opportunities, it also means that you have to be increasingly creative to withstand and overcome the competition.
Delivering High Margin Products or Services
Opting for cheaper manufacturing overseas may not always provide you higher margins as your competitors will find ways to end up matching your costs. It is better to use improved manufacturing processes or include features which offer considerable value, thereby allowing you to charge higher prices.
You can use other strategies to attain higher margins such as using a more effective channel of distribution, requiring less effort in making sales or supporting sales, becoming a leader in the industry of incorporating a lean process of manufacturing, or offering more supplementary products or other revenue opportunities without it costing more.