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By Tatenda Alexis Muskwe
TO apprehend how business models are evolving and to get inspiration for designing an innovative new business model, it is worthwhile to examine some of the new patterns emerging. Over the past 20 years we have seen a proliferation of these. Many new business models are built around internet, yet it is not an essential ingredient of business model innovation but right philosophy.
The purpose of business model development is to widen your revenue pipelines and streams of cash-flow into the business.
I will stress on 4 key business model frameworks that have been tried and tested
•Long-tail
•Multi-sided
•Free
•Bait and hook
Long-tail business models
In long tail business models a company sells lower quantities of more types of products to a selected groups of customers. Traditionally business aimed at creating “hit” product and these are products that would appeal to the largest market segment of mainstream customers. Because the cost of finding customers, producing and distributing products in many industries has decreased. Some businesses have emerged to service small, dispersed group of customers which is a blue ocean – in publishing industry an example is: Lulu.com.
Multi- sided platforms
Multi-sided platforms bring together buyers and sellers. They create a space where people can transact. The platform creates value by facilitating interactions between different groups. A multi-sided platform becomes more and valuable as more and more people use it, a local example is Real Estate sector we have Classifieds.
Free systems
Many businesses are finding it possible to deliver a product or service to a substantial customer segment at no cost. Non-paying customers are financed by some other portion of the business; because people are naturally attracted to offerings that are free. Many businesses benefit in providing their offering at no cost to generate demand and create interest in Brand by generating network capital. They then charge on additional services for example tech companies like Dropbox, Google and YouTube.
Bait and Hook
The bait and hook business model is the practice of luring a customer in with a relatively cheap upfront purchase but then making money off them with more lucrative ongoing servicing. The most famous example of the bait and hook business model is in the razor blade industry. Gillette will sell you the actual razor for the next to nothing but make huge margins on shaving sticks, and replacement of disposable blades. In Africa we have BMW Financial services in South Africa they give their customers a financial services package as a means to finance the car. They make the real money on the purchase through ongoing interest payments that you make paying off the vehicle.
|Tatenda Alexis Muskwe| Managing Partner at TeskDom Management and Investment Banking Consulting Firm
www.teskdom.com. He can be contacted on: +263783062572
