Imagine diving into the intricate world of business models, where every term from “value proposition” to “value architecture” plays a critical role in shaping how businesses create, deliver and capture value. In this article, we will explore 50 essential business model terms that form the backbone of modern entrepreneurship and management. These terms are not just jargon but foundational ideas that help us understand how companies strategize, innovate, and thrive in a competitive landscape. By becoming familiar with these concepts, you’ll gain valuable insights into the mechanics of business success and the strategies that drive growth and efficiency.
- Business Model – A plan for how a company makes money and provides value to customers, including what it sells, how it sells it, and who buys it.
- Business Model Innovation – Creating new ways for a company to do business or make money by altering its existing model.
- Business Model Disruption: When a new business model transforms the way business is conducted by making existing models obsolete or significantly less competitive.
- Business Model Archetypes – Common patterns of how companies operate, like subscription services or marketplaces.
- Value Creation – Making something valuable for customers by meeting their needs or solving their problems, and adding worth through features.
- Value Delivery – How a company arranges its operations to provide its products or services to customers, ensuring they receive what was promised and in a way that meets their needs.
- Value Capture – The way a company keeps some of the value it creates, often through strategies like pricing, cost advantage, or competitive differentiation.
- Value Architecture – refers to the internal structured organization of a company’s value chain, key resources, and key processes to effectively deliver value to its customers and stakeholders, thereby creating and sustaining a competitive advantage.
- Value Migration – When the value or profit in an industry shifts from one company or area to another due to changes in technology or customer preferences. An example is from cash to digital payments like GCash and Unionbank.
- Value Proposition – The main benefit or reason why customers would choose a company’s product or service over others.
- Target Market – a specific group of people that a company aims to reach with its products or services. These are the customers who are most likely to buy what the company is selling.
- Channels – The ways a company gets its products or services to customers, such as online, in stores, or through direct sales.
- Customer Bonding Strategy – a plan used by companies to build a strong connection with their customers. This involves strategies designed to get customers to learn about the product, try it out, and then buy it repeatedly.
- Revenue Model: The specific way a company makes money from its customers, such as through one-time purchases or ongoing subscriptions.
- Value Chain: : The steps a company takes to create and deliver a product or service, from production to delivery. It includes both primary activities (such as production, marketing, and distribution) and support activities (such as procurement, technology development, and human resources) within the organization.
- Key Processes – The main tasks that a company performs routinely and regularly to achieve its objectives and deliver value to customers.
- Key Resources – Important assets a company needs to run its business, like money, staff, knowledge, or technology.
- Key Complementors – Collaborations with external entities that help a company achieve its goals.
- Reconfiguration for Innovation – Involves the dual aspect of initiating new approaches while eliminating those that are no longer relevant.
- Cost Structure – The costs a company has to pay to operate, including both fixed costs (like rent) and variable costs (like raw materials).
- Strategic Alliances – Partnerships between companies to work together on certain projects or goals.
- Strategic Intent – A clear and focused long-term goal that guides a company’s actions and decisions.
- Strategic Fit – How well a company’s resources and strategy match with the needs and changes in the market.
- Strategic Drift – When a company’s strategy slowly becomes outdated because it doesn’t adjust to changes in the market.
- Strategic Flexibility: The ability of a company to change its strategies and operations quickly in response to new challenges.
- Dynamic Capabilities – A company’s ability to adapt and change quickly in response to new challenges or opportunities by sensing emerging trends, seizing opportunities, and transforming its processes or strategies accordingly.
- Resource-Based View (RBV) – A way of thinking that focuses on using a company’s unique resources to gain an advantage over competitors.
- Scenario Planning – Preparing for different future possibilities by creating plans for various potential outcomes.
- Market-Driven Strategy – a strategy focused on identifying and satisfying the needs, preferences, and behaviors of customers in the served market to maintain competitiveness.
- Market-Driving Strategy – A strategy focused on identifying and targeting new or underserved markets, rather than competing in crowded or saturated markets.
- Blue Ocean Strategy – A type of market-driving strategy focusing on creating new market space while simultaneously pursuing differentiation and low-cost.
- Innovation – comprises of two essential elements: new value and commercial success. New value must be pioneer within the industry, not merely being a company’s first attempt.
- Disruptive Innovation – A negative-sum approach to innovation and growth that involves new technologies or ideas that change how things are done in an industry, replacing older methods or established companies.
- Nondisruptive creation – A positive-sum approach to innovation and growth that involves creation of a brand new market outside or beyond the boundaries of existing industries (without disruption or destruction)
- Sustaining innovation – involves making gradual improvements to existing products, services, or processes within a current market.
- Open Innovation – Using ideas and technologies from outside the company to improve its own products and processes.
- Reverse Innovation – Developing new products in emerging markets and then bringing them to developed markets.
- Innovation Ecosystem – A network of companies, researchers, and other groups that work together to create new ideas and technologies.
- Differentiation Strategy: Offering unique products or services that stand out from competitors, allowing the company to charge higher prices.
- Cost Leadership: A strategy where a company aims to be the lowest-cost producer in its industry, allowing it to offer lower prices.
- Network Effects – When a product or service becomes more valuable as more people use it, like social media platforms.
- Disintermediation: This means cutting out the middlemen in a process. For example, instead of buying a product through a retailer, you buy it directly from the manufacturer.
- Razor Blade Model: This is when a company sells a main product at a low price but makes money from selling related items that are needed to use the main product. For example, selling a cheap razor but charging more for replacement blades.
- Freemium Model: This is a way of pricing where you can use a basic version of a service for free, but if you want extra features or more advanced options, you have to pay for them. Examples are Spotify and Dropbox.
- Subscription Model: This is a way of paying for a service or product where you make regular payments, like monthly or yearly, instead of buying it all at once. Examples are Netflix and Converge Fiber.
- Platform Business Model: A system where a company provides a space for others to connect and interact, like online marketplaces or social media sites like Facebook and Linkedin.
- C2M Model (Consumer-to-Manufacturer): This model lets consumers give their ideas or requests directly to manufacturers. This way, the manufacturer can make products that better match what customers want like Dell and Nike by You.
- P2P Model (Peer-to-Peer): This model allows people to buy and sell directly from each other, without a middleman. For example, you might rent a room or a car using an app like Airbnb and Grab.
- C2C Model (Consumer-to-Consumer): This is when people sell products or services to other people, like using websites or apps where individuals can buy and sell items directly to one another, such as on eBay and Craigslist. It is also known as the Marketplace Model.
- B2C Model (Business-to-Consumer): This model involves businesses selling products or services straight to individual customers. For example, online stores like Shopee and Lazada, or retail stores like Abenson and Waltermart.
As we wrap up this exploration of 50 essential business model terms, take a moment to reflect on how many you were already familiar with and how many were new to you. Understanding these concepts is crucial for navigating the landscape of business strategy and innovation.
Keep expanding your knowledge and stay curious—each term represents a piece of the puzzle in mastering business models and driving success. Remember, in the world of business, continuous learning and adaptation are key to staying ahead. Here’s to your ongoing journey of discovery and growth!
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Josiah Go is the chair and chief innovation strategist of Mansmith and Fielders Inc. He and RG Gabunada will be facilitating a webinar, Innovating Business Models in the Digital Age, for top management, entrepreneurs, business leaders, strategists and innovators starting afternoon of October 22, 2024, and it will also be available for exclusive corporate groups. For details, inquire at info@mansmith.net
