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A business model (also called a business design) is the mechanism by which a business intends to generate revenue and profits. It is a summary of how a company plans to serve its customers. It involves both strategy and implementation. It is the totality of:
Generally, the business models of service firms are more complex than those of manufacturers and resellers. The oldest and most basic business model is the shop keeper model. This involves setting up a store in a location where potential customers are likely to be and displaying a product or service.
Over the years, business models have become much more sophisticated. The bait and hook business model (also referred to as the razor and blades business model or the tied products model) was introduced in the early 20th century. This involves offering a basic product at a very low cost, often at a loss (the "bait"), then charging excessive amounts for refills or associated products or services (the "hook"). Examples include: razor (bait) and blades (hook); cell phones (bait) and air time (hook); computer printers (bait) and ink cartridge refills (hook); and cameras (bait) and prints (hook). An interesting variant of this model is a software developer that gives away its word processor reader for free but charges several hundred dollars for its word processor writer.
In the 1950s new business models came from McDonald's Restaurants and ToyotaToyota Motor Corp. TMC (In Japanese: ) is an automobile manufacturer in Japan, based in Toyota, Aichi. History Origins in Toyota Automatic Loom —1936 The origins of the company are found as an automobile section of Toyoda Automatic Loom, implemented in Se. In the 1960sCenturies: 19th century 20th century 21st century Decades: 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s Years: 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Events and trends The 1960s was a turbulent decade of change around the innovators were Wal-MartWal-Mart Stores, Inc. is the world's largest retailer and the largest company in the world based on revenue. In the fiscal year ending January 31, 2004, Wal-Mart had $256. 3 billion in sales and $8. 9 billion in income. Forbes magazine points out that if and Hypermarkets. The 1970sMillennia: 1st millennium 2nd millennium 3rd millennium Centuries: 19th century 20th century 21st century Decades: 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s 2020s Years: 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 Events and trends saw new business models from Federal Express and Toys R Us; the 1980s from Blockbuster, Home Depot, Intel, and Dell Computer; the 1990s from SouthWest Air , eBay, Amazon.com, and Starbucks. Poorly thought out business models were a problem with many dot-coms.
Each of these business model innovations can give the firm a sustainable competitive advantage. But times are changing and companies must continuously rethink their business design. Companies must change their business models as value migrates from industry to industry. Ultimately the success or failure of a company depends first on how well its business design matches their customers' priorities.