Business Models Explained: From Traditional to Innovative

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Business Models Explained: From Traditional to Innovative

Business Models

Business Model Generation: Mastering Modern Frameworks

Innovative frameworks and models are essential for success in today’s dynamic business landscape. This article delves into three transformative approaches to business model generation: the Business Model Canvas, Platform-Based Business Models, and Circular Economy Business Models.

Business model

POPULAR BUSINESS MODELS

1. Distributor Model

Definition: The distributor model involves purchasing goods from manufacturers or producers and selling them to retailers, businesses, or consumers. Distributors act as supply chain intermediaries, ensuring products reach their intended markets efficiently.
An example in the Philippines is the Monde Nissin Corporation, a leading distributor of food products such as Lucky Me! instant noodles, distributes its products to supermarkets, convenience stores, and sari-sari stores across the country.

2. Manufacturer Model

Definition: In the manufacturer model, companies produce goods or services and sell them directly to consumers or through intermediaries like wholesalers and retailers. This model eliminates some middlemen, often resulting in higher profits for manufacturers and cost savings for consumers.
For example, in the Philippines, San Miguel Corporation, one of the largest manufacturers in the country, produces beverages, food, and packaging materials that are sold locally and internationally.

3. Retailer Model

Definition: The retailer model involves selling finished goods directly to end consumers. Retailers purchase products from wholesalers or manufacturers and make them available in physical stores, online platforms, or both. This model focuses on creating a convenient shopping experience for customers.
An example in the Philippines is SM Supermalls, operated by SM Prime Holdings, a major retailer offering a wide range of products through its malls and online shopping platforms.

4. Franchise Model

Definition: A franchise model allows an individual (franchisee) to operate a business using the franchisor’s branding, trademark, and business systems. Franchisees pay fees and royalties in exchange for training, support, and operational guidance.
For example, in the Philippines, Jollibee Foods Corporation, known for its flagship brand, Jollibee, allows entrepreneurs to operate franchise branches nationwide while adhering to its operational standards.

5. Advertising-Based Model

Definition: This model generates revenue by offering free products or services while earning income through advertisements on websites, apps, or media channels. The more users interact with the platform, the higher the advertising revenue.
An example in the Philippines is ABS-CBN Corporation, which offers free streaming services funded by advertisements through its digital platform iWantTFC.

6. Subscription Model

Definition: In a subscription model, customers pay recurring fees (monthly or annually) to access a product or service continuously. This model ensures a steady revenue stream while focusing on customer retention.
An example in the Philippines is Globe Telecom’s GPlan+, which offers postpaid mobile plans bundled with subscription services like Netflix or Spotify.

7. Freemium Model

Definition: The freemium model offers essential services for free while charging for premium features or upgrades. It is designed to attract a large user base with free offerings and convert some users into paying customers over time.
An example in the Philippines is GCash, a mobile wallet app that provides free basic money transfer services but charges fees for premium features like credit payments and loans.

8. Direct-to-Consumer (DTC) Model

Definition: The direct-to-consumer model eliminates intermediaries by selling products directly to customers through online platforms or brand-owned stores. This approach allows businesses to control branding and customer relationships more effectively.
An example in the Philippines is Human Nature, a personal care brand that sells eco-friendly products directly through its website and physical stores.

9. Business-to-Consumer (B2C) Model

Definition: In the B2C model, businesses sell goods or services directly to individual consumers for personal use. This is one of the most common models in retail and e-commerce industries.
An example is the Philippines: Lazada Philippines, an e-commerce platform where businesses sell products directly to consumers.

10. Business-to-Business (B2B) Model

Definition: The B2B model involves businesses selling products or services to other companies rather than individual consumers. These transactions often involve bulk purchases or long-term contracts.
An example in the Philippines is Philippine Long Distance Telephone Company (PLDT), which provides enterprise solutions such as internet connectivity and cloud services to other businesses.

11. Consumer-to-Consumer (C2C) Model

Definition: The C2C model facilitates transactions between individual consumers through an online platform as an intermediary for buying and selling goods or services.
Example in the Philippines: Carousell Philippines, an online marketplace where individuals can buy and sell secondhand items.

12. Consumer-to-Business (C2B) Model

Definition: In this model, individual consumers provide value to businesses by offering goods, services, or data that companies can use for their operations or marketing strategies.
Example in the Philippines: Influencers on platforms like Instagram offer promotional services to brands like Bench, receiving payment or free products in return.

13. Reselling Business Model

Definition: Resellers purchase products at wholesale prices from suppliers and sell them at retail prices without altering the product itself. They act as intermediaries between producers and end-users.
For example, in the Philippines, a sari-sari store buys snacks and drinks in bulk from distributors and resells them individually to customers.

14. Non-Profit Business Model

Definition: Non-profits aim to achieve social goals rather than generating profits; they rely on donations and grants.
For example, in the Philippines, the Philippine Red Cross relies on donations and grants to fund its humanitarian activities and disaster relief efforts.

15. Platform-Based Business Model

Definition: A platform-based business model creates value by facilitating interactions between two or more independent groups, usually consumers and producers. The platform provides the infrastructure and rules for these interactions, enabling the exchange of goods, services, or information. The platform does not typically create the goods or services offered but acts as a facilitator.
Example in the Philippines: Grab Philippines is a platform that connects commuters with drivers, and restaurants with customers through its various services, including ride-hailing, food delivery, and package delivery.

Business Models Explained: From Traditional to Innovative

Business Model Canvas: A Strategic Framework

The Business Model Canvas is a visual tool designed to help entrepreneurs and organizations conceptualize, assess, and refine their business models. It simplifies complex planning into nine interconnected building blocks:

  1. Customer Segments: Understanding target audiences and grouping them based on shared characteristics is vital for tailoring services or products. For instance, a restaurant might focus on families, young professionals, or tourists.

  2. Value Proposition: This defines the unique value a business offers, such as solving customer problems or fulfilling needs. Examples include innovation, cost reduction, or convenience. For example, a tech startup might offer a user-friendly app that simplifies financial management.

  3. Key Activities: Essential actions required to effectively deliver the value proposition. These could include manufacturing, marketing, or research and development.

  4. Key Resources are assets (physical, intellectual, human, or financial) necessary for operations. For a software company, key resources might include skilled developers and robust server infrastructure.

  5. Key Partners: Collaborations that enhance efficiency or provide critical resources. Partnerships with suppliers, distributors, or other businesses can be crucial.

  6. Customer Relationships: Strategies for attracting, retaining, and nurturing customers. This could involve personalized service, loyalty programs, or community engagement.

  7. Channels: Methods of delivering value to customers, whether physical or digital. Examples include retail stores, e-commerce platforms, or social media.

  8. Cost Structure involves identifying major expenses to optimize operations. This includes fixed costs like rent and variable costs like marketing expenses.

  9. Revenue Streams: Ways the business generates income, such as sales, subscriptions, or advertising.

Organizing these elements in a single-page template allows businesses to foster collaboration and streamline strategic planning.

Sample Business Model Canvas: Bacolod Delights Restaurant

Let’s apply the Business Model Canvas to a fictitious restaurant in Bacolod City:

Block Description
Customer Segments Local families, tourists, and food enthusiasts are seeking authentic Negrense cuisine.
Value Proposition Traditional Bacolod dishes with a modern twist, cozy ambiance, exceptional service.
Channels In-house dining, takeout, delivery via local apps, social media promotions.
Customer Relationships Personalized table service, interactive events, loyalty programs.
Revenue Streams Dine-in sales, takeout orders, catering services for local events.
Key Resources Experienced chefs, restaurant premises, local suppliers, online ordering system.
Key Activities Menu development, staff training, supply chain management, community engagement.
Key Partners Local farmers for fresh ingredients, event planners for catering services.
Cost Structure Food costs, staff salaries, rent, marketing expenses, equipment maintenance.

Business Models Explained: From Traditional to Innovative

Platform-Based Business Models: Revolutionizing Industries

Platform-based business models have transformed industries by connecting user groups and facilitating interactions, rather than producing goods directly. These models leverage digital infrastructure to create ecosystems that foster value exchange, innovation, and scalability. Below, we explore their characteristics, advantages, and real-world examples.

Key Characteristics of Platform-Based Business Models

  1. Value Creation Through Interaction
    Platforms enable producers and consumers to interact seamlessly within an ecosystem. Unlike traditional linear models, where value flows one way (e.g., from manufacturer to customer), platforms facilitate two-way or multi-dimensional value exchanges. For example:

    • Airbnb connects hosts offering accommodations with guests seeking short-term stays. Its infrastructure ensures trust through verified profiles, secure payments, and reviews.

    • Amazon Marketplace allows sellers to list products while buyers access a vast catalog. The platform’s recommendation algorithms enhance user experience.

  2. Scalability via Network Effects
    Platforms grow exponentially through network effects—where the platform’s value increases as more users join. Unlike traditional businesses requiring significant physical investments (e.g., factories or warehouses), platforms scale digitally:

    • Uber expands by onboarding drivers rather than building fleets.

    • Facebook grows its user base by creating social connections that attract more users.

  3. Digital Ecosystems and Innovation
    Platforms often evolve into ecosystems where additional services are built. For instance:

    • Apple’s App Store provides developers with tools to create apps, fostering innovation within its ecosystem.

    • Google Play supports app creators while offering users access to millions of applications.

  4. Multi-Sided Platforms
    Platforms serve multiple user groups simultaneously, creating interdependence between them. For example:

    • Uber connects drivers with passengers while managing payment systems and route optimization.

    • Visa facilitates transactions between cardholders, merchants, and banks in a seamless manner.

Advantages of Platform-Based Business Models

  1. Rapid Growth and Market Reach
    Platforms can achieve massive scale in relatively short periods due to their ability to connect users globally without owning physical assets. For example, Airbnb reached a valuation of $30 billion within eight years of its founding in 2008.

  2. Cost Efficiency
    Platforms minimize operational costs by acting as intermediaries rather than producers. For instance:

    • eBay facilitates transactions between buyers and sellers without holding inventory, reducing risks like storage costs or supply chain logistics.

  3. Access to New Markets
    Platforms unlock new sources of supply and demand by leveraging their ecosystems:

    • Beverage delivery service Zé Delivery, backed by AB InBev, expanded into 300 cities in Brazil during the COVID-19 pandemic by tapping into its parent company’s network.

  4. High Barriers to Entry
    Once platforms achieve scale, they become difficult for competitors to displace due to strong network effects and user data advantages:

    • Amazon’s vast user base and data insights create high customer switching costs while lowering sellers’ transaction costs.

  5. End-to-End Insights
    Platforms collect data from all interactions within their ecosystems, enabling detailed insights into user behavior, market trends, and opportunities for innovation. For example:

    • Amazon uses data-driven decision-making to optimize product offerings and outcompete other market players.

Examples of Successful Platform Businesses

  1. Amazon Marketplace: Connects merchants with consumers globally, offering logistics support like fulfillment services and delivery networks.

  2. Airbnb: Provides a platform for hosts and guests to transact securely while fostering trust through reviews and verified profiles.

  3. Apple’s App Store: Bridges developers with users, enabling innovation through app creation tools and distribution channels.

  4. GitHub: A collaborative space for software developers to share code, build projects, and interact with peers worldwide.

  5. Uber: Links drivers with passengers while optimizing routes and managing payments in real-time4.

Why Platform Models Thrive in Digital Economies

Platforms dominate the digital economy because they scale rapidly, adapt to user needs, and foster innovation within their ecosystems. Their ability to leverage network effects makes them formidable competitors in industries ranging from transportation (e.g., Uber) to healthcare (e.g., telemedicine platforms). Additionally:

  • Platforms reduce marginal costs as they scale exponentially.

  • They create winner-take-all dynamics because they can reinvest profits into improving services or squeezing out competitors.

  • They foster innovation by providing infrastructure for third-party developers or service providers.

Circular Economy Business Models: A Sustainable Approach

The circular economy is a transformative model that shifts from the traditional linear approach of “take-make-waste” to a restorative system that prioritizes sustainability. By focusing on resource efficiency, waste reduction, and environmental regeneration, circular economy business models aim to create long-term value for businesses, society, and the planet. Below, we explore its core principles, practical applications, and successful examples.

Core Principles of Circular Economy Business Models

  1. Designing Out Waste and Pollution
    Products are designed with longevity, repairability, and recyclability in mind. This involves using sustainable materials and minimizing waste during production. For example:

    • Eco-Design: Modular designs or rechargeable products that extend usability.

    • Sustainable Sourcing: Using renewable or recyclable materials instead of virgin resources.

  2. Keeping Materials in Use
    Circular business models aim to maximize the lifecycle of products and materials through reuse, sharing, and repair. Key strategies include:

    • Sharing Economy Concepts: Platforms like car-sharing services (e.g., Zipcar) reduce ownership while maximizing asset utilization.

    • Product-as-a-Service Models: Companies retain ownership of goods while offering them temporarily to customers. For instance:

      • Philips Lighting leases lighting solutions rather than selling bulbs outright, ensuring materials are returned for recycling or reuse.

    • Repair and Refurbishment: Businesses like the International Council for Clean Transportation offer buy-back programs for old furniture that can be resold or refurbished.

  3. Regenerating Natural Systems
    Circular models aim to restore ecosystems by using renewable energy and ensuring waste becomes a resource for other processes. Examples include:

    • Composting biodegradable materials to enrich soil.

    • Eliminating toxic substances in manufacturing to avoid environmental harm.

Key Circular Economy Business Models

Circular economy business models can be categorized into several types based on their focus:

  1. Product Life Extension
    Extending the lifespan of products through repair, refurbishment, or remanufacturing. For example:

    • Vodafone’s Trade-In Program refurbishes old devices for resale.

    • Caterpillar’s Remanufacturing Program restores used heavy equipment parts to like-new condition.

  2. Sharing Platforms
    Platforms enable the sharing or leasing of underutilized assets among users. Examples include:

    • Airbnb for accommodations.

    • Peerby, a tool-sharing platform.

  3. Circular Supply Chains
    Ensure that materials are reused rather than discarded within a closed-loop system. Companies like Renault have adopted “refractory” systems to recycle vehicle components.

  4. Reverse Logistics and Recycling
    Businesses create systems to take back used products for recycling or upcycling. For instance:

    • Le Parfait, a glass container brand, eliminates single-use packaging by promoting reusable jars in food supply chains.

  5. Regenerative Agriculture Models
    Companies work directly with farmers to restore soil health and biodiversity while producing food sustainably. For example:

    • Danone supports regenerative agriculture practices among its suppliers.

Advantages of Circular Economy Business Models

  1. Environmental Benefits
    Circular models reduce carbon emissions, minimize waste, and conserve natural resources. According to the Ellen MacArthur Foundation, implementing circular strategies globally could reduce emissions by 39% (22.8 billion tons annually).

  2. Economic Opportunities
    By reusing materials and extending product life cycles, businesses can reduce costs while creating new revenue streams through refurbishment or leasing models.

  3. Resilience Against Resource Scarcity
    Circular supply chains reduce dependence on finite resources by reusing existing materials.

  4. Consumer Appeal
    Eco-conscious consumers increasingly favor brands prioritizing sustainability, giving businesses a competitive edge.

Examples of Successful Circular Business Models

  1. Vodafone’s Trade-In Program
    Customers trade old devices for discounts on new ones while Vodafone refurbishes the returned products for resale.

  2. SKF’s RecondOil System
    This innovative system continuously cleans industrial oil for reuse, reducing waste and lowering customer costs.

  3. Bugaboo Flex Stroller Leasing Service
    Bugaboo offers a leasing program where customers can upgrade strollers as their children grow while returning old ones for refurbishment.

  4. IKEA Buy-Back Program
    IKEA purchases used furniture from customers, refurbishes it, and resells it at discounted prices.

  5. Patagonia’s Worn Wear Initiative
    Patagonia repairs old clothing to extend its lifecycle and resells refurbished items at reduced prices.

How Businesses Can Transition to Circular Models

To implement circular economy principles effectively, businesses must rethink their strategies across the value chain:

  1. Adopt Eco-Design Principles
    Design products with durability and recyclability in mind from the outset.

  2. Invest in Reverse Logistics Systems
    Create infrastructure to collect used products from customers for recycling or refurbishment.

  3. Collaborate Across Supply Chains
    Work with suppliers and partners to ensure materials flow within closed loops rather than ending up as waste.

  4. Leverage Digital Technologies
    Use tools like blockchain for product traceability, artificial intelligence for optimizing resource use, and Internet of Things (IoT) devices for monitoring product performance over time.

  5. Educate Consumers on Sustainability
    Encourage customers to participate in circular initiatives such as returning used products or opting for shared services instead of ownership.

Conclusion

The Business Model Canvas provides clarity in planning; platform-based models leverage connectivity for growth; circular economy approaches ensure sustainability while fostering innovation. By understanding and applying these frameworks, businesses can adapt to evolving demands while remaining competitive in a rapidly changing world.

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Jojo M. Vito, a seasoned educator with over 20 years of teaching experience. Holding degrees in Psychology, Business Administration, and a Ph.D. in Business Administration, Jojo is a dedicated professional committed to imparting knowledge. Beyond the classroom, he is a blogger across multiple platforms, a management consultant, and an entrepreneur. Jojo is also the owner and designer of Jojo Vito Designs Gallery & Garden, showcasing his creative flair in both business and design.

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