A business model is a conceptual structure that supports the viability of a product or company explaining how the company operates, makes money & how it intends to achieve its goals. It’s a framework for how a company creates value. It encapsulates how a company plans to generate profit by selling services or products. It’s the DNA of a company’s strategy & illuminates its success-bound trajectory. The business processes and policies of a company are premised on a business model. Before the initiation of a new company becomes full throttle, due and adequate thought must be given so as to ensure that the appropriate business model is chosen or created & subsequently adopted.
In this article I shall enunciate some of the business models that are being used by local businesses. They are as follows:
This model entails the use of raw materials to develop products. It could also involve the use of pre-made components to assemble & come up with products. The products developed or produced can be sold directly to end consumers using a business to consumer (B2C) approach. Another approach is for another business to buy from the manufacturer and then it sells to the consumer i.e. a business to business (B2B) approach. An example is Lambat Clothing Manufacturers located in Southerton, Harare.
Here the company or business buys products directly from the manufacturer. Then it, in turn, sells them to retail outlets or the general public. Essentially, it acts as a middle point or middle man between the manufacturer and businesses or individuals. Greystone Distributors located in Bulawayo are an example. They specialize in importing & distributing all types of bearings, vee belts & hardware.
This involves buying products from a distributor, manufacturer or wholesaler. Then products are sold to the general public. Usually, in fact, commonly, a brick-&-mortar location is used by the retailer (this however, is not always mandatory since online retailing is now becoming a growing trend). An example of a retailer is OK Zimbabwe, which happens to be the country’s biggest retailer.
This is based on the use of another organization’s business model that’s already established. It can involve manufacturing, distribution or retailing. Ideally, the basis is on a unique service or product being sold or produced by leveraging on established processes & protocols of the parent business. It uses the parent business’ model and brand whilst in the process paying royalties. Franchise examples in Zimbabwe would be Steers or Pizza Inn.
Bricks & Clicks Model
This is when a company executes its business both offline & online i.e. bricks (offline) & clicks (online). So here the users can order products on online but the order gets picked up at a local outlet or is dispatched from a local outlet and delivered to the customer. The merit of this approach is that a wider pool of customers can actually be reached at very limited costs. An example is Foodworld Supermarkert which has both an online shop and physical shops.
Nickel & Dime Model
The basic concept here is to charge as low as possible for the cost-sensitive item. Then you, in turn, charge for every other minor service. This is a quite risky model and can come back to hurt the business. This is because, in time, customers will begin to see right through all those charges and get tired of them, ultimately crossing the floor to other service providers. Thus, its important thoroughly assess whether or not that model should be applied always or it should be periodically reviewed against customer behaviour, attitudes & responses. An example would airline companies like Air Zimbabwe where you are charged extra fees for luggage.
What happens here is that the basic service is offered free. Then when a user wants to use premium services they are charged. So basically the premium services are only accessible at an additional fee; premium services denote full or expanded access. Most online services & applications use this business model. Typically 8% or more of users ultimately pay up to upgrade & become premium users. An example is Zim Provisional Guide app available on Google Play Store.
High Touch Model
The essence of this model is that it requires ardent & consistent human interaction. It’s a person-centric model where the relationship between the salesperson (i.e. one selling goods or services) & customer has a colossal impact on sales realized & customer retention. It’s a commonly used business model in the country across the formal & informal sectors. Businesses that are highly suited for this model are consulting firms, financial services, accounting firms or salons. Examples are Nyaradzo Funeral Services or Red Rose Hair & Beauty Salon.
This is recently developed business model. For this model, a company collects information about particular goods or service providers and then makes them partners. Then those providers sell their services under the brand of the company whilst earning money by virtue of commissions. To note here is that the providers don’t actually become employees & they continue to be owners of the goods or service provided. The aggregator is a brand and thus must provide services with uniform quality & price. The aggregator also plays a huge role in marketing the goods or service. An example here is Vaya Lift (the Uber-like taxi service).
Mostly used when customer acquisition costs are quite high. It entails keeping customers over a long-term contract and getting recurring revenues from them through repeat purchases. Basically, the customer pays a recurring price at regular intervals to get access to a product or service. Essentially, when you adopt this model you will be creating a significant asset & renting a piece of it. Example here would be Kwese Iflix, which is a content provider that streams shows & movies.