Strategic Business Models

One trap many new start businesses fall into is to simply start competing in an existing market in the same way that all the other competitors already do!  Sure, they might be cheaper or have a slight difference with their delivery but many lack a genuine unique selling point (USP) and fail to trade with a genuinely unique point of difference to their competitors.

Clearly there are opportunities for this approach to work, but the risk is that you are simply creating more supply in the market.  Any 1st year economics student will work out that more supply will reduce the market price and thus, squeeze every supplier including yourself!

Examples of Strategic Business Models

Scan through the following descriptions of different strategic business models and you’ll start recognising some that you’re already familiar with:

Add-on model / The Low-cost model

Think airlines where the £20 ticket price becomes £60-70 once you’ve added everything else on.  Their marketing is ‘low cost’ but the end price is rarely that!

Bait & Hook model

Think about buying an office or home printer where the printer itself is extremely low cost but the cartridges or ink subscriptions end up creating the profit.

The Advertising model

This is effectively the Yorkshire Powerhouse model – advertisers help to fund the promotion.  In the ‘normal model’ used elsewhere, the business keeps a percentage of the advertising revenue to form the profit.

Auction model

Think Ebay – although in recent years, the Ebay model has been changing towards a fixed price approach.  Variations on the auction model include the sealed bid model used by buyers now.

The Affiliate model

The ‘old version’ of this was a ‘commission only’ sales person, but with the internet, affiliate schemes are now trackable.  Anyone can list Amazon links with a potential to earn from them.

The multi-level marketing model

Seen regularly through networking meetings, the modern solution to pyramid scheme selling where you build a network of resellers, normally on the back of the ‘opportunity to build you own business’.  These models often revolve around selling a consumer product (skincare, healthcare, utilities, etc) and pushing this product out to your immediate friends and family, luring them into the business to become resellers for you and benefit from a small income as a result.

The Franchise model

Only dating back to 1880, although it’s now a well proven business model, it still has some critics.  Sales licences operate in a similar way too.  The most famous franchise being McDonalds – the premise of a franchise business model is that you are buying into a proven and systemised business where you gain additional support from the franchisor.

The Subscription model

See our book review on The Automatic Customer by John Warrilow who goes on to describe over 10 different versions of subscription business model – but they all contain the same beautiful thing … recurring regular income.

The Freemium model

Frequently used in software applications (eg. LinkedIn, Spotify, Insightly, etc) where you get high levels of access but generally with annoying adverts or a limitation of service and then to continue without the limitations or ads you pay a premium.

The Premium model

Think ‘reassuringly expensive’ … essentially the model where you offer the best levels of service or quality and you charge accordingly, justifying the cost based on the premium standards you operate on.

The pay-as-you-go model

Think phone contracts as an example – the business model where you simply pay for what you use as and when you use it!