Business Model Patterns
The Business Model Ideas Patterns are a collection of mechanics, themes and strategies used to delineate business model building blocks. Use them as inspiration and blueprints for designing your business models.
The best way to do this, is to look at the design theme and ask yourself, what would this mean for our business?
For each design theme we provide a short explanation, some key questions you can ask yourself and links to analyzes at Business Model Ideas, illustrating the design theme in practice.
1 Asset > Multiple Businesses
How can you use one and the same asset for multiple businesses? McDonald's uses the same location for fast food and the coffee shop. Amazon uses ist warehouses for Amazon's products and for offers warehouse services to small and medium sized businesses.
1 Asset > Multiple Customer Segments
How can you use one and the same asset for offerings targeted at different customer segments? The classic example is airplanes: one plane caters to the needs of 3 different customer segments: economy class, business class and first class.
How can you increase accessibility to your product or service? Think about simplicity, pricing (e.g., rent instead of buy), features, distribution,...
While the core offering is fairly priced, various add-ons increase the ultimate price. In the end, the customer spends more than anticipated. Customers benefit from a customizable offer that they may tailor to their own requirements.
A very popular way of generating revenues is to give (advertising) customers the possibility to display some kind of marketing message regarding their own offerings as part of your product or service. So think about where you could integrate advertising without comprising the customer experience too much to generate additional revenues.
The emphasis is on assisting people in successfully selling items and directly profiting from such transactions. Affiliates are often compensated on a pay-per-sale or pay-per-display basis. On the other side, the firm gains access to a more varied client base without engaging in more active sales or marketing activities.
Aikido is a Japanese martial technique that utilizes the attacker's power against him or her. As a business model, Aikido allows a company to offer something diametrically opposed to the image and mindset of the competition. This unique value proposition appeals to clients that value unconventional ideas or thoughts.
Auctioning means selling a product or service to the highest bidder. The final price is achieved when a particular end time of the auction is reached or when no higher offers are received. This allows the company to sell at the highest price acceptable to the customer. The customer benefits from the opportunity to influence the price of a product.
Barter is a system of commerce in which products are exchanged without the exchange of actual money. They give something of value to the sponsoring organization in exchange. The transaction does not have to demonstrate a direct relationship, and each side values it differently.
The Cash Machine idea requires the client to pay for the items offered in advance of the firm covering the related expenditures. This results in a gain in liquidity, which may be used to pay off debt or finance other initiatives.
The circular economy is a production and consumption model in which existing materials and products are shared, reused, repaired, refurbished and recycled for as long as possible. The aim is to extend the life cycle and life span of products in this way. In terms of conversion, this means that waste is reduced to a minimum. when a product reaches the end of its life, the materials are left in the economy as far as practicable. This model is based on a closed loop and also relies on large quantities of cheap, easily accessible materials and energy.
Use instead of own, rent instead of buy - collaborative consumption builds on the trend that consumers value access to a good more than ownership. Using network technologies communities start to do more with less. Think about your offering, how can renting, lending, swapping, bartering, gifting or sharing improve the value of your product?
Collaborative Production (Peer Production) as part of Key Activities and Key partners. Through an infrastructure between users (peer-to-peer), especially via the internet, individuals are enabled to communicate with each other, organise themselves and ultimately create use value in the form of digital commons of knowledge, software and design in joint work and without competition.
Have you thought about asking for a payment for services rendered or products sold? Especially in sales, asking for commissions is common practice to reward the achievement of specific (sales) targets. Payements are usually calculated on the basis of a percentage of the price for the goods/services sold.
Communities are all about connecting the users and building up a strong following. Communities are very loyally and proud to be using your product.
Selling a new product or new services to core customers is one of the most commonly pursued and highest-potential growth strategies. The approach allows for first wins, is not too risky and will probably not upset others within your organization. And you could indeed be creative regarding the kind of products and services you offer. Examples: McCafé adds coffee and cake to burgers and fries. Others are cars & insurance, cars & financing, iPod & iTunes etc.
How can you increase the convenience for your customers? Consider Amazon: the value proposition is all about convenience, being able to browse millions of products, ordering them easily from the comfort of your home, having them delivered to your door, and even having them pick up again in case you don't like them.
Cost Reduction / Affordability
Cost reduction is defined as any actions taken as part of a company's or government's cost management strategy to reduce total costs. How can you reduce the cost for your customer? Think broadly about cost: time, resources and financials.
A product, project, or whole start-up is financed via the efforts of a community of investors who desire to support the underlying concept, often via the Internet. If the critical mass is reached, the idea is realized, and investors enjoy unique rewards, which are often proportional to the amount of money invested.
The solution of a task or problem is adopted by an anonymous crowd, typically via the Internet. Contributors receive a small reward or have the chance to win a prize if their solution is chosen for production or sale. Customer interaction and inclusion can foster a positive relationship with a company, and subsequently increase sales and revenue.
Customer intimacy is about meeting the requirements, wants, and views of current and prospective consumers. It is emphasizing relationship marketing and the development of long-term client relationships and customer lifetime value. This strategy entails frequent customer communication and the development of resources to assist customers in getting the most out of the products or services. How close are you to your customers? Can you differentiate yourself by getting closer and offering a more personalized service?
Customer loyalty refers to a customer's continued interaction with a brand or purchase of products from that brand because they appreciate their positive experience with it. In the best-case scenario, devoted customers turn into powerful brand ambassadors. Customers are kept and loyalty is maintained through offering value in addition to the product or service, i.e., through incentive-based programs. The objective is to increase loyalty via the establishment of an emotional connection or by the provision of unique offers. Customers are contractually committed to the business, which safeguards future income.
Customization is the process of modifying a product or service to meet the preferences or needs of a person or an organization. When we adapt anything for a specific goal, we can also use the phrase. To put it another way, we can use it to focus on customers or functions. One size doesn't fit all. Have you thought about providing the opportunity to your customers of tailoring products to their particular needs? Research has shown that customers are willing to pay more for their own unique products. Customization elevates customer loyalty and engagement.
Instead of finer segmentation of your customer base, what do all customer segments have in common that you can make the focus of your offer?
Devices, clothing, automobiles, and websites are all examples of design. It could be about how these things should appear, sound, or feel, as well as making them useful and understandable. Does your product look good? Is the design functional and convenient? The appearance of your product tremendously influences the first impressions.
This pattern is predicated on the capacity to convert existing items or services into digital versions, therefore providing physical products with advantages such as easier and faster delivery. In an ideal world, digitalization of a product or service would occur without compromising the consumer value proposition. In other words, efficiency and multiplication via digitalization do not detract from the perceived value of the consumer.
Direct selling refers to a situation in which a company's products are offered directly from the manufacturer or service provider, rather than through intermediary channels. The firm avoids the retail margin and any additional costs connected with the intermediaries in this manner. These savings may be passed on to the client, establishing an uniform sales experience. Furthermore, such intimate touch can help to strengthen client connections.
In the sales channel, distribution typically refers to all processes that occur between producers and traders up to the end customer (or directly between producers and end consumers). How can you reduce time, energy and cost needed to acquire a product?
Let your customers do things for you. The company saves on staff and the customers feel involved. Can you take tasks off your customers' hands instead of doing them for them? Think about self-check-in, self-service, configuring your own computer,...
If you give your products or services away for free, asking for donations could be a viable approach to still generate revenues. This approach worked well for instance for Wikipedia, which is financed through donations to a large extend.
Dynamic pricing, sometimes known as real-time pricing, is a very flexible method of setting the price of a product or service. Dynamic pricing enables businesses that sell goods or services to modify prices in real time in reaction to market conditions. Pricing bots, which are software agents that collect data and apply algorithms to adjust pricing in accordance with business standards, are in charge of changes. Typically, business rules consider the customer's location, the time of day, the day of the week, the level of demand, and the pricing of rivals. However, with the advent of big data and big data analytics, it is possible to fine-tune business rules for price modifications. By gathering and evaluating data on a specific client, a vendor can more precisely estimate the price at which the customer is willing to pay and alter rates accordingly.
Ease of Use
People do not like to learn something new. Keep that in mind when designing prodcuts or services. If your product is easy to understand and easy to use, people will start using it quicker. In many cases simplicity is key to a great user experience.
Traditional products and services are solely available online, eliminating the expenditures involved with maintaining a physical branch infrastructure. Customers gain from increased availability and convenience, while the business benefits from the flexibility to connect sales and distribution with other internal operations. relationships.
Efficiency as key activity. Efficiency is an important business figure, and the term "efficiency" is used to describe it. It describes the link between the amount of effort required to attain success and the amount of effort required to obtain success.
Can you help to create positive emotions on the side of your customer? For instance, luxury offerings provide customers a feeling of being well-treated, donations make you feel generous and supportive. Think about positive emotions that could be related to your product.
The customer experience that accompanies a product or service adds value to it. This creates an opportunity for increased client demand and a corresponding increase in the pricing charged. This means that the consumer experience must be adjusted appropriately, for example, through advertising and store design.
A feature is a distinctive trait or a special attraction.Are you offering products providing unique features? What features set you apart from competition?
In the economy, a fixed price is a price that is defined differently in different domains of competence, and that is either set by the authorities through legal conventions or set by contract in the private sector, and that cannot be undercut or exceeded. Keeping your prices fixed makes your offer more calculable for your customers and your company. On the other hand it reduces your flexiblity in dealing with fluctuations regarding demand or occupancy.
A single fixed fee is charged for a product or service in this paradigm, independent of actual consumption or time constraints. The consumer benefits from a straightforward cost structure, while the business benefits from a predictable income stream.
The franchisor controls the brand name, goods, and corporate identification, which it licenses to independent franchisees who assume local operational risk. Sales is produced as a percentage of the revenue and orders made by franchisees. Franchisees profit from the use of recognizable brands, expertise, and assistance.
Giving away products or services which are of high value to the customer for free can help to to increase popularity of your offer. There are various options how you can still make money though: someone else pays (e.g., Google services are free, but people pay for AdWords), cross-subsidization (another product covers the cost for the free offer), freemium (see freemium), buy one get one free, pay what you want (see pay what you want), donations, ...
Freemium is about combining "free" and "premium" offers. You could think about offering a simple version (with reduced features) of your product or service for free to develop a broad customer base. However, you are billing customers for the use of the premium version (with additional features). Important for freemium is a high volume of transactions as the converstion rates (an important ratio for freemium) from free to premium users are usually below 10%. Consequently, the marginal cost of additional free users should be close to zero.
From Fixed to Variable Costs
Fixed cost versus variable cost is the difference in categorizing business costs as either static or fluctuating when there is a change in the activity and sales volume. Fixed cost includes expenses that remain constant for a period of time irrespective of the level of outputs, like rent, salaries, and loan payments, while variable costs are expenses that change directly and proportionally to the changes in business activity level or volume, like direct labor, taxes, and operational expenses. To achieve a strategic advantage, can you transform fixed cost into variable ones? Like for example instead of hiring employees, can you work with a network of freelancers?
As a process, frugal innovation redesigns goods and reconfigures value chains in order to service users with severe affordability restrictions in a scalable and sustainable manner. It entails bridging or exploiting institutional chasms and resource constraints in order to foster more inclusive marketplaces. Simply said, frugal innovation creates functional solutions for the many who have limited resources (emerging markets) with few resources.
Gamification is a term that refers to the process of employing game-like elements to incentivize people's engagement in non-game environments and activities.
Getting Things Done
Does your product or service help your customers in dealing with daily chores or completing important tasks? What needs to be added to your offer to increase your customers productivity?
This approach guarantees the availability of a product or service, resulting in practically no downtime. The customer may utilize the product as needed, which minimizes downtime-related losses. The firm achieves these levels of availability through expertise and economies of scale.
The idea that the user is accountable for the business's revenue is abandoned. Rather than that, the primary source of revenue is a third party that cross-finances whatever free or low-cost product draws customers. A particularly popular use of this paradigm is advertising-based finance, in which attracted consumers are valuable to the advertisers who support the service. This notion enables the concept of'separation of revenue and customer.'
The capacity to operate horizontally is one of an organization's most valuable assets. This happens in both business processes and across functional organizations. It usually entails being able to transfer expertise from one functional area to another within the same company. Horizontal expertise is all about being an expert in a narrow, very specific area. PayPal for example is an expert in online payment transactions and offers this services to a large range of customers.
The sale of a good or service via a third-party, such as a partner or affiliate, rather than by a company's employees, is known as indirect sales. Indirect sales can be utilized in conjunction with a company's direct sales efforts or instead of recruiting sales personnel. Resellers, such as specialty businesses and big-box retailers, are frequently used to make indirect sales. Instead of having to distribute yourself directly, why not use 3rd parties and their customer base and reach into local markets?
Ingredient branding refers to the deliberate selection of an ingredient, component, or brand from a particular source for inclusion in another product. This product is then branded and promoted in conjunction with the ingredient product, therefore increasing the customer's value. This imparts favorable brand connotations and qualities to the product, perhaps increasing its desirability.
An integrator is responsible for the majority of the stages involved in a value-adding process. The firm retains ownership of all resources and skills necessary for value generation. Gains in efficiency, economies of scope, and less reliance on suppliers result in cost savings and can enhance the stability of value generation.
A layer player is a specialist business that specializes in providing a single value-adding step for several value chains. Typically, this phase is given in a number of distinct markets and sectors. The business gains economies of scale and frequently produces more efficiently. Additionally, the developed unique knowledge might result in a higher-quality procedure.
Conventional wisdom targets the most satisfied customers and offers them more of what they want. New opportunities can often be found when looking at the least satisfied customers and asking them what they would like to see instead.
Leverage Existing Customers
By gathering consumer data and arranging it for internal use or the benefit of interested third parties, new value is produced. Revenue is made by either directly selling this data to others or by leveraging it for internal reasons, such as improving the efficacy of advertising.
Generating revenues through licensing allows you to focus on the development of technologies or various other kinds of intangible assets (intellectual property). Other companies are authorized to use your invention to build products or services based on it. In return you will receive licensing fees. Although fees might be low compared to direct sales revenues, licensing speeds up diffusion of products or services leading to a faster increase of enitities sold.
Customers are confined to the vendor's universe of products and services. It is impossible to move vendors without incurring significant switching fees, hence preventing the organization from losing clients. This lock-in is either induced by technological methods or by the degree to which products or services are interdependent.
Rather than focusing exclusively on blockbusters, the majority of revenue is generated by a 'long tail' of niche products. Individually, these do not require large volumes or a significant profit margin. If a diverse range of these products is offered in sufficient quantities, the profits from the resulting little sales can build up to a sizable sum.
Can you lower the marginal cost for the next unit of your product? Think about software or pharmaceuticals: research and development tends to be high cost, the next unit of the product is marginal.
Customizing things via mass production appeared to be an impossibility in the past. Modular products and manufacturing systems have enabled efficient product customization. As a result, particular customer requirements can be addressed within the constraints of mass production and at affordable pricing.
Mass market is understood to be the market for a business with little or no difference in consumer tastes and needs. The companies target the end consumers and assume that they need the same products or the same marketing mix. Therefore, they do not segment the market to promote their product.
A classic: going after the guys with the most money.
Offering more to the most satisfied customers. This is important in order not to lose customers in the long term. In simple words, customer satisfaction is a measurement that determines how well a company’s products or services meet customer expectations. It’s one of the most important indicators of purchase intentions and customer loyalty. As such, it helps predict business growth and revenue.
Do you rely on one channel only? What about expanding into others? Be they online, direct, indirect, partnering,...
A multisided platform is an organization that produces value primarily by facilitating direct connections between two (or more) distinct types of linked clients. Stimulate network effects is one of the key tasks of a platform provider. Multisided platforms are all about bringing offer and demand together. The platform acts as an intermediary. Think ebay, airbnb, Craigslist, ...
New / Different Activities
Can you change your business model by performing different activities or focusing on particular ones, leaving away others? Which activities are crucial to your business? Which ones are not?
New / Different Links Between Activities
Can you link activities in new ways?
Niche markets are usually in need of a very special offer and often also willing and able to pay for it. A market niche (also known as a niche market) is a sub-section of the broader market (sub-market, market segment) whose offer is not yet or poorly given by present rivals. A niche market is a subset of a broader market with unique requirements and preferences. Businesses concentrate on niche markets in order to better serve a certain consumer segment than competitors who target a broader audience. Businesses explore niche markets in order to generate loyalty and revenue with a mostly ignored population by catering to the particular wants that mainstream providers do not meet. To flourish in a niche market, you must have a well-defined group of clients and items that are customized particularly to their most pressing wants.
No frills products or servcies are reduced to essential features in return for a lower price. Various addons or additional services are charged extra. Example: low-cost airlines eliminated complimentary food and business class seating and limited luggage allowance.
Who is not buying or doing business with you? Why not? How can you win them over as customers? Who has never been targeted by your industry? How could you sell to these customers?
Are you adding something new (not known in the market so far) to your offerings? Think about new benefits, experiences, technologies, features... etc. Novelty is the state or quality of being new, exciting, unusual or unique
Object as Point-Of-Sale
Consumables are moved from the point of sale to the place of consumption. This leads in a greater lock-in and increased customer retention. When the point of sale is removed from rival products, the customer's sensitivity to price decreases.
An object can produce orders on its own through the use of sensors and integration into an IT framework. This enables fully automated procedures such as replenishment and increases the speed with which the object may be interacted with. The customer is retained, resulting in recurring revenue.
The source code for a software product is not kept confidential in software engineering, but is made publicly available. In general, this might be applied to any aspect of a product's technology. Others may contribute to the product's development but may also use it for free as an individual user. Typically, money is produced through services that complement the product, such as advising and maintenance.
Within this paradigm, the company's primary focus is on its value chain's core strengths. The remainder of the value chain is outsourced and carefully coordinated. This enables the company to cut expenses and profit from the economies of scale of its suppliers. Additionally, an emphasis on fundamental competences has been shown to improve performance.
Outsourcing / Insourcing
Can you outsource or insource activities to change your business model and achieve a competitive advantage? Outsourcing is a term used in economics to describe the transfer of corporate responsibilities and structures to external service providers. It is a type of external procurement of a previously delivered internal service in which contracts specify the duration and scope of the service. Outsourcing is distinct from other types of partnerships because of this. The reintegration of previously outsourced processes and functions (outsourcing) into the organization is known as insourcing, backsourcing, or reinsourcing.
Ownership vs. Access
Do customers need to buy your product or service, or can they not simply rent it from you? Think about it especially if ownership of a product does not provide additional value to your customers (e.g., because they need the product just once, irregularly or only for a short period of time). Example: people want to listen to music (access). In order to do so, they do not need to own the records.
With a pay-per-use model, you are charging only for what is really used by your customer. This model is very common in cases where the transaction values are small and can be automated. A pay-per-use model can reduce adoption barriers of products or services. Example: Pay TV pay-per-view offers or pay-per-click models in online advertising.
Pay What You Want
The buyer may pay any amount, including zero, for a given commodity. In some instances, a minimal floor price and/or a suggested price are specified to provide assistance to the buyer. The client has the ability to affect the price, while the seller benefits from increased customer attraction, as individuals' willingness to pay is satisfied. This is rarely exploited due to the existence of social conventions and morals, which makes it perfect for attracting new clients.
This approach is predicated on a cooperative that specializes in settling conflicts between members of a homogeneous group. P2P is frequently shortened. The company provides a point of contact for these individuals, in the form of an online database and communication tool (these could include offering personal objects for rent, providing certain products or services, or the sharing of information and experiences).
Does the performance of your product or service excel competition on at least one parameter? Clearly communicate on which parameters you are leading the pack.
Performance based revenues are not based on the value of a product or service itself, but on the performance it delivers. The customers pays a certain amount based on a predefined performance indicator. Example: Rolls-Royce does not sell the aircraft engines themselves, but the hours of operation ("power-by-the-hour").
Can you find a way to differentiate through pricing? Offering the lowest price in the market gives your customer confidence in making purchasing decisions. They do not need to look elsewhere. However, it is advisable not to differentiate solely through pricing, otherwise the offering is likely to become a commodity.
Product as a Service
Selling a product as a service has the potential to create long term customer relationships and ongoing cash flow from the offering. It can be realized by adding services to core products, by replacing single products through complete solutions or by selling products using leasing models or by charging a regular fee. Example: sofware is often sold as a service. Instead of buying a license/copy of the software, access to the application is retained by making recurring payments.
Businesses empower customers to become producers. The consumer is incorporated into the value chain and benefits from the resulting product, while the business incurs lower manufacturing and overhead costs. Because the consumer is involved in the manufacturing process, the perceived value of the product grows.
Razor and Blade
The fundamental product is inexpensive or perhaps free. On the other hand, the consumables required to use or run it are expensive and sold at a large profit margin. The price of the initial product lowers clients' buying barriers, but subsequent recurring sales cross-finance it. Typically, these devices are digitally connected in order to amplify this effect.
Rent Instead of Buy
The customer does not purchase the thing, but rents it. This reduces the capital normally required to obtain the product. The corporation benefits from increased profit margins on each product due to the fact that it is rented for the duration of the rental period. Both parties profit from increased product utilization efficiency, as time spent on non-use, which ties up capital unnecessarily, is reduced on each product.
Revenue before cost
How can you make money before spending money? An example is Dell: the computer manufacturer developed an assembling-on-order model based on direct sales. By earning before spending, a company can reduce tied up cash (e.g. due to inventory costs), leading to a lower or even negative net working capital (= a cash surplus).
Revenue sharing is the practice of corporations sharing revenues with its stakeholders, which may include complementors or even competitors. Thus, in this business model, beneficial qualities are combined to create symbiotic effects in which additional earnings are shared with partners who contribute to the extended value generating process. One party can earn a share of revenue from another that benefits from higher customer value.
This pattern entails acquiring a competitor's product, dismantling it, and utilizing the resulting information to create a similar or compatible product. Due to the lack of significant expenditure in research and development, these products can be sold at a lower price than the original.
How can you reduce the risk for your customer? Risk can include physical risk (risk of using the product), financial risk (cost and value of the offering), selection risk (finding the right product), delay risk (delivery in timely manner), functional risk (product does not perform as predicted or expected), psychological risk (e.g., status, peer-pressure). For example: by offering free shipping and returns, e-commerce companies reduce customers (financial) risks associate with orders.
Revenues generated through the exchange of products or services in return for money.
Instead of targeting the masses, can you achieve finer segmentation? Think about airlines: one product - flying from A to B - multiple segments: economy, premium economy, business, first class, first class in combination with private jet.
A portion of the value generation process is transferred to the client in exchange for a lower service or product price. This is especially advantageous for process stages that bring minimal apparent value to the consumer but entail significant expenditures. Customers gain from increased efficiency and savings in time by exerting their own effort. This can also improve efficiency, as the customer may be able to complete a value-adding step more quickly and precisely than the organization.
Sensor as a Service
The use of sensors enables the addition of services to existing physical offers or the creation of entirely new independent services. The key source of revenue is not the sensor itself, but the analysis of the data generated by the sensor. Possibilities for real-time information can bolster the value case even further.
Service as Product
Are you currently selling services? Then one of the biggest challenges lies in the fact that your offering is intangible. Clients must first trust that your work will produce the result that they need. By selling your service as a product you give your service a clearly defined scope, you assign a time period and give it a price tag. This will make it easier for your clients to buy. Example: a lawyer does not charge a fee per hour, but offers legal advice for founding a company at a flat rate of € 4000.
A portion of the value generation process is transferred to the client in exchange for a lower service or product price. This is especially advantageous for process stages that bring minimal apparent value to the consumer but entail significant expenditures. Customers gain from increased efficiency and savings in time by exerting their own effort. This can also improve efficiency, as the customer may be able to complete a value-adding step more quickly and precisely than the organization. How can you use one and the same asset for multiple businesses? McDonald's uses the same location for fast food and the coffee shop.
A complete service provider provides comprehensive coverage of products and services within a specific domain, all managed through a single point of contact. The consumer is provided with specialized knowledge in order to boost his or her efficiency and performance. By extending their service and incorporating it into their product, a business can avoid revenue losses. Additionally, close client contact provides valuable insight into the customer's habits and wants, which can be used to improve products and services.
Is there a way to generate revenues by attracting sponsors? To persuade sponsors to pay, think about providing something to them in return, such as visibility (e.g., promotions), possibility to improve image, increase customer base (e.g., sharing your customer data with sponsors based on a customer agreement), opportunity for cross-selling, etc.
Subscription / Membership
The customer makes a recurring payment, often monthly or annually, to receive access to a product or service.