Lesson 6 of 7 · 14 min
Conventional business models and their variations
Most companies run one of eight long-established models, or a combination or industry-specific variation of them such as contract manufacturing, value added reselling, licensing and franchising, and where a firm sits in the supply chain shapes how it handles risks such as input price shocks.
In short
- Eight conventional models: natural resource producer, manufacturer, distributor, retailer, broker, bank, service producer and software company.
- Each is defined by its customers, products, channel, pricing and key inputs; each industry has its own flavour of them.
- Private label / contract manufacturers produce goods that others brand and market; the brand owner focuses on R&D, design and marketing.
- Value added resellers distribute and also install, customise, service or support complex products.
- Licensing: a maker uses another's brand for a royalty. Franchising: a tight, exclusive relationship to operate under the franchisor's brand, for a royalty on sales plus fees.
- Industries also evolve through specialisation, functional separation (brand, ownership and management in different firms), fractional ownership and loyalty programs.
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