TECHNOPRENEURSHIP 101

MODULE 6: BUSINESS MODEL

DESCRIPTION
This module defines the business model
and it identifies the products or services the
business plans to sell, it's identified target
market, and any anticipated expenses.
OBJECTIVES
At the end of this module, the learner should
be able to:

1. Learn time value of money.

2. Know how to generate revenue for
business.
3. Know the price structure and price
elasticity.
4. Identify the channels of distribution that
represents a chain of businesses.
5. Have an idea what are the different types of
strategic partnerships.
This refers to a company's plan for making a profit. It
identifies the products or services the business plans to sell,
its identified target

Business models help you develop strategies for customer

acquisition, talent recruitment, key partnership alliances,
and business development market, and any anticipated
expenses.
 Business Business
Model Plan
A business model describes how A business plan is a document
an organization creates, delivers that details the organization’s
and captures value in economic, strategy and expected financial
social, cultural or other contexts. performance for years to come.
 Business Business
Model Plan
The business model and the business plan are both key
elements to an organization’s development, growth and
succession planning and decision making.

If the business plan is a road map that describes how much

profit the business intends to make in a given period of time,
the business model is the vehicle that gets you there.
For businesses on take-off, exploring potential business
models can help you determine if your business idea is
viable, attract investors and guide your overall management
strategy.

For established businesses, it serves as the basis

for developing financial forecasts, setting milestones, and
setting a baseline for reviewing your business plan.
In its simplest form, a business model can be broken down
into three parts:

1. CREATING VALUE - everything it takes to make something

• Design
• Raw materials
• Manufacturing
• Labor
In its simplest form, a business model can be broken down
into three parts:

2. DELIVERING VALUE - everything it takes to sell that thing

• Marketing
• Distribution
• Delivering a service
• Processing the sale
In its simplest form, a business model can be broken down
into three parts:

3. CAPTURING VALUE - how and what the customer pays

• Pricing strategy
• Payment methods
• Payment timing
This Business Model definition was
created by the Swiss
Consultant Alexander Osterwalder as
a result of his PhD thesis, entitled The
Business Model Ontology, in which he
researched different business model
definitions to create a single one. It
was this document that later gave
birth to the popular Business Model
Canvas tool.
The 9 blocks of construction are:

1. Customer Segments 6. Key-Resources

2. Value Proposition 7. Key-Activities
3. Distribution Channels 8. Key-Partners
4. Customer Relationship 9. Cost Structure
5. Revenue Streams
1. Freemium Business Model
Freemium is a combination of the words free and premium.
Companies following the freemium business model offer the
most basic version of their product or service for free to entice
consumers to purchase the more advanced features,
capabilities, or add-ons of the product or service in the future.
The freemium business model works for new companies
by cultivating strong relationships with customers. It also works
best for internet-based service companies.
1. Freemium Business Model
2. Subscription-Based Model
The subscription-based model allows companies to charge
consumers monthly or yearly subscription fees to access their
product or service. This model depends on these consumers
continuing to love and utilize the service. To keep consumers
satisfied and paying monthly subscription fees, companies need
to continually improve their products or services to keep up
with changing trends or competitors.
2. Subscription-Based Model
3. Peer-to-Peer Business Model
In a peer-to-peer business model, a company acts as the go-
between businesses and the customers interested in purchasing
their products or services. The companies using this model
provide the platforms, navigate the regulations, and set pricing
for the products or services. A well-known example of this
business model would be ride-sharing services such as Uber.
These platforms allow people to receive rides to and from
requested destinations by those who apply to be drivers for the
service.
3. Peer-to-Peer Business Model
4. Franchise Model
It provides a sense of working for oneself with the added
security of having a company’s backing with familiar trademarks
and products. There is a legal and commercial relationship
between the franchisor, the parent company owner (usually a
corporation), and the franchisee. The franchisee (or business
owner) is allowed to sell the franchisor’s products or services in
exchange for paying a royalty fee.
4. Franchise Model
5. Direct Sales Business Model
In the direct sales model, a company’s employees will be
the ones who demonstrate and sell the products or services
being offered directly to the intended consumers. This
effectively eliminates steps within the distribution process,
such as wholesalers and the regional distribution centers.
This model is when a person is compensated for sales made
by salespersons recruited by them and under their
authority.
5. Direct Sales Business Model
6. Affiliate Marketing Business Model
People using the affiliate marketing business model promote
and sell products from other companies online to get paid a
percentage of the sales they make. This business model is
common with “influencers” on Instagram or other leading social
media apps. They will post about a company’s product to entice
their followers to buy it through them. Many of their followers
will buy the product through the supplied link. It is a win-win
situation for both the influencer marketing the product and the
company selling it.
7. E-Commerce Business Model
Electronic commerce, or “e-commerce,” is a business model in
which companies and individuals buy and sell products and
services online. Because the business is entirely online, the
products and services offered are nearly limitless. An e-
commerce business offers companies the extra convenience of
not needing a physical store. This increases the selection of
products available to consumers.
7. E-Commerce Business Model
8. Drop-Shipping Business Model
Companies using the drop-shipping business model sell various
products on their websites, but supplying and shipping these
products is done by a third-party wholesaler. The significant
upside to this business model is that you do not need to pay for
or maintain inventory for any of the products you sell. It can be
costly to store, package, and mail out orders. In this model a
third party will handle the logistics of shipping and making sure
the customers receive the products they ordered. The individual
who marketed the products gets a percentage of the sales.
9. Vertically Integrated Business Model
The vertically integrated supply chain business model is when
the company controls both supply and distribution. The
company controls all costs of production, inventory stocked,
marketing, and pricing. Because the company has complete
control of the product from start to finish, it can decrease
transportation costs and improve sales and profitability.
9. Vertically Integrated Business Model
10. Consulting Business Model
There are two parts to the consulting business model. First,
hiring experts or developing a list of freelancing consultants, and
second, charging a fee to provide access to these experts by
your clients. Typically, your experts will provide a service that
speaks to the consumer’s needs. Hopefully, the customer will
return to you as further needs arise. Common examples of this
could be online tutoring, mentoring, and freelance work in
several different fields.
11. Ad-Supported Business Model
Advertising is a significant component in why some companies
are incredibly profitable and why some will financially fail.
Failure to advertise a product or service can lead to people not
even knowing a company exists. The ad-supported business
model emphasizes the importance of advertising and the sales
generated from it. Popular platforms to advertise products or
services include print media, online media, and television.
11. Ad-Supported Business Model
12. Enterprise Business Model
In the enterprise business model, specific aspects of a business
are modeled, such as infrastructures and asset groups. The
company leaders will see what needs to be altered within the
business to maximize profits. The enterprise model is more
about evaluating how the business is functioning than it is about
the overall structure of the business.
12. Enterprise Business Model
12. Enterprise Business Model
The SpaceX makes money by charging
both governmental and commercial
customers to send goods into space.
This includes ISS supplies and
infrastructure, but also people and
satellites for various purpises.

INTERNATIONAL SPACE STATION (ISS)

13. Lock-In Business Model or Lock-In Strategy
The lock-in business model takes customer loyalty and kicks it
up a notch. This is done by essentially locking customers into a
company’s product or service by making it difficult to abandon
the company without dealing with negative consequences.
Some of these consequences include increased costs or making
it difficult to switch.
13. Lock-In Business Model or Lock-In Strategy
14. Multi-Brand Business Model
With the multi-brand business model, a parent company will
offer similar products with different brand names to increase
their market share. By doing this, the company effectively
reduces any potential competition. A company with many
similar products at different price points will appeal to a
significant number of customers.
14. Multi-Brand Business Model
15. Razor and Blade Model
The razor and blade model works by selling products or services
to consumers at a lower price. Then later selling a related
product or service to the consumer for increased profits. The
name razor and blade comes from King Gillette. Gillette
effectively worked to overtake the men’s razor market by
offering a sturdy and reliable razor that required the use of
blades only sold by Gillette. As a result, the company cornered
the market on razors for a time and is still dominate today.
16. Distribution Based Business Model
The distribution-based business model facilitates the
distribution of products or services offered from the
manufacturers to the consumers. With this model, the business
ensures that the mode of distribution chosen to get the product
or service to the consumer is the most direct, and more
importantly, the most cost-efficient manner possible.
17. Direct-to-Consumers Business Model
With the direct-to-consumer business model, consumers buy
products or services directly from a company’s website,
eliminating the middle-man. The model not only saves the
company money but can be convenient for the customer as
well. Consumers would have to physically visit a store to
purchase the product they desire but know they can order the
product directly from the company or manufacturer.
18. Low-Touch Business Model
Some customers want the least amount of interaction with the
company possible. Businesses that want to meet that need
should adopt a low-touch business model. Products sold using
this model can be consumed or used with little interference
from salespersons or customer service. Due to the pandemic of
2020, many businesses learned to adapt to the threat. These
businesses adopted low-touch strategies to help keep their
doors open.
19. Fractionalization Business Model
In this model, companies will sell partial usage of their product
or service to consumers, such as offering a timeshare deal for a
condominium in a desirable location. Consumers will receive full
benefits of the timeshare when they are there, but they can
only be there for a pre-determined time each year.
20. Pay-As-You-Go Model
As the name suggests, consumers will pay for the service or
product as they use it. Meaning there is no recurring bill or
subscription necessary. This model should entice those who do
not like to be tied down. If the product or service is of high
quality and worth the price paid, they will continue using it.
20. Pay-As-You-Go Model
21.User-Generated Content Business Model
User-generated content business is a type of content
distribution platform where the users create the content. This
model eliminates the need to create content as a primary way
to engage visitors. This is another type of business model that is
often combined with the advertising model.
21.User-Generated Content Business Model
TVM is the fundamental financial concept that revolves
around the changing value of money over time. It states
how the present value of money is greater than its future
value. The value that money holds currently and in the
future is assessed based on its potential earning capacity.
The three main reasons that make TVM an important
concept are – inflation, risk or uncertainty, and liquidity.

• INFLATION - is the loss of purchasing power caused by the

deteriorating future value of money
• RISK OR UNCERTAINTY - is the difference between what is
received as an outcome and expected when the investment
or expenditure was made
• LIQUIDITY - makes it easy for owners to sell their assets
for cash as illiquid assets are difficult to sell
Revenue generation refers to the process of creating sales of
products and services, with the goal of creating income.
How do businesses generate revenue?
How do individuals generate revenue?

Employment Investment Start a Business

A pricing structure is an approach in products and services
pricing which defines various prices, discounts, offers
consistent with the organization goals and strategy. Price
structure can affect how company grows and is perceived by
the customers.
Types of Pricing Structure
1. Market Penetration
Pricing the products lowest compared to other competitors
to gain a penetration and anchoring in the market. This
attracts a large section of the market specifically the cost-
conscious segment and helps the company to make large
profits.
Types of Pricing Structure

2. Price Skimming
Introducing a product or service with the highest possible
price and slowly reducing the prices over time. This targets
almost every segment over a period of time.
Types of Pricing Structure

3. Economy Pricing
These products are priced at an affordable rate compared to
other competitor products. The target for these products is
the lower economic segment. The quality may or may not
be compromised in case of these products.
Types of Pricing Structure

4. Psychology Pricing
▪ Marking a Php1000 product as Php999.00 is psychology
pricing. The feel of the price is lower with a lower starting
number is the technique used.
▪ Another variation of the same technique is to run discount
pricing. To offer seasonal discounts on limited products for a
limited period of time.
Types of Pricing Structure

5. Premium Pricing
▪ The price tag for the product is highest amongst all the
competitors. The elite pricing is owing to the superior and
unique quality of the product.
▪ Premium pricing generates assured profits and generally
the first one to create a demand in the market since either
they have unique products or are first in the market.
A measure of how consumers react to the prices of products
and services. Normally, demand declines when prices rise,
but depending on the product/service and the market, how
consumers react to a price change can vary.
Two Types of Price Elasticity

1. Price elasticity of demand - is a measure in economics to

show how demand responds to a change in the price of a
product or service.
2. Price elasticity of supply - is a measure that shows how
the quantity of supply is affected by a change in the price
of a good or service.
A distribution channel represents a chain of businesses or
intermediaries through which the final buyer purchases a
good or service. Distribution channels include wholesalers,
retailers, distributors, and the Internet. In a direct
distribution channel, the manufacturer sells directly to the
consumer.
A distribution channel represents a chain of businesses or
intermediaries through which the final buyer purchases a
good or service. Distribution channels include wholesalers,
retailers, distributors, and the Internet. In a direct
distribution channel, the manufacturer sells directly to the
consumer.
Types of Distribution Channels
Types of Distribution Channels

1. Direct Channel - when the producer sells goods directly

to their customer.

Producer Consumer
Types of Distribution Channels

2. Indirect Channel - when the producer produces goods on

a large scale, it is difficult to make direct selling of the
goods to the customers. In this way, middlemen come
into the picture to ensure the availability of the goods to
its customers. It may include wholesalers and retailers.
Types of Distribution Channels

2. Indirect Channel
▪ One Level Channel
Producer → Wholesaler/Retailer → Consumer
▪ Two Level Channel
Producer → Wholesaler → Retailer → Consumer
▪ Three Level Channel
Producer → Merchantile Agent → Wholesaler → Retailer → Consumer
Types of Distribution Channels

3. Hybrid Channels - when the manufacturer uses more

than one channel to reach the final consumer. This
attracts more consumers and facilitates more sales.
A strategic partner is another business entity with which
you form an agreement to share resources with the mission
of growth and mutual success.
Different Types of Strategic Partnerships:
1. Horizontal Partnership: Businesses within the same field
join alliances to improve their market position. Example:
Facebook and Instagram.
2. Vertical Partnership: Businesses team up with companies
within the same supply chain (suppliers, distributors and
retailers), often to stabilize supply chains and increase
sales. The close bond between an auto manufacturer and
its suppliers is an example.
Different Types of Strategic Partnerships:
3. Equity Partnership: An investor acquires a percentage
interest in a business, providing needed capital and
sharing in profits and losses.
4. Joint Venture: Two or more businesses form an entirely
new legal entity in which the profits and risks are shared,
and the original companies continue to exist on their
own.
Different Types of Strategic Partnerships:
5. Merger: Two companies agree to go forward as a single
new company and the original companies no longer exist.
6. Acquisition: One company takes over another company
and establishes itself as the new owner.