This Pathway Requires
Selling products or services is the oldest and most common form of business model.
Exemplars for B2C include Ford motor cars; McDonald’s hamburgers, and for B2B companies include electric motors for consumer durables. This pathway requires:
- Identifying potential customers
- Identifying how to capture awareness and create demand
- Identifying mechanisms of monetization – that include unit price, freemium, razor-blade, discounts for quantity
- There are many ways the firm can be structured that include: hierarchical-integrated or unbundled-networked among partners of suppliers and channels.
Scalability – Greater volumes typically reduce costs.
Profitability – When the firm achieves scale and there are high entry barriers.
Risk – Copycat products especially those with lower costs.
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Product Business Model
The BusinessModelZoo™ provides insight to help you understand and navigate the opportunities and rewards as well as risks and threats to the product business model it faces from the other business model pathways.
Engaging dynamically and as a result fulfilling more completely my customer’s needs is an essential element of transforming from a product to a solutions business model. These moves are likely to involve some significant costs, and are typically worthwhile only when I can digitize critical elements of the offering that allow the dynamic engagement to be offered at large scale (see digital solutions exemplar). The benefits of a solutions business model are typically higher prices and the opportunity to tailor prices to particular customers.
Adding a physical market place (or better a digital market place) that allows customers to buy not just my offerings but also those of rivals is an addition to my business portfolio. By definition, a market place uses a matchmaking business model that allows me to engage with a wider group of customers and to learn more about rival offerings, but typically demands more resources and a much more-nimble approach to management. Amazon’s market place is not a very profitable business considered separately, but this matchmaking business model has allowed Amazon to create complementary businesses such as AWS that are very profitable.
Adding a new customer group that brings a new additional revenue stream on account of their interactions with my current customers is an essential element of becoming a multi-sided business model. Such actions will be challenging, costly and are typically only achieved in stages, but might be a very profitable final end point. The new customers are likely to be advertisers, and whoever they are it is essential that they engage with my existing customers in a value adding manner. I will need enhanced capabilities to service this new group of customers (the advertisers). Once again, to be really effective as a multi-sided business model, I will have to digitize many elements of my offering.
My physical product business model is at risk from rivals offering solutions business models at scale. In every industry, there are small scale operators who offer solutions business models that are not a threat, but there is a significant threat when a large-scale operator appears with an attractive solutions business model. Such has been the case in capital goods industries where large firms are offering digitally enhanced products or services that engage more effectively with customer needs and are offered on “pay for use and performance” basis. Such a threat can only be countered either by my reducing price significantly, or by my switching to a solutions business model, something that will involve significant costs (see text above).
If a market place appears in my industry, my sales could be increased by participating in this matchmaking business model, but I might lose my direct customer relationship and that may reduce my profits. Airbnb expanded the sales of its smaller rental firm participants many-fold, but threatened traditional hotel chains who were reluctant to participate because they no longer “owned the customer”. My best response maybe to develop a solutions business model (see text above).
It may be very difficult to counter an effective multi-sided business model competitor, especially if the multisided firm is able to use one of its customer groups to subsidize the costs (and prices) of its offering. If the appearance of the extra customer group debases the offering in the eyes of your customers (as in say advertising supported educational offerings) you may be able to resist by maintaining the integrity of your offer. Otherwise you might be forced to change your business model to either a solutions business model or a multi-sided business model (see text above).
Engaging dynamically and as a result fulfilling more completely my customer’s needs is an essential element of transforming from a digital product to a digital solutions business model. Even in the digital sphere, these moves are likely to involve some significant costs. The benefits of a solutions business model are typically higher prices and the opportunity to tailor prices to particular customers.
Adding a digital physical market place that allows customers to buy not just my offerings but also those of rivals is an addition to my business portfolio. By definition, a market place uses a matchmaking business model that allows me to engage with a wider group of customers and to learn more about rival offerings, but typically demands more resources and a much more-nimble approach to management. Electronic games producers often run market places, and this aspect of their business is typically not a very profitable business considered separately, but the matchmaking business model allows the games producers to gain insights into market trends and competitor offerings.
Adding a new customer group that brings a new additional revenue stream on account of their interactions with my current customers is an essential element of becoming a multi-sided business model. Such actions will be challenging, costly and is typically only achieved in stages, but might be a very profitable final end point. The new customers are likely to be advertisers, and whoever they are it is essential that they engage with my existing customers in a value adding manner. I will need enhanced capabilities to service this new group of customers (the advertisers).
My digital product business model is at risk from rivals offering a digital solutions business model because customers of solutions business models are typically more loyal. Such a threat can only be countered either by my reducing price significantly, or by my switching to a solutions business model, something that will involve significant costs (see text above).
If a digital market place appears in my industry, my sales could be increased by participating in this matchmaking business model, but I might lose my direct customer relationship that may reduce my profits. (see text above).
It may be very difficult to counter an effective multi-sided business model competitor, especially if the multisided firm is able to use one of its customer groups to subsidize the costs (and prices) of its offering. If the appearance of the extra customer group debases the offering in the eyes of customers (as in say advertising supported educational offerings) you may be able to resist by maintaining the integrity of your offer. Otherwise you might be forced to change your business model to either a olutions business model or a multi-sided business model (see text above).
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