The Business model patterns below come from two complementary pieces of research as listed below:
- The Business Model Patterns represented below are inspired by the amazing work of Oliver Gassmann, Karolin Frankenberger and Michaela Csik who wrote the book Business Model Navigator.
- More business model patterns have been added as a result of the work by Jörg Weking, Andreas Hein, Markus Böhm & Helmut Krcmar, in their paper – A hierarchical taxonomy of business model patterns.
Table of Contents
The Business Model Navigator Framework
The Business Model Navigator is an alternative framework to use when developing a business model.
The framework is easy to use and follows a set of logical steps that make it easy to look at different business model options. To understand how to use this framework and to dig deeper into Business Design I recommend you read the book Business Model Navigator.
Business Model Patterns
Business model patterns are a useful way to innovate and adapt an existing business model innovation or create a business model from scratch e.g. a new venture or start-up.
When thinking about how to transform your current business model, it is often easier to use the power of analogy than staring at a blank piece of paper wondering how and where to start.
An analogy is simply referring to existing models and then using this to recognize an opportunity in your own business and/or market.
By harnessing the power of analogy you can develop new ideas and completely reinvent your business.
A good place to start is to print off the business model canvas and then:
- model your current business model.
- model other business models in your market – any dominant competitors.
For information on how to use the business model canvas, click on the link.
I’ve created the business model infographic based on the above resources to summarize all the business model patterns.
Grab the code below to embed this on your site 🙂
<a href="https://www.garyfox.co/business-model-patterns/"><img style="width:100%;" src="https://www.garyfox.co/wp-content/uploads/2020/01/Business-Model-Patterns-2.png"></a><br>Business Model Infographic By <a href="https://www.garyfox.co/">Gary Fox Business Model Consultant</a>What Are Business Model Patterns?
After examing hundreds of companies over several years, the St Gallen team of researchers recognized patterns emerging.
They found that there were a dominant set of patterns that could be used to describe the characteristics of most business models.
The 55 patterns are illustrated in the book the Business Model Navigator. Further work has uncovered some more business model patterns.
How To Use Business Model Patterns
Start by mapping your own business model or the dominant business model for the startup idea you have. Then use the business model patterns to analyse different patterns that could deliver a unique and viable business model that has the potential to be sustainable.
Business Model Pattern Examples
The business model patterns below have been developed and researched by the authors of the Business Model Navigator and founders of BMI Labs.
Business Model Patterns A – E
Add-On
The core offering is priced competitively, but there are numerous extras that drive the final price up. In the end, the customer pays more than he or she initially assumed. Customers benefit from a variable offer, which they can adapt to their specific needs.
Examples: SAP, Ryanair, Salesforce
Advertising Model
An advertising business model is that you can offer free services or content to attract users. If a business provides similar or better quality than subscription-based competitors, they can attract a sizable customer base.
Examples: Google
Advisors
Advisors provide advice to clients as a value exchange. Insurers, consultancies and travel advisors are just a few of the industries that use this. As a service that is reliant on knowledge and subsequently has the potential to be disrupted by AI.
Examples: Axa
Affiliation
An advertising business model pattern offers free services or content to attract users. If a business provides similar or better quality than subscription-based competitors, they can attract a sizable customer base.
Examples: American Express, Spotify, Dollar Shave Club
Affinity Clubs
Pay royalties to large organization to sell products directly to their customers. Examples of affinity groups include private social clubs, fraternities, writing or reading circles, hobby clubs, and groups engaged in political activism.
Agent Models
Represent the buyer or the seller and earn commissions for successful facilitation of transactions. Agent business model patterns exist for many different industries – but are often associated with finance e.g. connecting a person that wants to sell a business with one that wants to buy it.
Aikido
Aikido is a Japanese martial art in which the strength of an attacker is used 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 new value proposition attracts customers who prefer ideas or concepts opposed to the mainstream.
Examples: Nintendo
Auction
Auctioning means selling a product or service to the highest bidder. The final price is achieved at a particular end time of the auction. This allows the company to sell at the highest price acceptable to a customer. The customer benefits from the opportunity to influence the price of a product. Auction business model patterns have been globalized by platforms like eBay.
Examples: eBay, Google
Barter
Barter is a method of exchange in which goods are given away to customers without the transaction of actual money. In return, they provide something of value to the sponsoring organisation. The exchange does not have to show any direct connection and is valued differently by each party.
Examples: Proctor and Gamble
Bricks and Clicks
Integrate both an online (clicks) and an offline (bricks) presence to browse, order, and then pick up products.
Examples: Zara
Broker
Bring together and facilitate transactions between buyers and sellers, charging a fee for each successful transaction.
Business Intelligence
Gather secondary and primary information about competitors, markets, customers, and other entities to predict important information. Note: increasingly these operations are being performed by AI.
Examples: Gartner and Forrester.
Buying Club
Bring together and facilitate transactions between buyers and sellers, charging a fee for each successful transaction.
Example: Student Beans
Cash Machine
In the Cash Machine concept, the customer pays upfront for the products sold to the customer before the company is able to cover the associated expenses. This results in increased liquidity which can be used to amortise debt or to fund investments in other areas.
Example: Amazon store, Groupon, McFit
Classifieds
Bring together and facilitate transactions between buyers and sellers, charging a fee for each successful transaction. This is one of the oldest business model patterns.
Complements
Offer a compliment in addition to a physical product or services, such as information, digital products, and services.
Content Provider
Provide content such as information, digital products, and services aimed at a target customer segment. This type of business model is normally supplemented by other business model patterns.
Examples: The Verge
Contractor
Sell services provided primarily by people, such as consulting, construction, education, personal care, package delivery, live entertainment, or healthcare.
Crowdfunding
A product, project or entire start-up is financed by a crowd of investors who wish to support the underlying idea, typically via the Internet. If the critical mass is achieved, the idea will be realized and investors receive special benefits, usually proportionate to the amount of money they provided.
Crowdsourcing
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.
Examples: Proctor and Gamble, Cisco
Custom Suppliers
Design, produce and distribute customized products, services, IT equipment or components. Alternatively, in terms of digital, produce and customize, software and license/ sell it.
Customer Loyalty
Customers are retained and loyalty assured by providing value beyond the actual product or service itself, i.e., through incentive-based programs. The goal is to increase loyalty by creating an emotional connection or simply rewarding it with special offers. Customers are voluntarily bound to the company, which protects future revenue.
Examples: The Home Depot, Lufthansa
Dial Down Services
Target less-demanding consumers with products or services that may not be superior but are adequate and perhaps more convenient, simple, etc.
Digital Lock-in
Use digital technologies to limit the compatibility of physical products and thus lock customers to your ecosystem.
Digitalization
This pattern relies on the ability to turn existing products or services into digital variants, and thus offer advantages over tangible products, e.g., easier and faster distribution. Ideally, the digitization of a product or service is realized without harnessing the value proposition which is offered to the customer. In other words: efficiency and multiplication by means of digitization does not reduce the perceived customer value.
Examples: Airbnb, Hotmail, Kindle
Direct Selling
Direct selling refers to a scenario whereby a company’s products are not sold through intermediary channels, but are available directly from the manufacturer or service provider. In this way, the company skips the retail margin or any additional costs associated with the intermediates. These savings can be forwarded to the customer and a standardized sales experience established. Additionally, such close contact can improve customer relationships.
Examples: American Airlines, Dell
Disintermediation
Deliver a product or service that has traditionally gone through an intermediary directly to a customer.
e-Commerce
Traditional products or services are delivered through online channels only, thus removing costs associated with running a physical branch infrastructure. Customers benefit from higher availability and convenience, while the company is able to integrate its sales and distribution with other internal processes.
Examples: Logitech
Educators
Create and deliver educational offerings, often online. The online education has grown as a result of lower-cost tools to produce and distribute content. One of the latest business model patterns is MOOC’s (Massive Online Open Courses).
Example: Oxford University
Experience Destination
Use digital technologies to limit the compatibility of physical products and thus lock customers to your ecosystem.
Example: Disney
Experience Selling
Allow the client to experience the product, often via a sales force and a pyramid commission structure; traditionally applied for cosmetic products.
Example: Mary Kay
BUSINESS MODEL PATTERNS F – J
Financial Trader
Buy and sell financial assets without significantly transforming (or designing) them.
Flat Rate
In this model, a single fixed fee for a product or service is charged, regardless of actual usage or time restrictions on it. The user benefits from a simple cost structure while the company benefits from a constant revenue stream.
Examples: Netflix, Porsche
Fractional Ownership
Fractional ownership describes the sharing of a certain asset class amongst a group of owners. Typically, the asset is capital intensive but only required on an occasional basis. While the customer benefits from the rights as an owner, the entire capital does not have to be provided alone.
Example: Homebuy, Mobility Carsharing
Franchising
The franchisor owns the brand name, products, and corporate identity, and these are licensed to independent franchisees who carry the risk of local operations. Revenue is generated as part of the franchisees’ revenue and orders. The franchisees benefit from the usage of well-known brands, know-how, and support.
Examples: Pizza Hut, Subway, McDonald’s
Freemium
The basic version of an offering is given away for free in the hope of eventually persuading the customers to pay for the premium version. The free offering is able to attract the highest volume of customers possible for the company. The generally smaller volume of paying ‘premium customers’ generate the revenue, which also cross-finances the free offering.
Examples: Linkedin, Amazon Kindle, Spotify
From Push To Pull
This pattern describes the strategy of a company to decentralize and thus add flexibility to the company’s processes in order to be more customer-focused. To quickly and flexibly respond to new customer needs, any part of the value chain including production or even research and development can be affected.
Influencer
Influencers are individuals that use social media to build a following. They then generate revenue from endorsing products, affiliate deals and sponsorships.
Example: Kim Kardashian.
Infrastructure Service
Produce and deliver complementary services for the internet. The model is often referred to as IaaS – Infrastructure as a Service.
Examples: Amazon AWS, Microsoft Azure
Ingredient Branding
Ingredient branding describes the specific selection of an ingredient, component, and brand originating from a specific supplier, which will be included in another product. This product is then additionally branded and advertised with the ingredient product, collectively adding value for the customer. This projects the positive brand associations and properties on the product, and can increase the attractiveness of the end product.
Examples: Intel, Bosch, Microsoft
Integrator
An integrator is in command of the bulk of the steps in a value-adding process. The control of all resources and capabilities in terms of value creation lies with the company. Efficiency gains, economies of scope, and lower dependencies from suppliers result in a decrease in costs and can increase the stability of value creation.
Inventor
Create and then sell intangible assets, such as patents and copyrights. Revenue is made from the ongoing licensing of the intellectual property to producers or service companies.
BUSINESS MODEL PATTERNS K – O
Layer Player
A layer player is a specialized company limited to the provision of one value-adding step for different value chains. This step is typically offered within a variety of independent markets and industries. The company benefits from economies of scale and often produces more efficiently. Further, the established special expertise can result in a higher quality process.
Examples: Mozilla, Microsoft, ARM
Leverage Customer Data
New value is created by collecting customer data and preparing it in beneficial ways for internal usage or interested third-parties. Revenues are generated by either selling this data directly to others or leveraging it for own purposes, i.e., to increase the effectiveness of advertising.
Examples: Amazon Kindle, Airbnb
Licensing
Efforts are focused on developing intellectual property that can be licensed to other manufacturers. This model, therefore, relies not on the realization and utilization of knowledge in the form of products, but attempts to transform these intangible goods into money. This allows a company to focus on research and development. It also allows the provision of knowledge, which would otherwise be left unused and potentially be valuable to third parties.
Examples: SAP, Harley Davidson
Lock in
Customers are locked into a vendor’s world of products and services. Using another vendor is impossible without incurring substantial switching costs, and thus protecting the company from losing customers. This lock-in is either generated by technological mechanisms or substantial interdependencies of products or services.
Long Tail
Instead of concentrating on blockbusters, the main bulk of revenues is generated through a ‘long tail’ of niche products. Individually, these neither demand high volumes, nor allow for a high margin. If a vast variety of these products are offered in sufficient amounts, the profits from resultant small sales can add up to a significant amount.
Make More Of It
Know-how and other available assets existing in the company are not only used to build own products, but also offered to other companies. Slack resources, therefore, can be used to create additional revenue besides those generated directly from the core value proposition of the company.
Mass Customization
Customizing products through mass production once seemed to be an impossible endeavour. The approach of modular products and production systems has enabled the efficient individualization of products. As a consequence, individual customer needs can be met within mass production circumstances and at competitive prices.
Examples: Nike, Levi’s Spotify
Membership
Charge a time-based payment to allow access to locations, offerings or services that non-members do not have.
Multi-sided Platform
Bring together two or more distinct but interdependent groups of customers, where the presence of each group creates value for the other groups.
No Frills
Value creation focuses on what is necessary to deliver the core value proposition of a product or service, typically as basic as possible. Cost savings are shared with the customer, usually resulting in a customer base with lower purchasing power or purchasing willingness.
Object Self Service
Provide physical products with the ability to independently place orders on the internet. This is enabled by IOT and AI models that are linked to supply chains.
Object as Point of Sale
The point of sales of consumable products moves to the point of consumption. When the point of sale is moved away from the consumer, they become less sensitive to price.
Open Business Model
Create innovations by systematically integrating partners into the company’s research and development process. Often this involves co-creation with customers or coopetition with other companies in the ecosystem.
Example: Proctor and Gamble
Open Content
Develop openly accessible content collaboratively by a global community of contributors who work voluntarily. Open content describes any work that others can copy or modify freely by attributing to the original creator.
Example: Wikipedia
Open Source
In software engineering, the source code of a software product is not kept proprietary, but is freely accessible for anyone. Generally, this could be applied to any technology details of any product. Others can contribute to the product, but also use it free as a sole user. Money is typically earned with services that are complimentary to the product, such as consulting and support.
Examples: Linux, WordPress, Mozilla
Orchestrator
Within this model, the company’s focus is on the core competencies in the value chain. The other value chain segments are outsourced and actively coordinated. This allows the company to reduce costs and benefit from the suppliers’ economies of scale. Furthermore, the focus on core competencies can increase performance.
Examples: Nike, Groupon
BUSINESS MODEL PATTERNS P – T
Pay Per Use
In this model, the actual usage of a service or product is metered. The customer pays on the basis of what he or she effectively consumes. The company is able to attract customers who wish to benefit from the additional flexibility, which might be priced higher.
Examples: Car2go, Flyeralarm
Pay What You Want
The buyer pays any desired amount for a given commodity, sometimes even zero. In some cases, a minimum floor price may be set, and/or a suggested price may be indicated as guidance for the buyer. The customer is allowed to influence the price, while the seller benefits from higher numbers of attracted customers, since individuals’ willingness to pay is met. Based on the existence of social norms and morals, this is only rarely exploited, which makes it suitable to attract new customers.
Examples: Panera Bread Bakery
Peer To Peer
This model is based on cooperation that specializes in mediating between individuals belonging to a homogeneous group. It is often abbreviated as P2P. The company offers a meeting point, i.e., an online database and communication service that connects these individuals (these could include offering personal objects for rent, providing certain products or services, or the sharing of information and experiences).
Examples: Lego Factory, Pinterest
Performance Contracting
A product’s price is not based upon the physical value, but on the performance or valuable outcome it delivers in the form of a service. Performance based contractors are often strongly integrated into the value creation process of their customers. Special expertise and economies of scale result in lower production and maintenance costs of a product, which can be forwarded to the customer. Extreme variants of this model are represented by different operation schemes in which the product remains the property of the company and is operated by it.
Examples: General Electric, Rolls-Royce
Produce Physical Product
Production of physical as opposed to the provision of services, is a dominant business model. Physical products are changing as digital sensors and chips are increasingly embedded into physical products.
Razor and Blade
The basic product is cheap or given away for free. The consumables that are needed to use or operate it, on the other hand, are expensive and sold at high margins. The initial product’s price lowers customers’ barriers to purchase, while the subsequent recurring sales cross-finance it. Usually, these products are technologically bound to each other to further enhance this effect.
Examples: Gillette, Hewlett-Packard
Rent Instead of Buy
The customer does not buy a product but instead rents it. This lowers the capital typically needed to gain access to the product. The company itself benefits from higher profits on each product, as it is paid for the duration of the rental period. Both parties benefit from higher efficiency in product utilization as time of non-usage, which unnecessarily binds capital, is reduced on each product.
Examples: Porsche, Home Depot
Revenue Sharing
Revenue sharing refers to firms’ practice of sharing revenues with their stakeholders, such as complementors or even rivals. Thus, in this business model, advantageous properties are merged to create symbiotic effects in which additional profits are shared with partners participating in the extended value creation. One party is able to obtain a share of revenue from another that benefits from increased value for its customer base.
Examples: Amazon Kindle, Google
Reverse Engineering
This pattern refers to obtaining a competitor’s product, taking it apart, and using this information to produce a similar or compatible product. Because no huge investment in research or development is necessary, these products can be offered at a lower price than the original product.
Examples: Bayer, Denner
Reverse Innovation
Simple and inexpensive products, that were developed within and for emerging markets, are also sold in industrial countries. The term ‘reverse’ refers to the process by which new products are typically developed in industrial countries and then adapted to fit emerging market needs.
Examples: Logitech, Renault
Robin Hood
The same product or service is provided to ‘the rich’ at a much higher price than to ‘the poor’. Thus, the main bulk of profits are generated from the wealthy customer base. Serving ‘the poor’ is not profitable per se, but creates economies of scale, which other providers cannot achieve. Additionally, it has a positive effect on the company’s image.
Example: Aravind Eye Care
Self Service
A part of the value creation is transferred to the customer in exchange for a lower price of the service or product. This is particularly suited for process steps that add relatively little perceived value for the customer but incur high costs. Customers benefit from efficiency and time savings while putting in their own effort. This can also increase efficiency since in some cases, the customer can execute a value-adding step more quickly and in a more target-oriented manner than the company.
Examples: McDonald’s, IKEA
Sensor as a Service
Collect, process, and sell sensor data for a fee. Sensors and sensor networks generate vast quantities of data that can be analyzed and information extracted that is of value to different parties within a system.
Shop in a Shop
Instead of opening new branches, a partner is chosen whose branches can profit from integrating the company’s offerings in a way that imitates a small shop within another shop (a win-win situation). The hosting store can benefit from more attracted customers and is able to gain constant revenue from the hosted shop in the form of rent. The hosted company gains access to cheaper resources such as space, location, or the workforce.
Examples: Nestle Nespresso, Bosch
Solution provider
A full-service provider offers total coverage of products and services in a particular domain, consolidated via a single point of contact. Special know-how is given to the customer in order to increase his or her efficiency and performance. By becoming a full-service provider, a company can prevent revenue losses by extending their service and adding it to the product. Additionally, close contact with the customer allows great insight into customer habits and needs which can be used to improve the products and services.
Examples: Salesforce, Amazon Web Services
Subscription
The customer pays a regular fee, typically on a monthly or an annual basis, in order to gain access to a product or service. While customers mostly benefit from lower usage costs and general service availability, the company generates a more steady income stream.
Examples: Apple Music, McFit
Supermarket
A company sells a large variety of readily available products and accessories under one roof. Generally, the assortment of products is large but the prices are kept low. More customers are attracted due to the great range on offer, while economies of scope yield advantages for the company.
Examples: Walmart, Best Buy
Target The Poor
The product or service offering does not target the premium customer, but rather, the customer positioned at the base of the pyramid. Customers with lower purchasing power benefit from affordable products. The company generates small profits with each product sold, but benefits from the higher sales numbers that usually come with the scale of the customer base.
Trash To Cash
Used products are collected and either sold in other parts of the world or transformed into new products. The profit scheme is essentially based on low-to-no purchase prices. Resource costs for the company are practically eliminated, whilst the supplier’s waste disposal is either provided, or associated costs are reduced. This also addresses customers’ potential environmental awareness ideals.
Two-Sided Market
A two-sided market facilitates interactions between multiple interdependent groups of customers. The value of the platform increases as more groups or as more individual members of each group are using it. The two sides usually come from disparate groups, e.g., businesses and private interest groups.
Examples: Facebook, YouTube
BUSINESS MODEL PATTERNS U – Z
Ultimate Luxury
This pattern describes the strategy of a company to focus on the upper side of society’s pyramid. This allows a company to distinguish its products or services greatly from others. High standards of quality or exclusive privileges are the main focus to attract these kinds of customers. The necessary investments for these differentiations are met by the relatively high prices that can be achieved which usually allow for very high margins.
Examples: Lamborghini
Under The Umbrella
Under-price the market leader and use marketing to convince customers your offerings are equivalent, fast follow in product/ service development.
User Design
Within user manufacturing, a customer is both the manufacturer and the consumer. As an example, an online platform provides the customer with the necessary support in order to design and merchandise the product, e.g., product design software, manufacturing services, or an online shop to sell the product. Thus, the company only supports the customers in their undertakings and benefits from their creativity. The customer benefits from the potential to realize entrepreneurial ideas without having to provide the required infrastructure. Revenue is then generated as part of the actual sales.
White Label
A white label producer allows other companies to distribute its goods under their brands, so that it appears as if they are made by them. The same product or service is often sold by multiple marketers and under different brands. This way, various customer segments can be satisfied with the same product.
Value Added Reseller
Sell a comprehensive range of undifferentiated products based on value-added services, e.g., through consultative selling, product availability, service, and promotional pricing.
Value Chain Integrator
Coordinate activities across the value net by gathering, synthesizing, and distributing information.
Virtualization
This pattern focuses on the replication of a traditional physical process in a virtual environment e.g. a virtual workspace. The advantage for the customer is the ability to interact with the process as well as collaborate with peers and customers. Customers pay for access to the virtualization process or the final service.
Summary of Business Model Patterns
The Business Model Patterns above are based on the amazing work of Oliver Gassmann, Karolin Frankenberger and Michaela Csik who wrote the book Business Model
Navigator.
