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What is a Business Model Strategy?

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  • Written By: Osmand Vitez
  • Edited By: C. Wilborn
  • Last Modified Date: 24 September 2016
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A business model strategy includes variables that will direct the activities of a company. Three common variables include market demand, value added to the firm, and operating capability. Some of the different models a business can use include being privately owned, operating as a franchise, offering direct sales services, acting as a supply chain company, and operating as a collective business model. In order to run a profitable operation, each business model strategy must maximize the variables in order to generate the highest profits possible.

Market demand is often the starting point for many a business model strategy. Consumers are the driving force for a company entering new economic markets or creating new product lines. Most companies will engage in a market analysis to study the number of current competitors in the market, consumer income and spending levels, available resources for long-term production operations, or demographics in a region or locale.

This information will help these companies decide on the amount of goods or services to produce. Low market demand may result in low production. If the company expects demand to increase as consumers use new products or services, the business model strategy must be able to meet the increased demand.

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Value added represents the income and economic wealth a company receives as remuneration for its products. Companies will seek to maximize this value as it provides the ability to reinvest in business operations. Private sector companies are often those interested most in a value added business model strategy. Non-profit organizations and those in the public sector do not necessarily need to add value.

In the absence of added value, companies may expense their limited resources to complete the tasks and activities associated with a business model. Receiving too little value added will often result in lower market value. This can potentially lead to business decline and even bankruptcy.

The third factor of a successful business model strategy is a company's operating capability. Companies will often experience constraints when attempting to run various business models. Internal constraints are the result of specific facilities a company will use to produce goods or services.

If a company attempts to increase its production output, it will often need to reduce the constraints holding back its operations. This can include increasing production output with better facilities, finding low-cost materials to convert into consumer goods, training employees to improve their production output, and reducing waste in the company. Reducing these constraints may be different based on the current business model on the organization.

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