Question

Chapter 2 7. What are the eight key components of an effective business model? List and briefly describe each. 8. Describe the five primary revenue models used by E-Commerce companies.

Answer 1

7. Eight key components of an effective business model are:

1. Value Proposition: Value Proposition means defining value of a company's product and service so that customer has a basic idea about what kind of products and services company offers and how it create value to customer.
2. Revenue Model: Revenue model defines the how to maximize revenue and profit of a company.
3. Market Opportunity: It states the potential market share of a company and overall financial opportunities available to a company.
4. Competitive Environment: It refers to identifying the competitors in the market and their strength and weaknesses. It includes market share acquired by similar companies, their target customer, turnover etc.
5. Competitive Advantage: It means having a competitive advantage over other competitors in the market. Competitive Advantage can be of various types like technology, quality, primary inputs, etc. Basic motive behind is to provide high quality with reasonable prices.
6. Market Strategy: It relates to formulating strategies of a business like how to enter in a potential market, promotion strategy, brand positioning, target audience etc.
7. Organization Development: organization Development refers to defining the organization structure of a company, role and responsibilities of the employees and executives for smooth functioning of the organization with effective productivity.
8. Management Team: It states the credentials and experience of core executives of the company to develop goodwill for the company.

8. Five primary revenue models used by E-Commerce companies are:

1. Advertising Revenue Model: In this fees are charged by the advertisers for displaying their ads on e-commerce websites.
2. Subscription Revenue Model: Here, revenues are generated by providing subscription on monthly or weekly basis to customer on products and services. For example, monthly paid subscription by a music company.
3. Transaction Fee Revenue Model: According to this model customer pay transaction fee on every transaction to the operator.
4. Sales Revenue Model: According to this model, e-commerce companies maximize their sales revenue by providing discounts and providing product and services at a very reasonable rate.
5. Affiliate Revenue Model: It is a method of online distribution where merchant send links to partner websites to advertise and sell their products. For this commission is charged by e-commerce companies.