Understanding Business Models: VARS framework

In the ever-changing business world, grasping the details of value creation, revenue generation, and business scope is vital.

Value Proposition: Making Economic Value

At its heart, a value proposition is about creating more Economic Value than existing models. Economic Value is the difference between the benefit consumers get from a product or service and the costs to provide it.

Netflix

By offering the convenience of home video streaming and a smart recommendation system, Netflix enhances customer value. On the cost side, it avoids the expenses linked to physical stores and large inventories, a big change from traditional video rental businesses.

ARCs: Activities, Resources, and Capabilities

When creating a new business model, introducing new ARCs is crucial. Netflix, relying on internet ordering, developed web applications and a recommendation system. Importantly, not all ARCs need to be owned; outsourcing, as seen in Netflix's case, is a viable strategy.

Revenue Models

Creating economic value is just one part; turning it into revenues is equally important. Netflix's subscription-based model is a classic example, charging a fixed monthly fee for unlimited content. Other models include the razor-blade approach.

Enterprise Scope

A business's scope, seen across customer segments, horizontal offerings, and vertical integration along the value chain, shapes its reach. Netflix's wide customer base allows cost-sharing, while its focus on streaming services defines its horizontal scope. Strategic decisions on vertical integration and outsourcing contribute to Netflix's value proposition.

Traditionally, businesses focused on making money while managing expenses, a model reminiscent of the industrial revolution. However, companies like Google revolutionized this concept, ushering in an era where the ways to generate revenue became intricate and less obvious.

Bajaj Finance

Take Bajaj Finance, for instance. Their value proposition is clear: providing the best credit products for middle-class consumers globally. By defining middle-class and offering diverse credit alternatives, Bajaj Finance aligns its business model with its core mission. From unsecured personal loans to auto finance and credit cards, Bajaj Finance aims to be the go-to source for customers' credit needs.

Shifting the Borrowing Experience

Bajaj Finance exemplifies a shift in the borrowing landscape. Applying for a loan is streamlined through a mobile app, providing approval in minutes. Compare this to the traditional bank experience, involving physical branches, extensive paperwork, and a prolonged waiting period. Bajaj Finance's real-time approach exemplifies a redefined value proposition.

Conclusion

The layers of business models involves synergizing value proposition, revenue models, and enterprise scope. A harmonious alignment of these elements ensures not only the creation of economic value but also its successful translation into sustainable revenues. As businesses evolve, understanding and optimizing these components become the vital factor of success. #BusinessModels #ValueCreation #InnovationJourney