But what is a business model? Let's start providing a framework of this concept. According to various authors the business model describes, how a company as a system is made of the different parts. So how the pieces of the business fit together. So the business model has to do with the way you design your customer, your communication channels, your distribution channels, your network of suppliers, and how you make money. So how you earn money and you build your revenues. In particular, I would like to talk about the framework that we are going to use this week in order to decode and interpret fashion and luxury brands. And that is designing the business model according to four drivers, four pillars. The first one answers the question “Who?” Who are our customers? Each company delivers a value proposition to the customers. The value proposition / customers is the first part of any business model. In fashion and luxury the value of proposition can be related to cost effectiveness, fast fashion, and exclusivity; And of course these different value propositions address different customers. Fashion victims, connoisseurs, trendy youngsters. So the “who” is the first question we have to ask when you analyze a business model. A second driver in order to analyze the business model framework is the “what?”, meaning the product offer. What we offering to a certain target that we already identified. The product offer delivers the value proposition. And the product offer has to do with a certain product category. It may be leather goods, watches and jewels, fragrances, or apparel. And of course each product category has a certain positioning in the high end of the market. So a luxury for instance, leather goods based on exclusivity. Or in the premium market an apparel line that is able to mix fashion ability with convenience. So, the product offer again answers the question: what are we delivering our target through our value preposition? The third driver and the third part of a business model is the “how?” So how are we designing the supply chain and the value chain? Usually in this area companies are actually making decisions about the degree of vertical integration. Are we managing all the activities of the value chain, design, manufacturing, retail, and/or distribution internally? What are we outsourcing? There is a trend in fashion and luxury towards, for instance, an increasing degree of vertical integration. And so, degree of vertical integration, then also how you design your network of suppliers. how much they will collaborate in your activities is a strategic decision in the so-called “how.” The fourth and last element of a business model is related to the revenue model. Let's say the way you make money. Are we making money through licensing fees? For instance, many companies are just a design workshop and they give or license all their activities. So, their revenue model is a licensee fee flow. Or there are companies that are very much based on a revenue model a volume based, based on volumes and little margins. While in the luxury, you have lower volumes and higher margins. So margins are very important in order to contribute to the profitability of the company. So the way you make money, how you design actually your economics, is the fourth very important part of your business motive. So we'll see how four business models in particular luxury companies, premium companies and premium brands. Designer brands and vertical retailers are therefore organizing these four pillars in order to have a sustainable positioning and avenue and income flow.
