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  A business model is far more than a competitive strategy. Instead, it includes each component of the business that is required for success: customers, suppliers, competitors, costs, profits and competitive advantage. Research has demonstrated that a successful business model may be the defining factor in a company's eventual success or failure.
  
  

Value Proposition

• The value proposition describes what customer problem the company is solving--essentially, why a customer will pay for the company's products or services. It also estimates how much the customer will pay, often in relative terms as a percentage of spending.
  
  

Market Segment

• In describing the company's market segment, the business model targets specific customers within the larger group of all customers for that type of service or product. For example, a business software manufacturer may target only small businesses or only financial services businesses. Often, this choice is made because no competitor specifically serves that type of customer.
  
  

Value Chain

• Companies very rarely do everything themselves. Most companies are part of a value chain, which includes raw goods producers, logistics companies, factories or manufacturers, marketing agencies, retailers and so on. The company's position in that value chain determines who its customers are, who its "upstream" providers are and how it can add value to the other players in its network.
  
  

Cost Structure

• The cost structure includes not just how much a product or service costs to make or deliver but where those costs come from. A manufacturing company will have facilities, equipment and shipping as major parts of its cost structure, whereas a service company usually counts payroll and marketing as its major costs.
  
  

Profit Potential

• Profits are described in two ways: the total potential dollar value of the profit and the means by which that profit will be generated. Product sales, subscription fees, licensing and reselling are all examples of profit-generating activities, and a company may employ more than one. Total profits are usually described in terms of total sales revenue or in profit margin per unit of goods or services sold.
  
  

Value Network

• Once a company knows where it is on the value chain, it can also identify allies and collaborators that it can use to add value to its own customers. For instance, airline companies can partner with credit card companies to offer perks to customers who patronize both businesses.
  
  

Competitive Strategy

• The final element of the business model is the company's competitive strategy, or competitive advantage. The three most common strategies on which to compete are cost, differentiation and niche. For example, Wal-Mart competes not necessarily by charging the lowest prices but by achieving the lowest costs among retailers. Target competes in the same industry by appealing to more fashion-conscious consumers and Amazon takes a niche role, as the leading online retailer.