Reading: Matching Features: Question 3

Retail businesses seeking rapid growth today typically choose among several distinct organisational models, each carrying a different balance of control, risk and capital requirement.

Under the direct-to-consumer model, a company manufactures or sources its own products and sells them exclusively through its own website and, increasingly, a small number of company-owned stores, bypassing traditional retailers and wholesalers entirely. Because every sale flows through channels the company itself owns, it retains complete access to customer purchase data and can adjust pricing or marketing instantly, but the company also carries the full cost of holding inventory and absorbs the entire loss if a product line fails to sell.

The franchise model spreads that financial risk across many independent operators: a franchisor licenses its brand name, store design and operating procedures to individual franchisees, who each invest their own capital to open and run a location in exchange for a share of revenue paid back to the franchisor. This structure allows a brand to expand into many locations far faster than it could by opening company-owned stores itself, since each new outlet is funded by someone other than the franchisor, though the franchisor sacrifices a degree of day-to-day control over how each outlet is actually run and rarely gains direct access to that outlet's own customer data.

A marketplace or platform aggregator, by contrast, never takes ownership of the goods sold through it at all; it simply provides the technology that connects independent third-party sellers with buyers, taking a commission on each transaction. This model can scale to an enormous number of product categories with very little inventory risk of its own, since unsold stock is always someone else's problem, but it depends entirely on attracting and retaining enough independent sellers to keep its catalogue competitive.

The subscription-box model instead sells access to a recurring, curated selection of products delivered on a fixed schedule, most commonly monthly. Because customers commit to an ongoing payment rather than a single purchase, this model produces unusually predictable, forecastable revenue compared with one-off retail sales, which in turn makes it easier to plan inventory purchasing in advance, though it also means the company must continually source fresh products to keep long-term subscribers from cancelling out of boredom.

Some long-established manufacturers instead pursue vertical integration, owning every stage from raw materials to retail, but this approach is now less common among newer retail entrants than the four models above.

List of Business Models A. Direct-to-consumer model B. Franchise model C. Marketplace/platform aggregator model D. Subscription-box model E. Vertical integration

The following statements describe characteristics of retail business models. Match each statement with the correct option, A–E. NB You may use any option more than once.

1. The company retains full access to customer purchase data because every sale goes through channels it controls itself.
2. Financial risk is spread across many independent operators who each invest their own capital to open a location.
3. The business takes a commission on transactions without ever owning the goods being sold.
4. Revenue tends to be unusually predictable because customers commit to an ongoing recurring payment rather than one-off purchases.
5. Expansion into new locations can happen faster than a company opening its own stores, because new outlets are funded by someone other than the parent brand.
6. Success depends on continually attracting enough independent sellers to keep the catalogue competitive.
7. The company bears the full cost of unsold inventory itself if a product line fails.
8. Ongoing product sourcing is required to prevent long-term customers from cancelling out of boredom.