Title LM07 Business Models IFT Notes.pdf ✅

LM07 Business Models 2025 Level I Notes © IFT. All rights reserved 1 LM07 Business Models 1. Introduction ........................................................................................................................................................... 2 2. Defining the Business Model ........................................................................................................................... 2 Business Model Features ................................................................................................................................. 3 Customers, Market: Who ................................................................................................................................. 4 Firm Offering: What ........................................................................................................................................... 4 Channels: Where ................................................................................................................................................. 5 Pricing: How Much ............................................................................................................................................. 6 Value Proposition (Who + What + Where + How Much) .................................................................... 9 Business Organization, Capabilities: How ................................................................................................. 9 Profitability and Unit Economics ...............................................................................................................10 3. Business Model Types .....................................................................................................................................11 Business Model Innovation ..........................................................................................................................11 Business Model Variations ...........................................................................................................................12 E-Commerce Business Models ....................................................................................................................12 Network Effects and Platform Business Models ..................................................................................12 Crowdsourcing Business Models ...............................................................................................................13 Hybrid Business Models ................................................................................................................................13 Summary ...................................................................................................................................................................14 Required disclaimer: IFT is a CFA Institute Prep Provider. Only CFA Institute Prep Providers are permitted to make use of CFA Institute copyrighted materials which are the building blocks of the exam. We are also required to create / use updated materials every year and this is validated by CFA Institute. Our products and services substantially cover the relevant curriculum and exam and this is validated by CFA Institute. In our advertising, any statement about the numbers of questions in our products and services relates to unique, original, proprietary questions. CFA Institute Prep Providers are forbidden from including CFA Institute official mock exam questions or any questions other than the end of reading questions within their products and services. CFA Institute does not endorse, promote, review or warrant the accuracy or quality of the product and services offered by IFT. CFA Institute®, CFA® and “Chartered Financial Analyst®” are trademarks owned by CFA Institute. © Copyright CFA Institute Version 1.0

LM07 Business Models 2025 Level I Notes © IFT. All rights reserved 3 1. Introduction This reading covers:  What is a business model  The types of business models A well-defined business model helps analysts in understanding a company's operations, strategy, target customers, key partners, prospects, risks, and financial profile. Many companies have conventional business models that are easily understood, such as manufacturer, wholesaler, retailer, restaurant chain etc. However, the advent of digital technology has changed the way most businesses operate, and enabled disruption of existing business models. Many companies now have business models that are complex, specialized, or new. 2. Defining the Business Model A business model describes how a business is organized to deliver value to its customers:  who its customers are,  how the business serves them,  key assets and suppliers, and  the supporting business logic. A business model explains what the company does, how it operates, and how it generates revenue and profits, as well as how it differs from competitors. It provides enough detail to understand the basic relationships between these key elements, however, it does not provide a full description. For a full description (such as detailed financial forecasts) we would have to refer to a business plan. A business model should have a value proposition and a value chain.  The firm’s “value proposition” refers to the product or service attributes valued by a firm’s target customer that lead those customers to prefer a firm’s offering over those of its competitors, given relative pricing.  The firm’s “value chain” refers to how the firm is structured to deliver that value. It refers to the systems and processes within a firm that create value for its customers. This is illustrated in Exhibit 1 from the curriculum.