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CFA Level I · CFA Level I Exam · Business Models

A business model describes how a firm identifies its customer segments. A software firm sells one product to large corporations and a free, limited version to individual users to attract them to the paid version. Compared with serving a single segment, this approach most likely:

Serving multiple segments most likely requires the business model to define a distinct value proposition and revenue mechanism for each segment, such as paid corporate licences and a free tier that converts users. It does not remove revenue specification or guarantee higher margins.

  1. Aremoves the need to specify how revenue is earned from each group
  2. Brequires the model to define a value proposition and revenue mechanism for each segmentCorrect
  3. Cguarantees higher profit margins in each segment

Explanation

With several segments, the business model must define what each group values and how the firm earns from each, for example paid licences from corporations and conversion from free users. Revenue mechanisms remain necessary, and margins are not guaranteed.

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