Home     About Us    Contact Us     Contribute     Privacy
Investing
Stocks
Bonds
Mutual Funds
Biz
Credit
Career
College
Economics
Tax
More
 
 
Marketplace
Related Categories
Tip of the Day

Tip of the Day Refinance Your Mortgage if You Can Cut At Least One Point

Refinance Your Mortgage if You Can Cut At Least One Point - Refinancing a mortgage only makes good sense if you are going to save more than 1% on the...

read entire tip

Recently Added
Other Great Sites
 

Competitive Advantages

Investors often fall into the trap of only researching quantitative factors in evaluating potential investments.  However, it's important to remember that a share of stock also represents a share of a business, so you should be interested in how the company as a whole performs.Successful companies come in all shapes and sizes but they tend to have one thing in common: they all have some significant competitive advantage.  This advantage allows them to ward off competitors and stick around for a long period of time.

Why are competitive advantages so important?  Well, mostly because they can ensure that a company earns excess returns for a longer period of time.  By increasing the life of a company, the value of the stock is enhanced.Competitive advantages don't just come in one form.  Also, companies can have multiple competitive advantages; in fact, the more the merrier.  For the purpose of this article, we'll outline five areas where companies can stand out and ensure their long-term success: establishing market share, strong brand management, enjoying the network effect, having certain trademarks and patents, being cost effective, and creating high switching costs.

Market ShareCompanies with significant market share create a problem for competitors because these competitors will have to rely on "stealing" market share away from the competition; they can't just create business out of thin air.  After all, would you want to create a cola product if you knew you'd be going head-to-head with such goliaths as Pepsi and Coke?   It's also great for the company because it means its products are well-known and well-received in the marketplace.  Market share can be imposing but if the industry has significant profit potential for new entrants, market share can be eroded.

Strong Brand ManagementHaving a strong brand can ensure a company's long-term success and it also allows companies to earn healthy profits because their brand allows them to charge a price premium.  For example, analysts never thought Starbucks would be successful in charging premium prices for a commodity product like coffee.  However, the company has been wildly successful thanks in large part to its strong brand management.  Strong brands tend to create the longest-lasting competitive advantage.

Network EffectThe network effect occurs when a product creates demand from users, which then enhance the product.  For example, eBay is a company that benefits from the network effect; by attracting more sellers, it has in turn attracted more buyers, establishing a dominant market share.  The network effect is fairly uncommon but it can be extremely lucrative when it occurs.

Trademarks and PatentsTrademarks and patents can be sources of competitive advantage for some companies, although it's not too common.  One example is ShuffleMaster--the company creates auto-shufflers that are used in many casinos.  The company stays on top of technology and keeps close reigns on its patents to ensure competitors don't easily enter the market.  But the company is growing another area of its business: it creates new casino games and then licenses them to casinos, allowing it to collect a huge royalty check each month.  These patents and trademarks have given ShuffleMaster a great outlook.

Cost-effective StructureBeing a low-cost producer has some advantages, although they're often short-lived.  By shaving all possible costs, a company can "undercut" its competitors and offer compelling prices on its products, thus attracting many customers.  The obvious example of this is Wal-Mart, who has taken its cost cutting to the furthest limits, which is responsible for the company's status as the world's largest retailer.

High Switching CostsAnother way to earn excess returns and lengthen a company's life is to install switching costs into the business model.  For example, wireless telephone companies require you to enter into contracts that restrict your ability to change service providers.  Some software companies also have high switching costs because the learning curve to learn a new software program is often steep.These advantages are important to keep in mind when seeking out your next investment opportunity.  By investing in companies with significant competitive advantages, you're safeguarding yourself against some threats.

 

Discuss It!
1 2 >

Jonny Boy said:

Jodi - this is a definition I wrote down in class......is it good enough? Competitive Advantage: The term competitive advantage is when a company is operating at a higher a quality then its competitors, thus benefiting, by its success. A company is said to have a competitive advantage when it operates more efficiently and still provides a higher quality of service to its customers. Operating at a lower cost is a key factor to have a competitive average... The company must strive for providing better or greater service but at a lower cost to its competitors but still maintaining great service Competitive advantage can is more important in a competitive industry, versus a company who is unique.

MBA2012 said:

A competitive advantage can be broken down into two general areas. The first is low cost leadership, which is contingent upon producing economies of scale. Dell computers is a good example. The second is differentiation which is more consumer choice driven. Here, you can charge more than your competition. An example is Rolls Royce. The point of competitive advantage is that you do something better than your competitor that they hopefully can't duplicate. I hope that helps a little.

show more said:

There are many competitive advantages related to the investing if you have invested in a sector that ensures you high gains. Stock markets are risky as there is no stability in the market. In that case, the factors that you discussed seem to be effective.

anti aging products said:

Hey, great blog, but I don’t understand how to add your site in my rss reader. Can you Help me please?

Taxi walton on thames to Gatwick said:

Awesome material! Thanks a lot, dude, for giving this so good material to us. I've just recently completed one of my projects due to the information from this post. Thanks man, once again!

rv awnings said:

Thank you a lot for providing individuals with a very spectacular possibility to read critical reviews from this site.

yunnan travel said:

This is so beautiful and creative. I just love the colors and whoever gets it in the mail will be smiling.

Newbie Launch Formula said:

I've just decided to create a blog, which I have been wanting to do for a while. Thanks for this post, it's really useful!

mortgage broker toronto said:

Extraordinary, This particular net page is genuinely exciting and delight to learn. I'm a colossal fan from the subjects specified.

LateRooms contact number said:

Good Post, I am a big believer in posting comments on sites to let the blog writers know that they’ve added something advantageous to the world wide web!

https://www.rebelmouse.com/ryanshedplansreviews/ said:

This is my initial span i stopover here. I discovered so numerous entertaining force in your blog, essentially its palaver. From the tons of notes on your doctrines, I shot I am nay the except individual holding total the idle here! Fulfill up the amazing process.

unlock his heart by nadine piat method said:

What a good blog you have here. Please update it more often. This topics is my interest. Thank you. . .

Teeth whitening kits said:

Hey – awesome blog, unbiased looking near any blogs, appears a very pleasant rostrum you are wearing. I’m currently sharing WordPress for a limited of my blogs however looking to metamorphose digit of them atop to a stage cognate to yours as a hearing stream. Anything in appropriate you would suggest about it?

Virtualese said:

I've just decided to create a blog, which I have been wanting to do for a while. Thanks for this post, it's really useful!

minnetonka moccasin said:

Took me date to peruse many the criticizes, however I truly loved the point. It proved to be Really beneficial to me furthermore I am unerring to many the commenters here! It’s always lovely during you can hardly merely be abreast, however besides entertained!

facebook said:

it's really nice and meanful. it's really cool blog. Linking is very useful thing.you have really helped lots of people who visit blog and provide them usefull information.

SACDC said:

Took me date to peruse many the criticizes, however I truly loved the point. It proved to be Really beneficial to me furthermore I am unerring to many the commenters here! It’s always lovely during you can hardly merely be abreast, however besides entertained!

http://emiliaproject.net said:

Took me pace to understand many the observes, however I truly loved the point. It proved to be Truly cooperative to me moreover I am indubitable to many the commenters here! It’s always gorgeous during you can hardly barely be versed, however also entertained!

emergency dental care in Bethesda Maryland said:

I've just decided to create a blog, which I have been wanting to do for a while. Thanks for this post, it's really useful!

dermal fillers said:

Took me era to show sum the criticizes, however I very loved the stipulation. It proved to be Really useful to me and I am stable to many the commenters here! It’s always fine whereas you can hardly barely be aware, however also entertained!

Most Popular Articles
Most Popular Definitions
 
Daily Definition

Definition of the Day Fill or Kill

Definition: A type of stock order that requires the broker to fill the order right away or not at all. TeenAnalyst Advice: Investors place this order if they want their order filled right away, for whatever reason.  If the order can't be filled immediately, the broker is given instructions to cancel...

read entire definition

 
 

 

 

Home     About Us    Contact Us     Contribute     Sitemap

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Copyright © 2009 TeenAnalyst.com