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[The Standard of Marketing]
Do you remember the 'Standard of Mathematics' concept book? It is a book composed of conceptual explanation-conceptual arrangement-practice questions to understand, apply, and solve various principles. PLATEER's "Standard of Marketing" was also organized in the same way. I'll introduce the main marketing concept first and explain it in detail based on specific examples. We will also organize insights or some questions for marketers to consider in order to apply them in practice.
We look forward to re-engraving the essence of marketing and serving as a useful concept book for anyone who wants to establish a more effective strategy. |
Economic moat: Conceptual Description
Before explaining economic moat, let's take a brief look at the meaning of moat. A moat is a pit that has been dug around a castle from ancient times to modern times. These pits were often filled with water to make them into nails. The moat served as an obstacle to protect the castle from the outside. Since they had to cross the pond to enter the castle, the enemies had no choice but to have a hard time restoring the castle. Now, I will apply this concept to companies.
Economic Moat refers to the unique competitive advantage of our company that prevents competitors from entering easily. It can be understood as a factor that reveals our own excellence over other companies in a market. This concept was first mentioned by Warren Buffett, the world's most famous value investor, at Berkshire Hathaway's annual shareholders' meeting in 1991. Since then, it has been used for corporate analysis, including investment strategies and financial performance forecasts, and has established itself as a foundation strategy, especially for long-term corporate investment.
Economic moat: Conceptual Summary
[Factors]
Morningstar, a global company that provides investment research and financial data, was deeply inspired by Warrett Buffett's investment philosophy and introduced this concept systematically. We created an evaluation system called Economic Mot Rating, and through this, we quantified the long-term competitiveness of companies. Pat Dorsey, who works as an analyst at Morningstar and developed an economic moat rating, mentioned the following four types of economic moat that companies can have.
| Category |
How to get there |
① Cost Advantage
When prices are low while gaining margins similar to those of competitors
If you set a similar price as your competitor, but you have a high margin |
- Make it an economy of scale*.
- Innovate high-efficiency production processes.
Ex) Walmart, Amazon, etc |
② Switching Costs
When replacing a competitor's product, the cost/effort/burden increases
the state of being expensive or having learned and mastered over time |
- Build an easy and comfortable UI/UX environment.
- Compatibility restrictions prevent departures.
Ex) Apple, Microsoft, etc |
|
③ Network Effects
Value increases as products and services are used
|
- The number of users grows exponentially.
- User-to-user interactions are actively promoted to generate profits.
Ex) Visa, Uber, Instagram |
④ Intangible Assets
Brands, patents, technologies, licenses, etc. that cannot be easily replicated |
- Build strong brand value.
- Creates unique technology and intellectual property rights.
Ex) Pharmaceutical patents, etc |
* Economy of scale: a phenomenon in which production costs per unit are reduced through mass production
[Types]
A company can create a competitive advantage with just one of the economic moat factors described above and may occupy several factors. Depending on how wide the moat is, a company's economic moat can be classified into three criteria below.
|
① Wide Moat : Companies with a competitive advantage likely to last 20 years or more
- Strong Brand: High brand awareness and strong customer loyalty
- Cost advantage: low cost of production, favorable to price competition
- High conversion costs: When it's difficult for customers to choose a different product
- Network effect: High value of products and services due to high number of users
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② Narrow Moat : Companies that are likely to remain competitive for more than a decade
- Relative competitive advantage: if you have a slight advantage over your competitors in a particular area
- Have a certain level of brand awareness
- Customers can switch to other products, but at a certain cost
- When the industrial environment changes rapidly and the competitiveness of a company can be weakened (variability)
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③ No Moat : Companies that have no competitive advantage or are likely to disappear quickly
- Unsustainable enterprises with easy entry to competitors
- If the profit margin is lowered due to price competition
- Customers can easily take other options
- When your current position in the market is unstable and easily affected by external factors
|
Economic moat: Practical Application
In his book, Economic Moat, Pat Dorsey said, "Good products, scale, great execution, and good management do not provide long-term competitiveness. We need them, but that's not enough." He emphasized securing a true moat and having a wider moat (if you have one) is what marketers can do to help customers choose their own products and services. They must be responsible for shaping our brand's unique ecosystem.
✅ Strengthen brand image - Create a differentiated brand image that creates customer loyalty
✅ Loyalty Program Development - Design customer lock-in strategies such as subscription models, membership, rewards, etc
✅ Differentiate - imprint unique characteristics of our products and services different from those of our competitors, such as personalized experiences
✅ Strengthen your network - Use communities and social media to induce interaction with customers
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