A good article recommended from Valueplays – How to add competitive analysis to value investment
An Alternative Investment Model
Strategic Assets. Our analysis derives from the ultimate, long-term objective of a business enterprise: achieving and maintaining a sustained competitive advantage—that is, being able to survive and prosper in a competitive environment over the long haul. Companies with a sustained competitive advantage are the ones to invest in. And how is a competitive advantage gained and sustained? Primarily by having and successfully deploying strategic assets, which share the following three attributes:
• They generate net benefits (e.g., a growing customer base or retail outlets with increasing same-store sales).
• They are rare, in limited supply (e.g., wireless spectrum or airline landing rights).
• They are difficult to imitate for competitors (e.g., patents underlying leading drugs or key oil and gas properties).
A competitive analysis of the customer franchise—typically accounting for 50%–60% of market value (Bonacchi, Kolev, and Lev 2015)—starts with an examination of trends and across-peer differences in periodic customer additions,
• churn (deactivation) rates (e.g., policy renewals for insurance companies), and
• market share and penetration rates (e.g., radio listening in cars), as detailed in the first column of Exhibit 1. Obviously, an increasing market share and decreasing churn rate bode well for sustained competitive advantage.
