Monopoly Rules: How to Find, Capture, and Control the Most Lucrative Markets in Any Business - Hardcover

Lele, Milind M.

Hardcover

ISBN 10: 1400049725 ISBN 13: 9781400049721

Publisher: Crown Business, 2005

Synopsis

“Competition is the bane of the free enterprise system.” —Anonymous business mogul

What people on the front lines—making, marketing, and selling products and services—really want is to be alone in the marketplace, to have a space that they own for a long enough period of time so they can make some real money. In this short, powerful book, Milind Lele shows you how.

Conventional wisdom attributes winning to having the best products at the lowest prices, a great brand, superior management, and the lowest overhead. All are obviously of great importance, but in actuality anyone can achieve them. Dr. Lele shows that winning comes from focusing on these monopoly rules:

· What patch of open market space does this business own—or could it own?

· Is the space really open or is it wishful thinking?

· Are there enough customers whose needs are not being met and are they willing to spend money to have those needs met?

· How long will this space remain open and why?

· What do you have to do to capture it and wall it off?

· When will the party end and what do we do next?

For example, for many coffee lovers there is no one but Starbucks. The moment people found out what coffee could, and should, taste like it was as if a giant lightbulb went off inside their heads—and Starbucks had a monopoly. The best monopoly opportunities are situational, often soft and intangible. They’re segments, not the mass market, and often in the customer’s mind. For the customer there is no one but you, since what you provide can’t be easily copied, duplicated, or ripped off.

Monopoly Rules couldn’t come at a better time, as an almost perfect storm seems to be hitting every business. Customers are changing and the homogenous mass market has gone the way of the nickel soda. Now the game is winning market segments. In this world, Monopoly Rules provides a new way to think and take action and stay ahead of the game.

Also available as an eBook

About this title

About the Author

Milind M. Lele is the managing director of SLC Consultants, Inc., a strategy consulting firm based in Chicago, Illinois. He was adjunct professor of strategy and marketing at the University of Chicago’s Graduate School of Business for more than eighteen years and presently teaches in Chicago GSB’s executive education programs all over the world. He obtained his Ph.D. from Harvard University and has published widely, including articles in Harvard Business Review and Sloan Management Review and two books, The Customer Is Key and Creating Strategic Leverage.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter 1

No Trespassing, Honda’s Minivan Monopoly

In the fall of 2002, my wife, Blair, and I went shopping for a minivan. Our first stop was the local Honda dealership to take a look at the top-rated Odyssey. As we were checking out the floor model, a salesman walked over.

“Hi, folks!” he said. “My name is Arnie. Can I help you?”

“I have a problem with the trunk,” said Blair. “It looks awfully small. I often carry a lot of stuff, and I wouldn’t know where to pack it.”

Arnie smiled. “Let me show you the best feature of this van,” he said. He lifted the tailgate, pulled a lever, and yanked at a strap attached to the back of the third row of seats. In seconds, the seats collapsed and folded neatly into the trunk-well, creating a huge, carpeted cargo area.

“All you have to do is push down these backseats and you can carry almost anything your heart desires. Why, just the other day I used my Odyssey to bring home a coffee table and four chairs that were on sale at Sam’s Club.”

Blair and I were impressed. “How soon can we take one home?” I asked.

“I’ll be happy to put you on the list,” Arnie replied. “There’s a wait of about eight weeks right now.”

“You’re kidding!” I protested. “What about a used Odyssey?”

Arnie shook his head. “Don’t remember the last time I saw one. People don’t seem to sell their Odysseys.”

Blair and I didn’t relish the idea of an eight-week wait, so we thanked Arnie and drove across town to take a look at the other top-rated minivan, the Toyota Sienna.

At the Toyota dealership, a friendly saleslady named Donna showed us a shiny metallic grey Sienna. “What a beauty,” she exclaimed. “Check out the carpeting, the air conditioning for the rear passengers, the automatic cruise control. And if you don’t like this color, we have four others on the lot to choose from.”

Blair got into the driver’s seat and looked around. “Nice,” she said appreciatively. “But how big is the trunk? We’ve got three small children and a lot of gear to carry.”

“No problem. We’ve got one of the biggest trunks in this size van. Here, take a look.”

Peering in, my wife said, “Gee, that doesn’t look much bigger than the Odyssey that we just saw.”

Donna was quick with an answer. “If you ever want more space, just take out the backseat and the cargo room doubles. Here, let me show you.” She started tugging at various catches and levers.

“Wait a minute!” said Blair. “You mean the rear seats don’t fold flat?”

“No, no!” Donna replied. “All you do is take them out of the car and you’ve got a nice, big cargo area.”

Blair frowned. “But what do I do if I discover something I really like at Home Depot or a tag sale?” she asked. “I can’t just leave the back seats on the sidewalk!”

That settled it. We signed up for a Honda Odyssey with Arnie, even though it meant waiting for nearly three months. But the whole episode left me highly intrigued. Honda had evidently found something customers wanted. They couldn’t make Odysseys fast enough, and the minivans were so popular that many dealers were charging a thousand dollars or more above the list price. What was the matter with Toyota and the other car manufacturers? Why weren’t they making minivans with seats that folded flat?

A week after our Odyssey finally arrived I learned the secret of Honda’s uniqueness. When I shared the story of our car shopping experience with the participants in my marketing seminar, Bill Stowell, a product-engineering manager at a major automaker, raised his hand.

“Actually, it’s not very mysterious,” Bill said. “The problem is the dies that are used in making the floor pan of a minivan. They’re really expensive, and they’ve got to be ordered eighteen months in advance, sometimes more.”

“I understand,” I said. “But wouldn’t it be worth the money to make a product that more customers want?”

“Sure,” Bill replied. “But the cost of the dies is only the start. Changing over from one set of dies to a new set is even more expensive, since it means shutting down production for more than a week. That’s why car manufacturers hold off on major changes until they’re ready to introduce a new model.”

“And when does that happen?”

“About once every four years.”

Suddenly Honda’s advantage was very obvious: Honda had introduced the Odyssey’s fold-flat seats in 1999. As it happened, Ford, GM, and Chrysler were all poised to introduce new models in 2000. By 1999, their designs were frozen. Even if they had wanted to, they couldn’t make a fundamental change like adding fold-flat rear seats to the 2000 models. Given the traditional four-year product cycle, other manufacturers wouldn’t come out with fold-flat rear seats until 2004 at the earliest. (Which in fact they did: Nissan’s 2004 model Quest minivan had a fold-flat third row, while Ford went one better, introducing a 2004 minivan in which both sets of rear seats folded flat.) Until then, Honda would offer the only minivan with this highly desirable feature.

Honda had a monopoly! As a result, during the five-year period from 1999 to 2004, while controlling less than 10 percent of the U.S. minivan market, Honda would capture over one-third of the profits in this segment.

An Ownable Space for a Useful Period of Time

By monopoly I mean simply that a company or a busi- ness controls an ownable space for a useful period of time. Once again:

A monopoly is an ownable space for a useful period of time.

The company owns, exclusively controls, something—a group of customers, a product feature, or some other desirable attribute—long enough to make some money.

This view of monopoly as “an ownable space for a useful period of time” takes us right back to the original definition: “Monopoly” is derived from the Greek word monoplion: mono-, meaning “only,” and plein, meaning “to sell” or “seller.” Thus, “monopoly” simply means “the only seller (of some product or service)”—somewhere, for some time. Nothing more, nothing less.

For the monopoly to be meaningful, the space must be “ownable,” i.e., capable of being controlled and potentially profitable. It must have enough customers with needs that aren’t being met who are willing and able to spend money to satisfy their needs. Ideally, their numbers should be growing, ensuring a steady stream of demand. The only bar in a town full of teetotalers may be capable of being controlled, but it can’t be profitable and therefore isn’t worth owning. By contrast, a look-alike bar on Rush Street, a popular Chicago locale, doesn’t control any ownable space because it can’t keep the market to itself.

You must also own the space long enough to make high, monopoly-like profits. Your “useful period of time” when you are the only player in this space must be long enough to give you a reasonable chance of recovering your investments, and then some. The more you have to invest to tap into those customers’ requirements, the longer your useful period needs to be. If you have to build a large plant, invest $100 million in R&D, or carry out a major redesign of your products, you may need a useful period of several years. A fashion designer, on the other hand, may need just one season to recover her investments in a new design.

Honda’s Odyssey minivan monopoly meets both our requirements. Honda’s “ownable space”—minivan buyers with small children, the need for occasional cargo capacity, and the willingness to pay more or wait longer for it—was large. Millions of Gen-Xers were settling down, raising families, and furnishing their houses. A significant proportion of them didn’t want or couldn’t afford two large vehicles, one to carry children and the other to haul stuff. For these families, the Honda Odyssey was perfect.

Further, by design or sheer luck, Honda’s decision to introduce this feature in 1999 also gave it a long useful period of time—five years. Ford, GM, and Chrysler were all introducing new models in 2000; by 1999, however, their designs were frozen. Even if they wanted to, they couldn’t make a fundamental change like fold-flat rear seats to these models. If, on the other hand, Honda had introduced this feature in 1998, the other car makers could have copied it quickly, giving Honda a much smaller useful period of maybe a year.

As a result, Honda had a lucrative little monopoly in the minivan business. How lucrative? Consider that Honda sold an average of 120,000 minivans a year during this five-year period. It was able to get full price without spending a red cent on incentives or rebates, at a time when competitors were offering up to $2,500 off per minivan. Add in the fact that Honda Odysseys were priced approximately $1,500 higher, and you can see that Honda was making nearly $4,000 more per minivan than its competitors, who were earning maybe $2,500 in profits per vehicle. Multiply that by 600,000 Odysseys, and you find that Honda made over $2.4 billion in additional profits in the minivan segment.

Not bad for a row...

Edition details

• Publisher: Crown Business
• Publication date: 2005
• ISBN 10: 1400049725
• ISBN 13: 9781400049721
• Binding: Hardcover
• Language: English
• Number of pages: 224