Differentiation is the premise of a good business model.
0 1. User: It is said that the abbot is very wise. Let me ask: mobile phones and computers are highly competitive products. Why does Apple make a lot of money from mobile phones instead of other electronic products? Air conditioning and TV sets are also very competitive areas. Why does Gree make so much money by air conditioning, but no enterprise makes a lot of money by selling TV sets?
Beauty can kill the boss, but not Supor? These are very competitive. Why can some win and some can't? Is it different in business characteristics or people?
People who don't know the truth: There are so many questions that you can write a book after answering these questions. Please come and answer. @ Avenue is invisible. I have my own style. I am familiar with several industries here.
Duan Yongping: Simply put, without differentiated products, it is difficult to make big money for a long time. Apple made a lot of money by selling iphone, and so did others. Simply talk about differentiation: something that users need but other competitors can't satisfy. (20 18- 1 1-05)
02. Netizen: In Munger's "Poor Charlie" classic book "Cosmic Wisdom", I talked about a business model: some highly competitive industries, such as cereal, often do some promotions and discounts, but everyone has a good life. In some industries, there are only a few oligarchs left, but no one makes money. Munger said that the brand is the main factor for everyone to live well in the grain industry. But I still don't understand why these two completely different phenomena appear in the highly competitive industry. This is very important for me to understand the business model. Please give me some advice.
Duan Yongping: I think the decisive factor is differentiation. For example, airlines, because there is almost no way to differentiate products, can only rely on price in the end. You can check the airline fares from Beijing to Guangzhou. I guess they must be about the same. After all, cereal is something to eat, and different brands have different tastes. The buyer will not change his taste because of the 15% discount.
The Iphone is in a similar situation. People who are used to using the iphone are unlikely to change because other phones are cheaper. In the past, people often changed their mobile phones because the differences between them were actually very small, so the new functions and appearance would attract people to change them. Iphone is probably the cheapest mobile phone in fact. You just need to look at the phone that is no longer used in your drawer.
Online games are actually a quite differentiated product. Although people who don't play look similar, the difference between community and feeling is actually huge for hardcore players in the game, which is not so easy to change. Companies that can continue to have differentiated products that users like often have good business models. (20 12-05-02)
03. Netizen: How do you view the issue of industry competition (Article 75)? When you are a first-line enterprise, the competition in the industry you are involved in is very fierce. I think you may be more qualified to explain this problem than Munger.
Quoting Munger Doctrine 20 12-06-26 75, there is a pattern that has always puzzled us. Maybe you can solve it better. Many markets will eventually be dominated by two or three or five or six large competitors. In these markets, no company can make money. But in other markets, every company is doing well.
For many years, we have been trying to find out why competition in some markets is rational for investors and can bring a lot of benefits to shareholders, while competition in some markets is destructive and destroys shareholders' wealth.
If it is a pure commodity like air tickets, you can understand why no one can make money. Sitting here, we can also imagine the benefits that airlines bring to the world-safe travel, richer experiences, spending good time with people we love, and so on. However, since the first flight of Eagle (note: the first successful manned flight in the world), the net income of shareholders of these airlines has been negative-very considerable negative. The competition in the aviation industry is too fierce. Once government control is relaxed, it will seriously damage the wealth of shareholders.
However, in other fields, such as the grain industry, almost all big companies make money. If you are a medium-sized cereal producer, you may be able to make a profit15; If you are excellent, you may earn 40. In my opinion, the competition among grain manufacturers is fierce. They have a lot of promotions and coupons, but why can they still make so much money? I can't fully understand it.
Obviously, the cereal industry has a brand identity factor, which is lacking in the aviation industry. This must be the main reason (the grain industry makes so much money).
It is also possible that most grain manufacturers have learned their lesson and won't be so crazy about competing for market share.
Because if a manufacturer is eager to occupy more market share ... for example, if I am Kellogg, I think I must occupy 60% of the market, and I think I can take most of the profits from the grain manufacturing industry. Then I will destroy Kellogg in the process of expansion. But I think I can grab so much market share.
In some industries, businessmen behave like crazy Kellogg, while in other industries, this will not happen. Unfortunately, I don't have a perfect model to predict how this will happen.
Duan Yongping: I think it has something to do with the degree of product differentiation. The lower the degree of product differentiation, the more difficult it is for enterprises in the industry to make money. Airlines are the ultimate because the product differentiation is small. Another extreme example is that many people who make solar silicon chips will end up worse than airlines. Munger said he didn't know what it meant. Maybe it was a joke. (20 12-07- 1 1)
Netizen: shame, I really bought silicon chip stocks when I first came into contact with stocks. I didn't know who Buffett was at that time. Is papermaking and textile the same as silicon wafer? In my opinion, the products don't seem to be much different. In addition, do you think drinking water is a product without differentiation? I have always been surprised that Evian mineral water can be sold at such a high price. From a scientific point of view, it can't be any different, but it looks like a moat after being given a story. So, for the same reason, is it possible that one day airlines can also be given stories to own rivers to protect cities?
In addition, the blogger who asked questions wants to ask everyone, is medicine an industry without differentiation? Personally, I don't think so. what do you think?
Duan Yongping: The most undifferentiated product is silicon wafer, because users will only care about the cost per kilowatt hour in the end, so this industry is actually an efficiency competition. In the long run, only some enterprises that can really make high-efficiency photoelectric conversion products can survive, and their products are likely to be power plants in the future. (Editor: I wonder if Longji shares will generate electricity)
The actual differentiation of airlines is also very small. Unless you doubt the safety of an airline, consumers will mainly focus on the cost from point A to point B, and of course there will be a little difference in service attitude (poor service attitude will make a big difference). Therefore, the above two industries will be very competitive in price.
The degree of differentiation of other industries you mentioned is more or less higher than these two industries. Some industries seem to have little differentiation, but in fact, some "small things" will cause great differentiation. For example, the geographical location of retail often makes people feel that convenience is more important than price, especially inexpensive things.
The psychological difference between eating and drinking is actually very big, and of course the channels are also very different. For example, Coca-Cola can be bought everywhere in the moat, which is remarkable. (20 12-07- 13)
04. Quote: Warren Buffett's Quotations (Buffett quotes)
In the business of selling commodity products, you can't be much smarter than your stupidest competitor.
Duan Yongping: So the domestic crystalline silicon photovoltaic industry is miserable. Worse, when will this situation end? (20 12- 1 1- 17)
05. Netizen: Most companies in the automobile, mobile phone, computer and TV industries will eventually fail, and a few who survive will become the most efficient assemblers, making little money. The fate of the mobile phone industry will not be much better than that of the computer TV industry.
Duan Yongping: The car has a Toyota and the computer has a Mac. I have seen few products that are truly undifferentiated, such as aviation, photovoltaics, textiles and so on. (20 13-04-06)
Netizen F: Teacher Duan often mentions differentiation.
1. Is differentiation a necessary condition for a good business model?
2. If companies in any industry can find the mode of differentiated competition, they will have a moat with a certain width?
3. If everyone can't find a differentiated competition mode, it is estimated that there is only a price war.
4. It is possible for any industry to develop a good business model, such as Gree and Apple.
Duan Yongping:
1. The necessary conditions are hard to say, such as some monopoly enterprises, such as PetroChina;
2. High quality differentiation can really play a protective role;
3. There seems to be only price wars without differentiation, such as airlines;
4. Some industries are difficult to differentiate, or users don't care much about differentiation, such as airlines. (20 13-03-3 1)
06. Netizen: Is a good business model a differentiated business model or a differentiated business model? In addition, is the business model and corporate culture like the relationship between a good horse and a good player in horse racing?
Duan Yongping: On the other hand, it may be better: a business model without differentiated products is basically not a good business model-so investment should try to avoid companies whose products are difficult to differentiate for a long time, such as airlines, such as solar module. I'm not very good at riding horses. (20 15-04-20)
07. Netizen: Looking at the length of 30 years, do you think the industry category is important for choosing a good company?
Duan Yongping: It is difficult for some industries to make good investment targets, such as aviation. In short, it is difficult for industries with little product differentiation to find good investment targets. (20 15-09- 16)
Netizen: Solar energy conversion efficiency is getting higher and higher, especially in the field of thin films, which has been greatly sought after recently. Solar power generation seems to have great potential in the future. Can solar energy stocks be a key research area?
Duan Yongping: There is no differentiation in products, and the last thing we see is the price war. (20 15-03-03)
Duan Yongping: It suddenly occurred to me that an old bus said: If you are in a pit, at least stop digging. Companies whose products are completely different will have problems sooner or later. The airline is a good example, so I won't repeat the difference between other similar 50 steps and 100 steps. (20 15- 12-02)
08. Netizen: I read your Netease blog from 20 14, and snowballed with you all the way, which was quite rewarding. Buying stocks is buying enterprises, I understand. But how to distinguish a good enterprise seems incomprehensible. Buffett said that Xi Shi is a good industry, flight safety companies are an ordinary industry, and airlines are a bad industry. What I understand is that good enterprises are not easy to appear in industries with large capital expenditures. I don't know if it's right, please give me some advice.
Duan Yongping: "Good enterprises are not easy to appear in industries with large capital expenditure", I agree with this view. (20 19-03- 16)
Quote the essence of Buffett's 3 1 shareholder letter -(20 12-02- 17)
A truly great enterprise can not only get huge profits from tangible assets, but also maintain its original high rate of return in any period without reinvesting a large part of its profits internally. Growing enterprises not only need more working capital, because sales have increased, but also need more investment in fixed assets. Whether a company's demand for capital has increased substantially to meet its growth just proves whether it can become a satisfactory investment. It's great to have an enterprise that can bring a lot of money without a lot of capital investment! Ask Microsoft or Google if you don't believe me. Therefore, from the size of profit output, we can only measure whether a company is excellent, but we can't judge whether it is excellent. High input and high output is the situation faced by most companies. For example, we have invested heavily in listed companies. In the next decade, we will gain a lot of returns from these businesses, but at the same time, we will also invest a lot of capital to do this. The worst kind of company is a company that develops rapidly and needs a lot of capital investment to maintain its development, but its profits are pitiful or even not profitable at all.
To sum up, considering these three types of "savings accounts", great accounts pay considerable interest and will continue to grow over time; If an excellent account keeps increasing deposits, the interest will be very attractive; Finally, not only is the interest on bad debts disappointing, but you have to keep paying to maintain this poor return. (2007) It reminds me of the differentiated operation of different banks in China. Some banks can continue to grow and develop on their own, and some banks need to issue new shares and convertible bonds to supplement their capital, resulting in a lot of non-performing loans and extremely poor profits. )
09. Netizen: Is it the product or service that customers need after you say that you dare to be the first in the world?
Duan Yongping: The so-called differentiation refers to what customers need but others can't satisfy. Without differentiation, "dare to be the first in the world" cannot survive. (20 15-04-2 1)
Duan Yongping: Personally, I understand that good companies are generally those that can constantly discover the "differentiated" needs of users. If we can't find something "differentiated", the product of "being the first in the world" will become a tragedy. Therefore, the premise of "being the first in the world" must be that you can provide "differentiated" products that your user base needs but others don't or can't provide.
The thing of "differentiation" is constantly changing. When everyone (many companies) has "differentiation", it will become a basic demand. Sometimes a good product doesn't necessarily need many "differentiated" things, and sometimes even one will make the company (or product) very successful.
For example, if you can figure out what the "differentiation" of McDonald's is, maybe you will understand. As for how to find the problem of "differentiation", it is a problem of "how to do things right", not a "kung fu" overnight. Apple can have these good things now, only after ten or twenty years of accumulation. (2011-01-1) (Many people say that tencent games always likes to copy, but if the copied games are not as good as the former, it will be difficult for tencent games to develop, and Apple's mobile phone will later overtake Nokia because of product differentiation, that is, it can meet the needs of customers.
10. Quote Buffett 3 1 the essence of the shareholder letter-1.
64. In an unregulated commodity standardization industry (without differentiation), a company will either reduce costs and increase competitiveness, or be forced to close down. ( 1994)
1 1. User: Different liquors have different tastes and are sticky to users. People who like to drink Maotai will not buy Wuliangye because of the price increase of Maotai. In addition, the price of high-end liquor follows the trend, probably because it is a high-end consumer product. The higher the price, the more imposing it is to give gifts to guests. Household appliances are popular consumer goods, which win by function and have worse user stickiness. Whoever has the cheaper price will buy it. At the same time, I think it has something to do with the industry ecology. Similarly, in the home appliance industry, the color TV industry prefers price wars to refrigerators. Changhong, the leader of color TV industry in 1990s, took the lead in price war and provoked vicious competition, while Gree, the leader of air conditioner, did not.
Duan Yongping: Generally, when product differentiation is small, price wars are easy to occur. Wine is a very different thing, at least it feels like it. See's candy is also a very differentiated product. The trend of consumer electronics, especially mature consumer electronics, is less and less differentiated, especially in countries with weak patent protection. (20 1 1-0 1- 14)
12. User: I want to ask about the relationship between differentiation and moat.
Duan Yongping: Differentiation means that a product can meet the needs of one user, while some others can't. The long-term differentiation is the moat. (20 19-08-02)