Monopoly Rules: Seminal Ideas and New Paradigms for Strong Profits

Two Key Dimensions of Monopolies: Space and Time
Milind Lele’s Monopoly Rules (2005) has very strong and applicable ideas for any business aiming to gain high profits in a given set of industry circumstances.  It touts the concept of creating a “legal” monopoly through opportunistically exploiting shifts in an industry or market and competitors’ blind spots.  The book’s major tenet? “A monopoly is an ownable space for a useful period of time.”  Lele’s recognition of these two dimensions of space and time as the key to a monopoly is simple, powerful, and extremely useful to any business or organization.  For this idea alone, the book is worth reading, and worth its weight in gold.

Own Space, Not a Sustainable Competitive Advantage
Lele claims that ownable space over a period of time is at the heart of every successful business, not “sustainable competitive advantage” (SCA) as Michael Porter expounds on in his book, Competitive Strategy.  Lele sites that business success is not derived from unique products, strong brands, large scale, low costs, but that these factors are a means to an end, with the monopoly of capturing the marketspace for a given period of time being the true end.  Starbucks, until recently, had a dominant “good-tasting-cup-of-coffee” monopoly without any SCA.  Contrary to everyone’s assumptions, Southwest does not have a SCA of being a low-cost producer.  It does, however, have a “cheap seat” monopoly, and thus it owns the budget traveler space.  The high barriers-to-entry in the airlines industry have allowed Southwest to hold this monopoly for as long as it has.  Wal-Mart’s original strategy and success was derived through being a “local monopoly,” and its large investment in small towns raised its barrier-to-entry into that area.

The Monopoly Kaleidoscope and the Dollars and Cents Value of Monopolies
This critical deduction in Monopoly Rules changes the way you can view business and what should be addressed to be successful.  It is an important strategic paradigm shift, and the key strength of the book is how Lele explains his point effectively and simply through these examples.  He also invests time explaining how monopolies develop through three key factors of a monopoly kaleidoscope: industry shifts, competitor shifts and customer shifts.  To illustrate a company’s market value is often much higher than that of competitors in a monopolized space, he uses a simple formula of revenues per share versus share price to develop a ratio.  Companies with a ratio of 3.5 or higher typically have monopolized marketspaces.  In 2005, he sites Microsoft’s ratio at 8.0 and Coke at 4.5.  He contrasts their success with the struggles of Revlon during this period which is reflected with a ratio of 0.61.  As a University of Chicago Business School grad, I liked his quantification of the real dollars and cents’ effect a monopoly has in terms of a company’s value in the marketplace.

I am willing to talk with blog participants live via phone for free consultations.  I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities.  For any of these request, E-mail me .  I will help my readers in any way possible – I want to share my knowledge and expertise.

Mike Bolden marketing expert and blue ocean strategist – writing to inform, enlighten, and inspire.  Author of forth coming book, “Owning Marketspace”.  Available for consulting and speaking engagements.

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Southwest Continues To Fly The Blue Ocean Skies

Profitable Again, Away from the Red Ocean
In the midst of a Red Ocean industry, Southwest continues to remain profitable and growing.  It posted a 15% increase in profits in the 2nd quarter, reporting a net income of $321 million (compared to $278 million a year ago).  This happened in spite of rising costs (e.g., fuel, which for Southwest grew by 35%, of which 80% of its fuel bill was smartly hedged).  Nearly all other domestic airlines are facing huge losses, and as a result, they are raising ticket prices, slashing unprofitable routes, and charging various fees such as checking baggage.

Stay the Course into Blue Waters
Southwest, already a Blue Oceaner, is a prime example of a company that can do well to follow its current course.  The overall outlook of its management must continue a Blue Ocean tenet of not focusing on the same point in time as the other carriers.  Other airlines live by a short-term time horizon.  Southwest should maintain a mid to long range focus and; do not charge additional fees for baggage, continue hedging fuel costs, and in particular, do not raise ticket prices too quickly on less competitive routes.  This last point is very pertinent because capacity in Southwest’s markets have decreased by 15% – the industry norm is 10%.  With a weak economy forecasted to continue in 2009, management has prudently lowered its growth plans.  Although this is forecasted and its load factor is down this summer, Southwest should focus mid-term and long-term on building share where competitors are retreating.

Emotional Orientation as a Key Differentiating Factor
Lastly, Southwest should retain its focus on another of its Blue Ocean traits: maintain the emotional orientation that distinguishes its identity from the other domestic airlines.  Continue the momentum of friendly service and attitude of its employees, its corporate culture, and paramountly, the quality of customer treatment at every touch point.  This momentum begins with the internal culture, at the very start, with its attitude-focused hiring and screening process. 

What else do you think Southwest can do to maintain its Blue Ocean?  What would you do if you were running American or United?

I am willing to talk with blog participants live via phone for free consultations.  I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities.  For any of these request, E-mail me .  I will help my readers in any way possible – I want to share my knowledge and expertise.

Mike Bolden marketing expert and blue ocean strategist – writing to inform, enlighten, and inspire.  Author of forth coming book, “Owning Marketspace”.  Available for consulting and speaking engagements.

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