Economies of Scale and Switching Costs According to 7 Powers (Jeff’s Asia Tech Class – Podcast 64)

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This week’s podcast is more on the well-known 7 Powers framework by Hamilton Helmer. I go through three of his 7 powers.

You can listen to this podcast here or at iTunesGoogle Podcasts and Himalaya.

But first…consider joining Tech Strategy, my podcast and subscription newsletter on the strategies of the best tech companies.

 

His fundamental equation of value is:

Value = M0*g*s*m = market scale * power

  • M0 is Market at time zero. g is growth. This is about targeting big and growing market opportunities.
  • S is long-term persistent market share. How much of it you have
  • M is long term persistent margins. (operational margins after cost of capital)
  • You can also do potential value = market scale * power.

His break-down of economies of scale is:

  • Fixed costs
  • Distribution network density
  • Learning Economies (don’t agree)
  • Purchasing Economies
  • Volume / area relationships (cool but I never use this)

His break-down of switching costs is:

  1. Financial switching costs
  2. Procedural switching costs
  3. Relational switching costs

I also cited the 4 terrains from BCG:

Related podcasts and articles are:

From the Concept Library, concepts for this article are:

  • Competitive Advantage: Economies of Scale
  • Competitive Advantage: Surplus Margin Leader
  • Competitive Advantage: Switching Costs
  • Counter-Positioning

From the Company Library, companies for this article are:

  • None
This is part of Learning Goals: Level 4, with a focus on:
  • 15: Didi and Switching Costs

Photo by Hermes Rivera on Unsplash

——–

I write, speak and consult about digital strategy and transformation.

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