Strategy: Bloated Margins¶

Margins are the difference between what it costs produce something and what it is sold for. It is the profit.

In new industries you would see larger margins because you have less competition, on old industries typically the margins get smaller. It's called market erosion.

Competition forces you to keep your margins low.

There are situations that that's not the case - you have an old industry and the margins are high. You may call this phenomenon a bloated market.

Company called Casper created a mattress that can fold and is easy to ship, reduced the bloated margins of a mattress industry. For them these margins are needed for distribution, it usually sits 6-12 months before being sold. Casper created one mattress type and made it shippable directly to the customer.

Where to look: - Look at the industry you're interested in - Look at the value chain - Do any of these steps of the value chain make large margins?