Competitive Advantages — slides
Financial Literacy Club
Understanding Businesses · Lesson 8
Competitive Advantages
Brand, scale, switching costs, and network effects.
12-minute lesson · learnwithflc.org
Competitive Advantages · 1 / 16
Financial Literacy Club
Understanding Businesses · Lesson 8
Competitive Advantages
Brand, scale, switching costs, and network effects.
12-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Define a competitive advantage (moat)
- Identify five common moats
- Evaluate how long a moat is likely to last
Warm-up
Why don't people switch to a new social media app, even if it's slightly better?
Think, then write your answer.
The big idea
Competitive Advantages
Brand, scale, switching costs, and network effects.
Understanding Businesses · Lesson 8
When a business earns high profits, competitors notice — and try to take them. A competitive advantage (sometimes called a moat) is what stops them.
Without a moat, profits tend to get competed away over time as rivals copy the product and cut prices.
Understanding Businesses · Lesson 8
Moats can weaken. Technology changes, regulations shift, and new competitors find a way around them. Good analysis asks not just "Does it have a moat?" but "How long will it last?"
See it
Brand: customers trust and prefer it. Network effects: the product gets better as more people use it. Switching costs: leaving is painful. Cost advantages: it can produce more cheaply than rivals. Intangible assets: patents, licenses, or exclusive rights competitors can't copy.
- 1
Brand
Customers trust it and will pay more for it.
- 2
Network effects
Each new user makes it more valuable for everyone else.
- 3
Switching costs
Leaving takes time, money, or hassle.
- 4
Cost advantages
Scale or know-how lets it produce more cheaply than rivals.
- 5
Intangible assets
Patents, licenses, or exclusive rights others can't copy.
Real example
Why a better app can still lose
A startup builds a messaging app that's faster and cleaner than the one everyone at school uses. It still struggles. Why?
- Network effects: a messaging app is only useful if your friends are on it — and they're all on the old one.
- Switching costs: moving means losing group chats, photos, and history.
The incumbent's product isn't better. Its moat is. To win, the startup would need a way around the moat — like starting with a group the incumbent ignores.
Activity · small groups · 10 min
Build a Moat
- Each group gets a business: a neighborhood pizza shop, a phone maker, a video platform, a bank, or a sneaker brand.
- Groups name the business's strongest moat: brand, network effects, switching costs, cost advantage, or intangibles (like patents or licenses).
- Groups plan how a new competitor could attack it and how the business could defend.
- Groups rate how long the moat will last: 1 year, 5 years, or 20+ years.
Check for understanding · 1 of 3
A video game becomes more fun as more of your friends play it, because there are more people to play with.
Which advantage is this?
- ACost advantage
- BNetwork effects
- CPatent
- DLow prices
B. Network effects
When each user makes the product more valuable for others, that's a network effect.
Check for understanding · 2 of 3
A school uses one company's grading software. Switching would mean retraining every teacher and moving years of records.
What protects the software company?
- ASwitching costs
- BA cheaper product
- CAdvertising
- DNothing
A. Switching costs
The pain of leaving keeps customers even if a competitor looks attractive.
Check for understanding · 3 of 3
Once a company has a competitive advantage, it keeps it forever.
- True
- False
False
Technology, regulation, and new competitors can erode even strong moats.
Remember
Key takeaways
- Moat = what stops competitors from taking your profits.
- Brand, network effects, switching costs, cost, intangibles.
- Better products can lose to stronger moats.
- Ask how long the moat will last.
Discuss
Talk it over
- What's the strongest moat of a company you use every day?
- Can you think of a company whose moat disappeared? What happened?
Exit ticket
What is a moat, in business?
Answer on your exit ticket before you leave.
Nice work today.
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