Sunday, August 22, 2010
Betfair is Like Chocolate Ice Cream
Like a time machine, these same criticisms from old time racing are now being seen here in North America with the new California news. You guys here have been through all of this before, following the blog and watching and commenting, and rather than speaking to the same old critiques, like ‘they don’t give back to racing’, and ‘they cannibalize wagering’, which we all know are myths, I figured we would chat a little bit about ice cream. After all, who doesn’t like ice cream?
At the local stables in Los Angeles there is an ice cream vendor who only sells banana ice cream. Years ago the government mandated that people who like dessert could only buy banana ice cream. This allowed the vendor to charge a really high price for his banana ice cream, and he never really developed any new flavors, new packaging, or different ways to sell his ice cream. He generally just went about his business and sold his ice cream, and since there were people in line all the time, he kept doing what he was doing.
Some of the banana ice cream vendors even assumed that people were lining up like they were because they loved banana ice cream. Sometimes he raised the price and amazingly people still came.
He loved the banana ice cream business – it was very easy.
Later on, after a few more people were eating the other desserts, the government allowed some of the new desserts to be sold to everyone. The vendor that was selling banana ice cream had his business hurt, and he realized that people did not love banana ice cream like he thought they did. But he kept on selling his product the same way. After sales were falling even more, he asked the government for money to keep him in business, and they said yes, so he was happy. He did not have to find a new job, or change his business to compete with all those new desserts. He could do the same thing as he has always done and get a nice big check at the end of the month from the government! Times were still good.
Meanwhile, miles away two entrepreneurs said:
“This market is unsustainable at these prices and the old banana product is just not working. Some people really like ice cream still, so why don’t we change it a little bit, put it in a new package, and change the flavor to chocolate. We could also sell it at a lower price and try to increase volume, because ice cream is a volume business now, and the banana guys have been treating it as the opposite of that for a century. We can sell more ice cream at this lower price, try and get back customers who have left, and spread the good cheer of ice cream throughout the world.”
Their new chocolate ice cream seemed to be a hit. People who liked ice cream, but were not buying ice cream anymore, were coming back. Other people who would only have one banana cone a month, were buying two chocolate cones a week! With this successful test, one day they had an idea and approached the banana ice cream vendor, and asked if they could open an ice cream shop selling their chocolate ice cream beside them, and partner up to grow sagging ice cream sales.
The banana ice cream vendor said “Why would I do that? You will steal my business.”
The chocolate ice cream man explained to the vendor that his proprietary ice cream is different. That it appeals to other people who are eating cookies down by the river, if they joined forces they could grow ice cream sales, and he would even pay the banana man a percentage of all his profits. He offered to advertise both their ice creams to all these new people, at no cost to the banana vendor, too.
No was still the answer. The banana vendor wanted nothing to do with this new vendor. He thought he was a bad man.
A couple of years passed and business was getting worse for the banana vendor. He went for a meeting and spoke to the people who bred and supplied his cream, his cones and his bananas, and told them the new chocolate vendor’s story.
He was told he was stupid to do what the chocolate vendor wanted him to do. He was told this new vendor was not interested in ice cream at all, and would not pay him any money like he promised. He was told if he allowed it, he would be killing ice cream sales everywhere, vendors will lose their jobs, and the world would never buy ice cream again. "It is not in the spirit of how we have sold ice cream for 100 years!" they pleaded.
But business was going so badly he finally agreed. They would partner up.
The next day at the stables there were now two vendors: One who sold banana ice cream and one who sold chocolate ice cream, side by side.
Almost immediately the banana ice cream vendor noticed something new. There were more people than usual around the two stands. People were still buying banana ice cream, but there were people buying chocolate in big numbers. He had not seen kids buy banana in many years, so this was big news to him. Banana ice cream used to be only for older people.
One day driving to work he noticed another thing new. There were radio commercials talking about ice cream, telling people to come on down to the stables where they sold. He smiled; he never really tried advertising his ice cream because for years he never had to. He wondered why they never tried it, but he was happy that his new partner was doing it, and it did not cost him a dime!
At the end of the first month the chocolate ice cream vendor gave him a check for some of his profits. It was not a ton of money, so he was disappointed. But then he looked at his books and he noticed he sold just as much banana ice cream this month than he had before; in fact he even sold a bit more than usual. The people all around the stand every day were sampling his ice cream. And of course, it was fun to see so many at least interested in ice cream because it reminded him a little bit of the old days when lots of people came for ice cream. It was fun to sell ice cream again.
Some in the old ways of business could still not understand why the chocolate man did not charge more money for his product like they do, and give them more money in return. They thought that they were the sole reason he was making money and they wanted more of it. They were mad.
The banana vendor told them that there is more to selling ice cream than they all had thought. He told them the new man is selling a lot of chocolate ice cream because he is friendly, gives volume discounts, is always improving his ice cream, advertises and charges a price his customers are willing to pay.
He told them that if he charged a higher price to pay the cow owners more, his sales and advertising will go down. If he does that he will sell much less ice cream. They were still mad because they did not like other people selling ice cream, no matter how many new people were buying some. They were wondering what got into their old friend. He was different now.
After several months and much deliberation and grumbling – after all, this new ice cream maker was doing business in a way they were unfamiliar - they finally accepted the fact that having a partner sell ice cream at a price and with a variety that appealed to their customers, made a positive difference. They signed a long term deal with the chocolate ice cream vendor to both sell ice cream.
Many of the old time vendors still could not accept things had changed and tried the best they could, screaming from the rooftops that the new chocolate seller was bad. But over time, their voices were drowned out. More and more people were buying ice cream, and banana makers, cow owners, and the people who made cones realized they finally were not getting smaller and smaller like they have been, and maybe over time they had a chance to grow.
In the end, everyone agreed that the world had changed and having customers buying ice cream again, was better than customers buying no ice cream at all.
And that’s why Betfair is like chocolate ice cream.
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