Double-jointed Peanuts

peanutDish Network is running a radio ad for their service that suggests that just like peanuts, satellite TV is “all the same” so why pay more from another supplier when you can get it for less from Dish.

While I espouse that nothing needs be a commodity if you look at what the customer is buying rather than what you are selling, the use of the peanut analogy really got my attention. It reminded me of a story my friend Ted Steinberg told me about his first sales experience.

While Ted’s first sales experience was “selling” a peanut to a squirrel (you have to read the story to get it, and I recommend it), this Dish ad focuses on peanuts in a ballpark and that is where Ted learned to sell.

Ted’s experience at selling peanuts is insightful in many ways, including creating a difference, promoting that difference and thinking like a customer instead of like a producer.

Dish can keep promoting price if they want to, and maybe that’s really all they have to offer, but selling on price doesn’t usually lead to better profits. A quick recent example notes that while Apple has less than 50% market share in smart phones they generate over 90% of the profits. Why? Samsung and others sell their phones for materially less than Apple sells the iPhone.

Mitch

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2 Responses to Double-jointed Peanuts

  1. Mitch, I appreciate your post but I have a fundamental disagreement

    There are some companies that should compete on price. Price Leadership is a reasonable value discipline as long as you have a sustainable competitive advantage.

    In the case of Disk, their satellite-based delivery is far less expensive than having to drop (and maintain) cables across every street. It is an advantage they are likely to enjoy for some time, so why not exploit it?

    Comparing Dish with Apple is wrong for two reasons. First, Apple is not a traditional company, no other company has Steve Jobs, so let’s stop using it as a benchmark. Second, Apple’s value discipline is price leadership. It is like comparing Kia with Ferrari.

    It would be more fair to compare Dish with WalMart, for example, another company with a low cost/low-price strategy based on sustainable differentiation. WalMart is quite profitable and doing well (half a trillion in sales, 120B in gross profit, 36B profit EBITDA and $240B market cap).

    However, I agree with your fundamental point: many companies default to competing on price, which usually leads to thinner margins and, unless you have a clear cost advantage, a price war that ends with casualties.

    • Thank you, well stated. You are correct that being the low cost leader can be very profitable for the one company that pulls it off (WalMart) for example. However, I see no indication that Dish is trying to be the low price leader by removing costs that don’t add value. Perhaps unbundling services could be an approach to that end.

      There can be only one low price leader in a category, by definition. Kia and Ferrari don’t compete. Samsung and Apple do. Samsung is winning the volume war, Apple the profit war. Time will tell if they can continue without Jobs. Search this blog for my thoughts on Apple without Jobs, we may be in violent agreement there too.

      Thanks for reading and commenting.

      Mitch

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