Author Topic: Businesses That Act Like Leeches  (Read 3497 times)

Jurgis

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Re: Businesses That Act Like Leeches
« Reply #20 on: May 14, 2020, 10:33:00 AM »

I think this is a great insight. Any business that isn't completely monetizing its pricing power has a huge moat. It makes it very difficult to compete with them, because a new entrant would need to either offer more or charge less, and the lower-than-possible margins make that hard.

A few other things I think fit this model:
-Interactive Brokers - their margin rates are way lower than the competition. They could raise them and still be by far the lowest. But their margins are still good.

-Disney Parks - they have discovered pricing power, and raise ticket prices every year. The parks are still always packed, so they are under-doing this. This is weaker than the other cases mentioned, imo.

-High speed internet - I would pay more than I do right now for this. A lot more. Maybe competition keeps this down. There are two sets of fibre to my neighbourhood (one telco, one cableco) so there are two choices for true high speed.

I'm gonna disagree with all three:

IBKR - they are nickel-and-diming their customers like there's no tomorrow. Pay for quotes, pay trade commissions, pay if you don't have enough trades per month. Some of these may have been removed, but because of competition and not because IBKR are good guys. So zero loyalty to IBKR, screw them.

DIS - I think the park prices are ridiculous.

High-speed internet - most countries have much cheaper high-speed internet than US. US monopoly pricing sucks.
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BG2008

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Re: Businesses That Act Like Leeches
« Reply #21 on: May 14, 2020, 10:36:42 AM »
I still dont get your point re monetizing the last cent.  I dont belong to Costco for many reasons (usually hang my hat in NYC) but I dont like having to pay an annual membership fee just to walk in the door.  interesting business model, but if I dont use Costco that much, they are sure monetizing my money...

Cherzeca,

When you are a family of 6-7, husband, wife, 2 kids, parents in-law who helps out with the childcare and a brother in law who lives at home, you wind up going through a lot of everything.  TP, wipes, paper towels, steak, berries, fruits, veggies, etc.  It is not just the savings by buying bulk.  It is also that fact that Costco berries and fruits are much nicer than any of the competition.  They do so much volume that the berries go directly from the farm to the store (at least the freshness feels that way).  We divide our grocery trips into restaurant depot and Costco.  The savings add up.  Buying 6 dental floss and 3 packs of toothpastes adds up over time.  Costco also naturally caters to a more affluent customer base.  It never occur to me when I was younger that being able to buy $300 at a time is an indication of a more affluent customer base.  But it clearly is.  If you buy the non-perishables, it really adds up to savings.  Okay, maybe not the 1/2 gallon mayo.  There are some items that you should buy at Trader Joes. 

If you are a bachelor or a couple in a small NYC apartment, yes, you're better off at Trader Joes.  If you have kids and they go through 3-5 half gallons of milk a week.  The eggs, bacon, fruits, milk, all adds up.  Also, they control their supply chain, so if you have infants and need formula.  You go to Costco to buy it because you know it won't be fake.  My family literally have relatives in China who will ask us to bring them $1,000 worth of formula, razor blades, and coffee when we travel to China. 

Now that I am not a bachelor, yeah, even the 8 pack Puma socks, V Neck Calvin Kleins T-Shirts, Jeans ($30), and fleeces, and seasonal gloves and jackets, are all great value.  They operate on 10% gross margin.  Sometimes, my wife and I will be like "we just spent $500" stocking up on stuff.  But everytime we go to CVS or a convenient store, we are reminded of how much cheaper Costco is.  We generally get 2x the product for the same price elsewhere. 

BG2008

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Re: Businesses That Act Like Leeches
« Reply #22 on: May 14, 2020, 10:37:32 AM »

I think this is a great insight. Any business that isn't completely monetizing its pricing power has a huge moat. It makes it very difficult to compete with them, because a new entrant would need to either offer more or charge less, and the lower-than-possible margins make that hard.

A few other things I think fit this model:
-Interactive Brokers - their margin rates are way lower than the competition. They could raise them and still be by far the lowest. But their margins are still good.

-Disney Parks - they have discovered pricing power, and raise ticket prices every year. The parks are still always packed, so they are under-doing this. This is weaker than the other cases mentioned, imo.

-High speed internet - I would pay more than I do right now for this. A lot more. Maybe competition keeps this down. There are two sets of fibre to my neighbourhood (one telco, one cableco) so there are two choices for true high speed.

I'm gonna disagree with all three:

IBKR - they are nickel-and-diming their customers like there's no tomorrow. Pay for quotes, pay trade commissions, pay if you don't have enough trades per month. Some of these may have been removed, but because of competition and not because IBKR are good guys. So zero loyalty to IBKR, screw them.

DIS - I think the park prices are ridiculous.

High-speed internet - most countries have much cheaper high-speed internet than US. US monopoly pricing sucks.

IBKR is much better for smaller HFs than consumers.  Now that the competitors offer free trade, it is much easier to trade through TD Ameritrade.

Castanza

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Re: Businesses That Act Like Leeches
« Reply #23 on: May 14, 2020, 11:04:00 AM »
I still dont get your point re monetizing the last cent.  I dont belong to Costco for many reasons (usually hang my hat in NYC) but I dont like having to pay an annual membership fee just to walk in the door.  interesting business model, but if I dont use Costco that much, they are sure monetizing my money...

Cherzeca,

When you are a family of 6-7, husband, wife, 2 kids, parents in-law who helps out with the childcare and a brother in law who lives at home, you wind up going through a lot of everything.  TP, wipes, paper towels, steak, berries, fruits, veggies, etc.  It is not just the savings by buying bulk.  It is also that fact that Costco berries and fruits are much nicer than any of the competition.  They do so much volume that the berries go directly from the farm to the store (at least the freshness feels that way).  We divide our grocery trips into restaurant depot and Costco.  The savings add up.  Buying 6 dental floss and 3 packs of toothpastes adds up over time.  Costco also naturally caters to a more affluent customer base.  It never occur to me when I was younger that being able to buy $300 at a time is an indication of a more affluent customer base.  But it clearly is.  If you buy the non-perishables, it really adds up to savings.  Okay, maybe not the 1/2 gallon mayo.  There are some items that you should buy at Trader Joes. 

If you are a bachelor or a couple in a small NYC apartment, yes, you're better off at Trader Joes.  If you have kids and they go through 3-5 half gallons of milk a week.  The eggs, bacon, fruits, milk, all adds up.  Also, they control their supply chain, so if you have infants and need formula.  You go to Costco to buy it because you know it won't be fake.  My family literally have relatives in China who will ask us to bring them $1,000 worth of formula, razor blades, and coffee when we travel to China. 

Now that I am not a bachelor, yeah, even the 8 pack Puma socks, V Neck Calvin Kleins T-Shirts, Jeans ($30), and fleeces, and seasonal gloves and jackets, are all great value.  They operate on 10% gross margin.  Sometimes, my wife and I will be like "we just spent $500" stocking up on stuff.  But everytime we go to CVS or a convenient store, we are reminded of how much cheaper Costco is.  We generally get 2x the product for the same price elsewhere.

I have a membership simply for the cheaper gas and gas rewards points. Easily pays for itself every year.

cherzeca

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Re: Businesses That Act Like Leeches
« Reply #24 on: May 14, 2020, 11:53:25 AM »
so further to Costco, they would "monetize my money to the last cent" if I were to join (but not use often), but they dont monetize yours...which is the value proposition that every business has to provide customers...not every customer, but enough (TAM).  going back to seamless as an example, I wonder how a membership annual fee would work for them, a al Costco...

bizaro86

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Re: Businesses That Act Like Leeches
« Reply #25 on: May 14, 2020, 11:57:46 AM »

I think this is a great insight. Any business that isn't completely monetizing its pricing power has a huge moat. It makes it very difficult to compete with them, because a new entrant would need to either offer more or charge less, and the lower-than-possible margins make that hard.

A few other things I think fit this model:
-Interactive Brokers - their margin rates are way lower than the competition. They could raise them and still be by far the lowest. But their margins are still good.

-Disney Parks - they have discovered pricing power, and raise ticket prices every year. The parks are still always packed, so they are under-doing this. This is weaker than the other cases mentioned, imo.

-High speed internet - I would pay more than I do right now for this. A lot more. Maybe competition keeps this down. There are two sets of fibre to my neighbourhood (one telco, one cableco) so there are two choices for true high speed.

I'm gonna disagree with all three:

IBKR - they are nickel-and-diming their customers like there's no tomorrow. Pay for quotes, pay trade commissions, pay if you don't have enough trades per month. Some of these may have been removed, but because of competition and not because IBKR are good guys. So zero loyalty to IBKR, screw them.

DIS - I think the park prices are ridiculous.

High-speed internet - most countries have much cheaper high-speed internet than US. US monopoly pricing sucks.

Shrug. I would pay more for all three of these services.

Part of it for some of them is being non-USA. IBKR is much better than competitors here in Canada - no free trades for everyone here. Given how fast their customer base is growing it seems I'm not the only person who feels this way.

I also think Disneyland is great value. Tickets are expensive, but a lot is included as well. Different strokes for different folks, but enough people agree with me that they keep raising prices and attendance still grows. Obviously we'll see if that holds post covid, but I think it will.

High speed is likely colored by being outside USA. I pay $105 CAD (so under $80 USD) for 300/30 high speed, basic cable, and a home phone. I would pay much more than that just for high speed if necessary.

Castanza

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Re: Businesses That Act Like Leeches
« Reply #26 on: May 14, 2020, 12:22:58 PM »

I think this is a great insight. Any business that isn't completely monetizing its pricing power has a huge moat. It makes it very difficult to compete with them, because a new entrant would need to either offer more or charge less, and the lower-than-possible margins make that hard.

A few other things I think fit this model:
-Interactive Brokers - their margin rates are way lower than the competition. They could raise them and still be by far the lowest. But their margins are still good.

-Disney Parks - they have discovered pricing power, and raise ticket prices every year. The parks are still always packed, so they are under-doing this. This is weaker than the other cases mentioned, imo.

-High speed internet - I would pay more than I do right now for this. A lot more. Maybe competition keeps this down. There are two sets of fibre to my neighbourhood (one telco, one cableco) so there are two choices for true high speed.

I'm gonna disagree with all three:

IBKR - they are nickel-and-diming their customers like there's no tomorrow. Pay for quotes, pay trade commissions, pay if you don't have enough trades per month. Some of these may have been removed, but because of competition and not because IBKR are good guys. So zero loyalty to IBKR, screw them.

DIS - I think the park prices are ridiculous.

High-speed internet - most countries have much cheaper high-speed internet than US. US monopoly pricing sucks.

Shrug. I would pay more for all three of these services.

Part of it for some of them is being non-USA. IBKR is much better than competitors here in Canada - no free trades for everyone here. Given how fast their customer base is growing it seems I'm not the only person who feels this way.

I also think Disneyland is great value. Tickets are expensive, but a lot is included as well. Different strokes for different folks, but enough people agree with me that they keep raising prices and attendance still grows. Obviously we'll see if that holds post covid, but I think it will.

High speed is likely colored by being outside USA. I pay $105 CAD (so under $80 USD) for 300/30 high speed, basic cable, and a home phone. I would pay much more than that just for high speed if necessary.

My wife drug my ass to Disney World in February. She said, lets go before we have kids. I'm thinking to myself "why? isn't this place for kids?".....I trudged on, and by the end of our week I was decked out in Disney apparel trying to get a reaction out of the storm troopers in Galaxy's Edge.

I don't think ticket prices are that expensive when compared to amusement parks. Take Hershey Park here in PA. It's your average park (few roller coasters, nothing special). Tickets are $70 a pop....Disney at what $120 a pop is a bargain. All the free shows, transportation, extreme generosity of workers, general attention to detail in everything, wait time app, wrist band integration, etc. is worth way more than $120 imo.

The resorts are what kill you price wise....Animal Kingdom is like $6-800 a night for some rooms....Yeah, I'll pass on that since I spent maybe 2 hours a day (minus sleep) in our hotel room.

Spekulatius

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Re: Businesses That Act Like Leeches
« Reply #27 on: May 14, 2020, 04:31:12 PM »
Arnít most GP/ LP relationships like leech/ host.

For a leech/ host relationship the following would need to be true.
1) itís hard to impossible to get rid of the leech
2) the leech can suck on the host, but it canít suck it dry without imperiling itself
3) The leech benefits much more with less effort

So a hedge fund GP isnít really a leech because typically the LP can  Get rid of him. A closed end fund manager may be a leech, or private equity or the beloved BAM. With MLP, the GP in most cases acts as leech. I mean the GP/LP relationship is basically a codified leeching relationship.
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stahleyp

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Re: Businesses That Act Like Leeches
« Reply #28 on: May 14, 2020, 04:33:51 PM »

I think this is a great insight. Any business that isn't completely monetizing its pricing power has a huge moat. It makes it very difficult to compete with them, because a new entrant would need to either offer more or charge less, and the lower-than-possible margins make that hard.

A few other things I think fit this model:
-Interactive Brokers - their margin rates are way lower than the competition. They could raise them and still be by far the lowest. But their margins are still good.

-Disney Parks - they have discovered pricing power, and raise ticket prices every year. The parks are still always packed, so they are under-doing this. This is weaker than the other cases mentioned, imo.

-High speed internet - I would pay more than I do right now for this. A lot more. Maybe competition keeps this down. There are two sets of fibre to my neighbourhood (one telco, one cableco) so there are two choices for true high speed.

I'm gonna disagree with all three:

IBKR - they are nickel-and-diming their customers like there's no tomorrow. Pay for quotes, pay trade commissions, pay if you don't have enough trades per month. Some of these may have been removed, but because of competition and not because IBKR are good guys. So zero loyalty to IBKR, screw them.

DIS - I think the park prices are ridiculous.

High-speed internet - most countries have much cheaper high-speed internet than US. US monopoly pricing sucks.

IBKR was the first big platform to go zero commissions. They also eliminated the monthly fee for smaller account sizes. Even if you have small account, margin is still way, way less than competitors.
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meiroy

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Re: Businesses That Act Like Leeches
« Reply #29 on: May 15, 2020, 03:26:49 AM »

Big international banks.