What are "toll positions"? (A refresher post!)

[Dien Rice]

Hi,

I thought I'd write a quick "refresher" for everyone on... what are "toll positions?" And also, why should you care?

A "toll position" is phrase often used by Harvey Brody. It specifies protection for a desirable product or service, such that, for a customer to get that product or service, the person has to go through you.

There is no way around it... Unless they go through you (and pay you), they can't get the product or service!

Let me first give an example of what is NOT a toll position.

Let's say you open an arts and crafts store. Is that store a toll position?

Generally, no. It's possible for someone to open an almost-identical store next door.

Let me give an example. I have a friend who had a store selling imported exotic products - things like traditional baskets, rugs, jewelry, etc., from overseas cultures.

His store was quite successful, until...

Another, very similar store, opened up a few doors down from him!

Immediately, his sales went down - because the other store was taking a big fraction of his customers!

My friend decided to really compete... He spent money, lowered prices, and so on, trying to drive the other store out of business.

Unfortunately... They must have had deeper pockets than he did. What happened was that my friend went out of business instead, and sadly, he lost so much money he even had to sell his house.

My friend's store did not have a toll position. Anyone could open a similar store close by, and compete with him. That means that customers who wanted to buy some kind of traditional crafts products didn't have to go through my friend... They could go to the store a few doors down, and buy similar products from his competition.

Now, going again with the example of a store, is there ever a case where a store can have a toll position? The answer is, yes...

Here's one example I know of. At the university I attended as a student, there is a "Sports and Recreation" (S&R) building. That building holds all of the indoor sports and recreation facilities - swimming pool, gym, rooms for aerobics classes, badminton courts, squash courts, indoor basketball courts, etc. It is about a 5 min. walk from the S&R building to the main building that had the cafes in it.

However, there is one cafe in the S&R building, and only one cafe. That cafe has a toll position - because there is no space for another cafe.

When I was there as a student, the people who ran that cafe were quite obnoxious. Nobody liked them. But, they still did well... Because people who participated in activities in the S&R Building had no choice!

If people wanted to eat or drink after doing their sports or exercise, without having a longish walk, they had no choice other than to buy from that cafe!

Unless they renovated the S&R building to fit in space for another cafe, they had (and still have) a kind of local toll position. It is impossible for someone to open a competing cafe close by on campus.

(Or off campus for that matter, because it's also a long walk from the S&R building to get off the university campus!)

Another example?

Walt Disney created the character of Mickey Mouse in 1928. The character became popular, through various cartoons, films, and also merchandise (like Mickey Mouse dolls, caps, clocks, T-shirts, games, apps, etc.). Mickey Mouse is copyrighted and also trademarked by the Disney company.

Because of that, nobody else can legally create any products with Mickey Mouse in or on them in the USA, and also in most other countries. If anyone tried to do this in the USA, for example, Disney would come after them with a lawsuit and take all their profits, and they'd probably also be fined.

In this case, copyrights and trademarks are also forms of toll positions. Toll positions stop people from competing with you. That means if you create something valuable - it's impossible for someone to just copy you, "jump on the bandwagon," and make profits from your idea and your blood, sweat, and tears!

I'll share some more examples of toll positions in the next post...

- Dien