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By Art Cashin
On this day in 1806, one of the best examples of American capitalism took place. It had it all. A product that could be produced very cheaply. A group of people who could use the product. A clever but inexpensive means to transport the product from where it was made to where people needed it.
On this day in 1806, Fred Tudor arrived in the Caribbean port of Martinique. Tudor had sailed from Boston with a shipload of ice that had been harvested in the dead of winter from his dad's pond. Despite the claims of critics, Tudor made the ice last by insulating it with sawdust and hay (which were naturally to be washed off when the ice was sold).
The first day of Tudor's arrival was a smashing success. People paid high prices for the product he offered. But the next day...that was a problem. They had unloaded all the ice and, the boys at the dock, trying to be helpful, had washed off the insulation. Net result...night two...puddle of water...lots of screaming people offering to pay any price for the ice they now missed. Thus Tudor's ice idea was a failure...but he had
learned two key parts of marketing...keeping a product fresh (storage) and how once you create demand people will pay up in scarcity. He returned to Boston, poorer but wiser.
There he raised new capital and bought the rights to harvest ice from several local ponds. But travel got risky as the War of 1812 broke out. After the war, however, Tudor sent a ship to Havana...not with ice but with thick cedar planking and sawdust...he was going to build an ice-house in Havana to keep the ice fresh. Then he sent some ice to see if the ice-house worked. It did.
He then asked for a 10 year exclusive contract to be the sole supplier of ice to Cuba and Martinique. No one thought it was a big deal since folks were not used to having ice in those locales. Then he started giving the ice away, especially to bartenders (along with exotic frosty drink recipes). The "free ice" created a demand, so then Tudor began charging higher and higher prices (remember the exclusive).
This ingenious marketing concept was later adopted by King Gillette and is commonly called the razor/razorblade theory. (You practically give the razor away and when they need new blades only your blades fit that razor....Op. Cit. "Barbie & Ken dolls.")
Tudor went back to New England bought up the ice rights of hundreds of ponds, commissioned the manufacture of huge ice saws to cut the blocks of ice from the ponds. He compounded the strategy all through the South (one source says he invented the mint julep just to sell more ice).
For 80 years, Tudor and his heirs were the "Ice Kings" of America. All from a product nature supplies for free. And he became a multi-millionaire in the process.
Many thanks to Mr. Cashin and UBS Financial Services who graciously allow his historical musings to be republished on this site. To enjoy more of Art's posts simply click on "Cashin's Comments" in the label section on the sidebar.