"How to Ruin a Perfectly Good Product Market" Those of us who
own retail Ecommerce sites are always looking for wholesale
pricing from the suppliers of the products we want to sell.
Unfortunately, many people don’t know what a wholesale price IS,
or even what to DO with it when they find one. By definition
(Merriam-Webster's Dictionary), the word "Wholesale" means "the
sale of commodities in quantity, usually for resale (as by a
retail merchant)". That definition has been around since the
15th century. It does NOT mean "the absolute rock-bottom most
dirt cheap price ever so that you can beat everyone else's
prices no matter what". There are some very good wholesale
suppliers of brand name products out there. We publish a
Directory of those who are willing to Drop Ship those products
directly to your customer from the warehouse, one at a time, at
wholesale. It’s an excellent way to do business without spending
a ton of money on stocking an inventory. However, to be
successful in business, you need to understand what "Wholesale"
really means. A Wholesale distributor is a company that owns
their own warehouse (no middlemen) and supplies you with
products at prices that are significantly lower than
Manufacturer's Suggested Retail Price (MSRP). That's what
wholesale means. So why do you sometimes find wholesale prices
on some products that may be very close to the RETAIL prices for
that same product on the Internet? So close, in fact, that there
is not enough of a profit margin to make it worth selling?
Here’s one very big reason: Chopper Bob has opened a store on
the Internet. He thinks he's come up with an original idea. He's
going to chop prices right to the bone on the products he sells.
He thinks that because his prices will be so low, EVERYBODY will
buy from him, and he'll make lots of money by selling large
numbers of products. All those small profits will add up to a
lot. Chop, Bob, Chop! See Bob Chop! Chopper Bob is essentially
chopping his own throat, although he does not see that yet.
Chopper Bob finds his first product to sell. It's a brand name
VCR. This VCR has a Manufacturer's Suggested Retail Price of
$149. This is the retail price that the manufacturer suggests it
be sold at in order to make a good profit. Chopper Bob has found
that the wholesale price on this VCR is $69. At that wholesale
price, the profit margin to be made by selling it at MSRP
(Manufacturer's Suggested Retail Price) is 54%, which comes out
to an $80 profit on each sale. That manufacturer has made a
pretty good suggestion, wouldn't you say? However, Chopper Bob
believes that he is the first human being in history who has
decided to sell at dirt-cheap prices and make money on volume
sales. Because he is Chopper Bob, he's going to Chop the price
on that VCR on HIS web site all the way down to a mere $79.
People are going to flock to his web site, and buy thousands of
VCRs for $79. Chopper Bob is sure that he will get rich from all
those $10 profits, once they begin to add up. Internet Retailers
will tell stories of his success for years to come. Pretty soon,
some people DO start to come to his site, and they start
ordering VCRs for $79. Chopper Bob is happy. He was right!
However, people who want to order VCRs are not the ONLY people
coming to his site. There are also people coming to his site who
want to SELL VCRs. You see, Chopper Joe has also decided that he
is going to undercut everyone else and make big money on volume
sales. Surprising? Not at all. Most people who decide to open a
business entertain this idea at least once. Chopper Joe searches
the Internet for the absolute lowest-priced competitor, and
finds Chopper Bob selling the VCR for $79. Chopper Joe puts it
on HIS site for $78.98. Now, along comes Chopper Jane, also
searching for the lowest priced competitor. She finds that it's
Chopper Joe, and SHE starts selling the VCR for $78.88. Pretty
soon, this turns into a feeding frenzy that would scare a Great
White Shark. The result of all this? The market price of the VCR
(the price that it's generally available for sale at) plummets
from the MSRP of $149 all the way down to about $78. Suddenly
the original genius, Chopper Bob, finds himself undercut at
every turn, and everybody is selling the VCR dirt-cheap. Now
that there is so much competition at that same price level,
nobody is making any money. As long as you're dealing with a
genuine distributor, like the ones we list, you will always find
a good margin between Wholesale and MSRP. It's the fact that
some people drive down the market prices on certain products
that causes the problem. The manufacturer and the wholesale
distributors of the VCR don't care about this. They are still
selling the VCR at their wholesale price of $69, and now a LOT
of them are being sold, because of all the price-choppers who
are killing the market price of the VCR, and their own
businesses along with it. In a few months, the manufacturer will
change the color of the VCR, slap a new model number on it, and
the whole cycle will start all over again. Please don't make the
mistake of thinking that YOU can't sell that VCR for a higher
price than Chopper Bob. You can. What you have to realize is
this: The Internet is a very big place. Not everyone is going to
FIND Chopper Bob's site. In fact, the vast majority of shoppers
WON'T find it. Most shoppers are very leery of sites like
Chopper Bob's. People who get themselves involved in pricing
wars tend to spend all of their time being mad at their
competition, and to forget about customer service. You and I
both know that we have paid a little more to purchase a product
at a store we trust, rather than just going for the absolute
rock-bottom price. Thankfully, I see this type of situation
mostly in just one area right now...consumer electronics. There
are hundreds of thousands of other products that can be sold at
very good profit margins without running into Chopper Bob and
his buddies. However, that does not mean that you can't sell
consumer electronics. You can sell anything you want to, no
matter what the competition's prices. Sales is a bit of an art
form. If selling something were simply a matter of the absolute
lowest prices, Wal-Mart would be the only store on the face of
the Earth. Without going into too much detail, sales is a
mixture of choosing the right product, or combination of
products, for your web site. It's presenting a clean,
attractive, focused site. It's giving the customer some little
value-added bonus at your site. It's providing the absolute best
customer service that you can. All these things help a customer
to trust you, and when they trust you they are willing to buy
from you, even if in some cases, some of your prices are a bit
more than they find on other sites. We never sell the products
on our Ecommerce sites at the lowest price, and we do just fine.
If you feel that you must Chop something, Chop your customer
service response time. Chop a few kilobytes off your graphics,
so your pages will load faster. Chop the “dead wood” out of your
site by getting rid of products that are overexposed on the
‘Net. Leave the price chopping to Bob and his buddies…they’re
only hurting themselves, not you. Chris Malta WorldWide Brands,
Inc. For more information, visit http://www.YouCanDropship.com
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