|Retail Price To Equal Vendor Price - Build Customer Base?|
I was thinking of the strategy below to help increase customers in the long run.
Let's say you drop your retail prices to match your wholesaler/vendor price with either no or little markup added to them. This in turn should cause more customers to place orders on your website.
Then in turn as your buying volume power increases with your wholesaler/vendor they will provide even a larger discount on their products to you; since you are buying at a higher volume.
I see this as you lose money in the short term, but you build a long term strategy to build a larger customer base.
Has anyone ever tried a strategy like this?
I have tried this, market share for a new or stagnating business this can/does work. Your compo might complain to there suppliers, if the same supplier is supplying you they might lay down the law but they can't "fix" prices as this is illegal. What they can do is make supplying you difficult.
I would try it on your 10% top sellers, use a targeted PPC campaign and see what results come in, also offering FREE P&P always help, the end user likes this. Next day delivery.
Will it get you a better price from the supplier if your revenue goes up with them, it should, but i find personal relationships also work, prompt early payments usually bring a % as discount well. I would speak to the supplier, see if you can organise better prices before you do this so your % margin isn't effected so much.
|but they can't "fix" prices as this is illegal |
You are wrong (in the US anyway). Look up the case "LEEGIN CREATIVE LEATHER PRODUCTS, INC. v. PSKS, INC., dba KAY’S KLOSET U KAY’S SHOES" from 2007. The law changed and prices can be set now by manufacturers. Many of my suppliers make me sign agreements that I will maintain a certain minimum sale price or lose the ability to purchase their product wholesale.
That said, I prefer it. I have purposely selected some of my suppliers BECAUSE they have this program in place. I would rather compete on website design, adwords ability, customer service, and order execution than to compete with someone who wants to sell at cost to build order volume.
A strategy that I have used with success, related to the OP's question is this: I calculate what the best price will be from a supplier based on volume (sometimes they tell you, sometimes experience is your guide)and base my pricing/marketing decisions on that amount. For example with a non-price regulated product if I get 20% off for buying 10 units, and would get an additional 25%off for buying 100 units then I would base my markup on the deeper discount and be less profitable in the beginning.
Thanks for the info. I am not up to date in with US laws so that's very interesting. Certainly in the UK we are governed by the fact that suppliers can use their recommended RRP's, than telling their suppliers what they would like the product to sell for but can't insist on this in a court of law.
Not sure if i personally like the way the US law dictates to retailers on what they should sell a product for. What happens for instance if a said business has difficulties and needs to get rid of stock. In Europe as a whole its quite difficult to send stock back, especially once it has been paid for. If you have good relations then its easier, the supplier will be more helpful. SOR (sale or return) can be helfull.
If the retailer is governed by this rule, needs to sell dead stock for whatever reason, is told by the supplier they can't sell for cheaper, the supplier won't take the stock back at cost, it places the retailer in a difficult position, especailly if they want to re-order off that supplier at a later stage with a different product range.
Also, does this not open the door to China/India then to copy products at cheaper RRP's.
|Let's say you drop your retail prices to match your wholesaler/vendor price with either no or little markup added to them. |
Observation from the edge, isn't this exactly what goes on in eBay, and what is strangling most legitimate ecommerce businesses today?
Rocknbil, i agree, if the wholesaler/supplier wants to go onto Ebay and sell at the wholesale price while earning his 30% from manufacturer then its a problem, its a problem that exists and in my view becoming a bigger problem. Wholesalers are having to change the way they market, gift shows etc are becoming less important, if the wholesaler has not got a decent site and ranked well to market their product they need a way of making up loss of profits, Ebay is the way to go for them, keeps them anonymous.
Not fair for the long standing retailers who support them but in saying that many retailers go to HK anyway and have/are cutting the "middle man" out. What to do!
In reality the manufacturers have been competing with each other and with Chinese knockoffs for years. This is just a way to keep values a little higher on their brand. They still compete with other brands, so any move to set minimum prices too high will kill them in the market.
Of my suppliers--
Brand A, sets minimums at 36% margin $269 price point
Brand B, sets margins at 30% margin $299 price point
both allow free shipping (which costs about $30)
Another type of widget is 24% margin with $1500 price point, and to compete you have to offer free shipping which costs $150.
Even with the minimum price, there isn't always a lot left in it to cover overhead and expenses. But better than competing with someone selling at cost.
To blow the product out because it is dead stock you can call it "scratch and dent" or "box is dirty" to show that it is not "new and perfect" even though it may be. Or you can just be willing to lose the line. If you have that much dead inventory from a brand, why carry it at all?
In my way of thinking, if I have to pay 3% for CC fees, 10% for eBay or affiliate fees, wages, overhead, shipping costs of 10% and I can't make 30% gross profit, then why bother selling that line at all? If a manufacturer makes sure I can make 30% then I am more inclined to sell there stuff.
When I have a dozen brands to choose from in every product category I sell in, I will go toward the brand that will support me as a reseller the best.
I do agree, Chinese knockoff's, Thailand, India, depending on the nature of the product and if it's in the limelight it will get copied. In the UK a US company came over, selling X for £9.99. US price online $9.99, it was a big line, 50,000 pieces per month, one product. Been on the market place for 3 months. Copies arrive, RRP is £2.99. 3 months later US company left, now the copy is in the US and killing the original. They left the door open and got a cold, what works in the US doesn't mean it works in the UK or Europe, especially Europe with the language problems we face in selling products outside of the UK.
Maybe price fixing works in one place but not the other, maybe this is why they got burnt fingers, price fixing is great for suppliers/manufacturer's, they make better margins, maybe not so good for the retailer if they can't sell the product. I would like to see how much the court case costs, bet the manufacturing industry stuck their top lawyer into this and spent a lot of money greasing the wheels, what a lovely outcome for manufacturer's and suppliers, instead of X margin we can now make an extra % because we have the law on our side. In the end it works through the system, end user pays for it in the long run, maybe that could be one of the reasons why the retail industry in the US is suffering.
I have seen this many times, maybe the US market operates slightly differently due to the above plus with 300 mil plus to sell too, copies might get washed in the wash, so it doesn;t directly effect a US company as it would a UK company selling in the UK. Maybe the authorities are a lot more pro-active at getting at the copies, i don't know.
If a new product is launched here (uk) for the mass market the pricing structure is in the front of the mind, not just to sell but also to protect the supplier so for EG: the Chinese will find it harder to make a quick buck. Dont' be too heavy on the suppliers % and let the retailer make 2.35% and everyone is a winner.
Dead stock happens, if you are not on top of it or are expanding into a new field but staying with-in the same theme, suck and see sometimes pre-vails. Everyone gets it wrong, there are many reasons why this can happen but if it does, then what. Chase them to sell on Ebay, sell it on the under open market, de-values the brand long term. No-one wants to look at dead stock but if you are aggressive in the market you are in and product range is king, you can't be right all the time, to earlier, to late in the product cycle, who know's.
I agree with everything else you have said, i just don't like the idea of price fixing for a better word and don't in anyway agree with it.
there are a lot of knockoffs here in the US - as you pointed out the market is 300,000,000 people to sell to and a direct path from China to Los Angeles. As for price fixing, Authorized Dealer Pricing, Minimum Resale Price or any of its other names - it has its benefits and drawbacks just like the unregulated system.
If there is money in it, more people will sell/compete and customer service levels and other intangibles go up. Free Shipping, free returns, lots of tech support
With unregulated pricing, prices fall but customer service also decreases (less money to pay for it) as well as increases in other areas like shipping costs, upcharges, other fees. Have you paid by the pound for your airline baggage lately?
In the end, every business space is competitive regardless of the regulations. The only businesses that avoid this somewhat are the really huge ones that keep competition reduced just from the sheer cost of playing - like starting a new airline for example.
|In the UK a US company came over, selling X for £9.99. US price online $9.99, it was a big line, 50,000 pieces per month, one product. Been on the market place for 3 months. Copies arrive, RRP is £2.99. 3 months later US company left, now the copy is in the US and killing the original. |
With this example a Minimum Resale Price would not have cured the problem. The offshore copy does not follow the original brands pricing - they compete instead. If the original brand can't get its costs in line, they lose.
Going back to OP question - the other issue with the strategy that comes to mind is the customer mix. If you get all bargain hunters and get listed on Fat Wallet or similar sites you will get huge traffic volume. The problem comes if you ever want to go to 'normal' pricing. These customers come to identify you with a really low price, and then will be alienated by the switch to normal pricing. This happened to me with a liquidation site I did - sold products at half price from a bankruptcy sale. When I tried to sell the same customer base at normal pricing I got a lot of push back. The customers expecting everything for half price all the time.
I have indeed, was in the US not so long ago. We are comparing chalk and cheese, manufacturing products in South East Asia is quite different if i have read you right.
We are unregulated over here in the UK and i can't see the problems you are mentioning, regulated product selling can't mean better customer service etc etc, it might mean that your gross/net isn't as high, but as high as what. If you are top of the tree in your theme then you need to do what you mentioned, agreed, regardless of what the gross % is otherwise you are in trouble or on a sardine run. Also depends how competitive the market you are in to what the gross % is. For example i run a X company, buy in product, 80,000 sku's and work on 77% net. If this was regulated i would not be able to do this in a million years.
I don't agree with what you are saying Min sale Resale price. If the original brand was not greedy, the costs for manufacturing in China for a copy or the "original" are the same, they still have a mould charge, they still have the P&P charges. If they had come in at a RRP of Â£5.99 that would of been in line with the RRP of $9.99 six months ago. Instead they went for the graveyard shift of 1 to 1 and ended up leaving. There was the angle for the Chinese, i say the Chinese, they aren't the clever ones, the Taiwanise are the business brains, China is the factory, and the door was wide open.
I am know expert, i try to learn as i go along but from what i have seen in the world fixing prices does not work, and the guy at the bottom of the run finds it harder to climb. I also don't think the end user benefits, but i do think manufacturer's and suppliers have a nice lunch out together.
I have had the same experince, the end user can come to think the price is going to remain the same but if you make it clear its 3 month promo you can gather end user's mail addresses for future marketing. Hard to know what deals come up in the future, plus if you hit good constant ongoing life products you can always go direct to the suppliers. Part containers is the way to start.
Also, have a look at companies that go bankrupt. Not sure of the word they use in the US but in the UK a receiver is called in, once they have done due diligence the stock goes onto the open market. Setting up a site or using a existing site that constantly refreshes its products with cheap but good quality product brings in the customers. You might be lucky and be able to use this type of industry for you theme.
It seems to me you are a little desperate to have to sell your products at cost price.
Things will get harder for all retailers (b&m and online) as the "world" produces so much stuff, more than buyers need !
Everyone wants to set up a business and have a life style and make a living/fortune. In the end many will disappear.
To me as a manufacturer of one product, the hardest thing is to get any retailers or online shops to stock a new product. So we are forced to try online retailing our selves.
Does anyone know of a place where we could list our product as being available to online retailers ?
The whole web was based on that failed model thru 1999. Remember the hot phrase "Lifetime value of a customer?"
Turned out that the lifetime of most web customers is one sale. And you don't want that one sale to be at cost.
@Digmen1 - do you proactively seek out online retailers or just assume they will find you?
Digmen1, there are a number of sites offering this service, most you need to pay to get listed in, use G and search wholesalers, they have listings for e-commerce. I am UK based, not sure about the ROW.
Also, there are a number of internet magazines, send them free samples, hopefully a free write up on the mag as well as their online sites.
You can also but i imagine you have done so trawl the relevant theme you are in on the net and target those retailers who could sell your product, maybe a SOR (sale or return) if you are confident the product can sell with that buyer, buy 5, get 1 free, the usual business approach. If a supplier sends product to us on SOR or "try this" we will put it up, what do we as a retailer have to loose.