|To wholesale or not|
Normally I can figure out how to handle this kind of thing, but I'm curious what other people think about this situation, since it's an important decision to make.
One product we make is an accessory that is complimentary to a device someone else makes, and until recently, their device was pretty much just sold overseas in their own area. They themselves make their own accessory to sell with the device as well. But people asked us if we could do better, so I came up with something. Long story short, it not only works better than there's, but is one third the cost. Even after paying to ship it overseas to customers, it is still way cheaper to the customer. At first, one of the guy's from the company that makes the device tried to bad-wrap us and claimed ours would not work right. The people who bought it quickly put an end to that by saying he was wrong, that it worked great. Obviously this accessory was a cash cow for them, as it had probably about a 10x cost mark up on the one they sell. So now I get an email from the same guy asking if I will start selling them batches of 10 at a time or so. We have not been doing wholesale with our products, mainly because the market we sell to is very niche, and we are never going to be selling thousands of these things or anything. Plus, we are not really setup to be doing that level of production. But this particular model has surprised me, as a good chunk of our sales have come directly from that one model.
My dilemma is... Do I sell to this guy or don't I. I personally would prefer not to wholesale. But my worry is that if I don't, he'll just copy ours and make his own, and I'll lose all those sales. Also, he has not even mentioned anything about a discount, so I'm wondering how he plans on making anything from ours. If he plans on selling it for a lot more than we do, I don't think that's a good thing.
|Do I sell to this guy or don't I |
It's difficult for me to answer this without specifics, but I'll give'er a go:
Really important questions: How many customers do you two share? Is every accessory sale you make because he got a widget sale? Can you sell accessories to people who don't buy the widget from him? or at all? Does every widget sale he makes necessitate an accessory sale, whether it be by you or him? Do some people buy multiple accessories? Or is it always one accessory for one widget?
I'd begin by having a some long conversations with this gentleman. I'd want it to be VERY clear that he is distributing a product made by you and NOT MAKING THE PRODUCT HIMSELF...as in, make sure he is not rebranding it as his own. If you can secure that agreement, who cares what he sets his price as...because he won't be able to get away with a huge mark-up for long if you hold your price steady. All it takes is one vocal customer writing about how they got ripped off after they found "this other site, not the guy who sells the widget, at www.widgetaccessory.com makes the accessory he sold me and sells it for $X cheaper!"...and suddenly he is right back where he started, being outsold by you. Heck, you might even get a great back-link from his product page just so he can show how his price is the same as yours. Essentially, I am advocating a Minimum Advertised Price Policy (MAPP Agreement). It protects your margins and helps him close sales by creating parity. With a secure MAPP, you gain greater access to his customers and he gains a new product offering and a shot at making SOME money off the accessory sale as opposed to NONE. Win, win situation i.e your sales volume increases and he doesn't lose out on the sale entirely.
If you can get a MAPP, I'd say it's safe to sell wholesale to him. This is particularly true if you believe you would simply be gaining an additional 10 sales per month as opposed to just dropping your profit margin on 10 of the sales you would have gotten anyway.
Another thing I would look into is maybe ditributing the main widget for which you make the accessory. If you can work out some sort of reciprocal deal where you can both sell the widget and accessory, you may be able to increase sales and profits for both of you due to increased web presence and exposure.
Edit: I work for a wholesaler, hence my advocacy for utilizing a wholesaler distribution scheme. :o)
[edited by: HugeNerd at 10:33 pm (utc) on June 10, 2009]
Thanks for the insight... Turns out this guy distributes the core gadget and also the accessories, which would include mine. He doesn't actually make them. So I'm not as worried about him coming up with one like mine on his own if I don't go with him. Though I suppose there would be nothing to stop him from finding somebody else to make it for him. I could see where this would be no big deal for someone who normally lets other people distribute their stuff, but it's totally new for us, and I feel apprehensive about diving into a partnership with someone an ocean away. The people that use this device will find our accessory without anyone else's help, so that I don't really need... It is a very niche thing and a close nit community as far as the main device is concerned. My main concern is them copying mine so people won't buy ours. I'm also leery about dealing with someone that was just talking trash about our product a few weeks ago, but now wants to sell them. Seems like that says a lot about what they would be like to deal with.
I have wrestled with this as I regularly get requests from b&m stores asking if I do wholesale of the products I make. I tried it and thought it was a PIA. I found it was more trouble to deal with a shop than with an individual consumer, for one thing, but for another, I found it very boring to be producing a lot of one thing.
Years ago I read something in a book about home businesses based on crafts. This person addressed the wholesale question by asking would you rather make more on a few things or less on a lot of things? Considering I am making those things, I choose the former.
If you choose to not sell to them, I would do a no response on this.
Something about someone badmouthing, then suddenly wanting to cooperate, smells of lawsuit.
I tend to agree... There's really nothing stopping someone from copying my stuff on any level, so it's not like I can stop that, no matter what I do. I told the guy to give me more time to think about it. At this point, I think he knows he'll lose sales to me and he's just basically trying to get something out of it. Another reason I have not liked the idea of wholesale, is that I know dealers will be much more likely to accept returns without trying to rectify the problem in other ways. Many times I have prevented returns simply by working with the people and getting the item to work the way they want. Until then, they just wanted to return it, and I think a dealer would be more likely to just take it back and not make the effort, which would be something I'd have to deal with. Shipping small amounts of something to someone, just so they can turn around and ship it to somebody else, just seems kind of inherently wasteful to me. If you're in a business where you make large amounts of something that can be retailed all over and you don't want to deal with individual customers, then that I can understand. Obviously you wouldn't want to sell chewing gum or something like that directly.
Did you consider doing a widget as an open source?
Since there are no specifics, it's hard to really "nail down" your situation, however it seems that in your widget space anyone can copy the design and sell it as their own without much, if any, ramifications. Can you make the widget open source (open source hardware, opens source software, etc.)? Basically you "set free" (well with certain applicable license) plans for the widget. so let's say that widget is some electronics device and have some embedded software running on it. You can make schematics, eagle files, etc. all open source etc. and you can make software code also publicly available. Turns out people love this approach, however in practice not many people want to get down and dirty with soldering, ordering individual parts from suppliers, etc. So you can still sell the widget, and make money from it (typical markup in my experience is about 25% ), or you can sell individual parts for people to make the widget. Also you can build "widget diy group" where people will help each other troubleshoot widget, etc. (reference to your statement about returns earlier). You can also position yourself as a developer and supplier for future additions for the widgets, and have group "tell you" direction that widget should go to ( new or modified features...). People are usually fairly loyal and will order from you (well the one that set it free) even though few "copy cats" might pop up...Also diy group is perfect beta test costumer, and so on.
This is just an idea as I am not sure if this will work in your widget space