Highest price = greatest overall profit

[votrechien]

I heard another etailer mention this before at a conference before and I totally ignored it. Then I realized this is what was happening to a few of our products.

We have a product which we sell at $120. We have two competitors who sell the exact same product for $100. The lead time for all of us from the time of PO to arrival is around 60-90 days.

I noticed last month both of our competitors were outselling us nearly 10:1 because of the price difference. By the end of June both sold out of their stock . We were then left as the only source for these items and we've nearly sold out at $120/ea. I've now become aware of a couple of other products doing the exact same thing.

Of course, in an ideal world we would all always have sufficient stock but in reality this is rarely the case.

Long story short, it seems sometimes being the lowest priced guy doesn't pay.

[oliondor]

I totally agree and have no interest to sell more and cheaper. I learned this from a local small supermarket selling everything at higher prices than other supermarkets but still selling: if prices were cheaper he would sell a lot more but how much more work and staff would it need ? Selling less but at higher price is the solution for me, also for this reason.

[JackieBlue]

This is a classic price elasticity of demand problem. You can do some legwork (well, math in any case) to determine the price that generates the most total profit for you. You should be able to use this information to obtain a good forecast for inventory purposes too - but then you get in to determining the opportunity cost by putting your inventory dollars in the product which makes it more complicated.

[lucy24]

You can also think of it as one more aspect of the quality/service vs. price decision that every consumer makes. You can't even start in on assessing quality if the product isn't available at all. Store A is cheaper but they're often sold out; Store B costs more but they're sure to have it.

[piatkow]

I noticed last month both of our competitors were outselling us nearly 10:1 because of the price difference. By the end of June both sold out of their stock . We were then left as the only source for these items and we've nearly sold out at $120/ea. I've now become aware of a couple of other products doing the exact same thing.

As long as you can afford to keep your money tied up in stock for that much longer you are laughing.

I worked for a company that took that approach in times of shortage and did superbly. Then more manufacturing came on stream so that the discounters were no longer regularly out of stock and the business went under. Luckily for me I saw it coming and jumped before I was pushed.

[lorax]

What if the demand wanes (out of style, replaced with newer model, etc). How will you know and will you know in time to make adjustments before you're stuck with your stock?

[Planet13]

You could have bought all their stock at $100 each and sold them for $150... or $200...

[topr8]

>>I noticed last month both of our competitors were outselling us nearly 10:1 because of the price difference.

just curious as to how you know how much product they were selling?

[carminejg3]

or until they order 4X as much to cover the 60-90 days it takes to get here.

[votrechien]

>>I noticed last month both of our competitors were outselling us nearly 10:1 because of the price difference.

just curious as to how you know how much product they were selling?

eBay of course shows how many items have sold in xyz time, but also often a website will show "58 in stock" and 2 weeks later it will be out of stock. Not a fool-proof method but it gives us a pretty good idea of what our competitors are selling.

or until they order 4X as much to cover the 60-90 days it takes to get here.

In a perfect world that's what they would do, but in my experience (and I'm sure a lot of people can echo this experience) the folks blowing out items at rock-bottom prices are also often the ones who don't have the accounting or inventory management systems in place to make reliable forecasts like this.

[ReferralCandy]

Wow, that's certainly one of the most interesting ecommerce example I've ever seen. This is one of those cases where you need to know more than just the basic principles of demand and supply to price your products.

However, I would think that such a strategy can only be applied if the supply of your product is limited or time-sensitive? If your products are significantly pricier, in excess supply, and you have no competitive advantage over them, I'm quite sure its going to be hard to sell your product.