by Chris Malta
One thing that's constantly misunderstood by people
trying to run a home business on the Internet is
the word "Wholesale".
Some people think that working with a real wholesale
supplier means that they will magically be able to
sell products for less than anybody else on the
planet, for ever and ever. They'll be the only one
who ever gets such good prices, and they'll earn
millions because no competition can touch them.
They're retire happily in a couple of months, and
buy a big house in Bel Air, complete with a butler,
a private chef, and a little satin doggie bed in
every room for the casual use of the family Basset
Hound, Duke.
Then they find that they may actually have to
compete with companies who have more buying power
and get better price breaks, and suddenly the
honeymoon is over. They run around screaming that
the supplier is not a real wholesaler, and is
cheating them. The sky is falling, and it's time
to get Duke to the storm cellar because all their
dreams are being blown away by bad, BAD people who
claimed to be wholesalers, and really are NOT!
The truth is that they've simply been confronted
with a perfectly normal aspect of retail sales
that they had not anticipated, and need to be
educated about.
Even when using genuine wholesale distributors,
you're going to find some stores selling products
at a "retail" price that is lower than your
distributors' "wholesale" price. There are VERY
good reasons why you'll see this happen, and it's
extremely important to understand why it happens
and what to do about it in order to sell
successfully on the Internet or anywhere else.
As I said, it happens for a variety of reasons;
the most common of which is that the retailer
with the "lower than wholesale" price is a large
retail operation that bought THOUSANDS of the
product at a dirt-cheap quantity price break,
and also qualified for huge manufacturer's
wholesaler rebates. You can't compete against
that with a home business; no one can.
The term "wholesale" is relative, no matter who
your distributor is or how you find them. What
you're getting as a small business is a supplier's
genuine "first level" wholesale price.
For example, one factory-direct supplier we work
with has an initial wholesale price for 1 to 36
dart boards. Then the second price level is reached,
and there's a lower price for 36 to 72 boards,
for example, then a lower price for the next higher
quantity level, etc. When dealing with single item
orders in your home business, you are obviously
going to be getting the "first level" wholesale
price.
Again, wholesale is a relative term. Yes, genuine
wholesalers DO sell at significant discounts below
Manufacturer's Suggested Retail Price. However,
you have to watch what you sell. Electronics, for
example, are a very tough market, because EVERYBODY
is trying to sell electronics on the 'Net right now.
All these people are so busy trying to undercut each
other that they have driven the "market price" of
these items down so low as to make it very difficult
to make a profit, even at wholesale.
For example, if the Manufacturer's Suggested Retail
Price (MSRP) for a VCR is $149, and it is available
at "wholesale" for $69.00, that's a 54% discount off
MSRP. That's a pretty good profit, right? However,
with everybody getting roughly the same price break,
there are a lot of people out there who are ruining
the market for everyone else by selling that product
for, say, $79, thinking they will undercut everyone
else and make money by selling volume. Pretty soon,
everyone else sees this, and tries the same thing.
Eventually, the Internet "market price" for this VCR
BECOMES $79, and everyone is flooding the market with
it at that price. That's only a 13% percent profit
margin, and that product is no longer worth the
effort for anybody.
So, even though the product IS available initially
at a great wholesale price, its market value is
ruined by those who (wrongly) assume that the only
way to sell is to have the absolute lowest price
anywhere.
Sales is much more of an art than that. 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 spend a little more
to buy from you.
One of our retail sites is www.ElectronicDartShop.com.
We sell Arachnid Electronic Dart Boards there. We sell
ONLY those products on that site; just 14 of them. Our
site is clean and attractive. We have a page listing
all the rules for all the dart games that can be played
on those boards. We pay very careful attention to
customer service. And guess what? We are NOT the lowest
priced store for those dart boards, by any means. Yet
we are one of the highest-volume Internet dealers of
the products around, according to the factory. Why? Our
customers trust us, and are willing to pay a little
more because they feel they will get more value from
us than they will from some guy who just throws up a
cheap-looking site full of all kinds of unrelated
products and only pays attention to price-cutting.
In fact, a few days ago, I went online and bought a
couple of SmartMedia memory cards for my digital camera.
I could have gotten them for a very cheap price that
I found on the 'Net, but I chose to pay $5 more each
for them because the cut-rate site looked cheesy, and
I was not sure I could trust them. I was more than
happy to pay the extra ten bucks total when I found
the same products at a higher priced site. The site
was well-built, easy to navigate, and went out of it's
way to explain it's customer service policies to me.
I'd rather spend an extra ten bucks and be confident
that the cards would show up at my door than lose
thirty bucks plus shipping to a site I didn't feel
I could trust.
As a small business owner, you should remember to
choose comparison areas very carefully. Too many people
simply go to the big search engines and look for the
absolute lowest price on earth, and then give up on
selling that item if they can't beat it. That's the
wrong approach, as I've mentioned above. You need
to be comparing prices against sites that will be
seen in the same places that your site will be seen,
and even if your prices are higher, you can bring in
sales by building a clean, focused site.
Alternatively, you can simply sell the models that
others are NOT selling. After you begin to earn some
profit, you can then start to buy and stock the better
sellers in quantity, lowering your price, if you
really want to.
Even then, you're going to run into stores that stock
a lot of merchandise, and are getting price breaks on
greater quantities. This allows them to sell at a lower
price.
Go around them. Sell models that they don't, from the
same brand names. You don't have to purposely go
head-to-head with the big superstores. They don't
carry every product ever made on earth. Sell something
in the same general brand and product lines that they
DON'T have the shelf space for!
Besides the reasons mentioned above, there are also
too many people who buy entire pallet loads of last
year's closeouts, liquidations, and refurbished goods,
and claim that they are NEW. They get that junk at
"rock bottom" prices, and of course, sell them
dirt-cheap, fooling the customer (and other Internet
retailers) into thinking that they have the corner on
the best wholesale prices around, when they DON'T.
The important thing is to work effectively within the
framework of available products and prices, and work
around those who have millions of dollars available
to stock inventory. That's what THEY did in order
to EARN those millions in the first place. You can do
it too. I know it's frustrating to be just starting
out, and thinking that you can't succeed because of
competition from large stores. That's just not true.
We're succeeding at it, and so are thousands of others.
You just have to be willing to be flexible, and to
make serious decisions for the good of your business.
You may have to give up selling certain products
that you personally like, in order to make money on
other products whether you like them or not. You're
in business to make money, not to satisfy your
personal taste.
One thing I tell people all the time is that it's
very important to "jump through the hoops" and form a
LEGAL business. It's the right thing to do, and it's
the ONLY way to work with GENUINE wholesale suppliers.
However, anyone in business will tell you that the
hoops never end; not for home businesses, and not for
big businesses either. Even the big guys spend much
of their time "hoop-jumping" in order to be successful.
Imagine how the purchasing agents at CompUSA feel when
they spend a million dollars on 19" monitors so they
can sell them for $329, and a week later, they find
that Best Buy spent three million buying up the same
monitor at a better price break, and is now advertising
them for $298. Suddenly CompUSA can't compete.
Should they throw a tantrum, and berate the wholesaler
for simply performing the normal function of a
wholesaler?
Of course not. They can simply stop advertising that
monitor by itself, and bundle it with an entire computer
system that has it's own serious price breaks, and move
the monitors that way. Adapt and improvise.
There are no magic bullets, even though there are
plenty of people who will tell you that there ARE.
Don't believe them! When you're in business you will
always have to compete. It's all part of sales, on the
Internet or anywhere else.
