I’ve been putting together a store for a few months now, and finally got a source for my specific products (they’re about $200-$300 per unit) so I can get started. Problem is, I’m rather aghast to realize that my wholesale source is charging me $25 more per product than my competitors are charging as their retail price. How the heck can I compete?
Welcome to the commodity world of pricing on the Internet. Regardless of what it is, if you can buy something from multiple sources, odds are very good that it’ll have a variety of different prices from different vendors, some of whom likely sell it as a loss, while others maximize their profit-per-sale by selling it for the greatest price possible.
This is the problem of price comparison engines from a vendor perspective, even though from a consumer’s perspective, it’s nice to decide you want a book, or a digital camera, or whatever, and then know you can find the least expensive of the options. But is it really the cheapest anyway?
If you’ve spent any time on eBay you have probably already figured out how eBay sellers play games in the pricing space: they set different shipping and handling charges. So let’s say that you and I are both selling a $20 book. I sell it for $20 and charge $1.99 shipping, which I think is quite fair. You, however, charge $16.99 for the book — quite a discount! — but charge $5.99 shipping and handling. Most likely, you’ll sell more books than I will, and from my perspective, you might well be selling the book for below our cost.
So that’s one thing to consider: are your competitors simply charging less than their wholesale cost so they can gain a long-term customer rather than trying to maximize their per-transaction profit. Another possibility is that they have a better wholesale source than you do, so perhaps you should do some additional work trying to find alternative sources who can charge you less per-unit?
But here’s a totally different idea: what if you focused instead on offering bundles or packages that had higher margin items included? For example, an HD-DVD player with a dozen movies included. You could sell the player at cost and make $5/disk on the dozen movies, yet since you’re not exactly the same as all the other sellers, it’s harder for a potential buyer to compare. Couple that with a snazzy presentation and some great copy and you could do what all the camera stores do, sell the core item at a loss, but make it up in the combo pack.
For those of you that don’t shop for cameras like I do, a typical package will, for example, include a $999 camera, $399 lens, both basically at cost, a $49 camera bag that costs them $7, a $19 lens cleaning kit that costs them $2, a $19 getting started book that cost them $7, and so on. They can’t discount the camera or lens, often due to merchant restrictions by the manufacturer, but they can still make $50-$100 per sale with some creative efforts.
The question, then, is how can you take these ideas and re-spin how you’re thinking about your own business? How can you change your selling proposition entirely so that it’s not about the cheapest possible price but rather about the best possible value to your customers?
Hope that’s helpful!