An interesting article https://www.recode.net/2017/3/30/14831602/amazon-walmart-cpg-grocery-price-war about the price war Amazon and Walmart are in and how they are pushing their suppliers to cut their wholesale prices by 15%. A few takeaways that have some small business value:
- Walmart wants the lowest price on 80% of it's sales. More of brand name commodity items and certainly not the type of products you would want to compete against as a small business. (compete on design not price).
- Amazon uses a machine learning algorithm that searches the Internet for prices on any products sold. It looks for the lowest prices per unit. They even look at big box retailers that sell in bulk like Costco and then lower their per item/unit cost below them - taking a loss on each product sold. Again as a small business you can't compete on price so your products need to be more unique design driven that stay off of the radar. Unless you license your product and are drawing 3% royalties.
- "Separate from the algorithm, brands are also facing the realization that their products that are sold profitably in stores may become unprofitable online when shipping costs are factored in." Online can be more expensive for physical products.
- CRaP - Unprofitable items Amazon labled which stands for "Can't Realize a Profit" Once Amazon lables a product as CRaP they are at risk of being removed from Amazon unless they can lower their costs.
- "Another strategy is to stop selling to Amazon as a wholesaler and instead sell directly, or through resellers, on Amazon’s marketplace. Amazon cannot control the price of an item sold by marketplace sellers, though it can make it harder to find items that aren’t priced aggressively" If Amazon is your primary online reseller you lack Control.
- An opportunity for entrepreneurs is the rise in online sales and the high cost of shipping (last mile) opens the door to redesigning products so that they can be cheaply/effeciently shipped to the customer or retail store. Some good examples are: Instead of selling the whole energy drink selling the mixture the consumer adds to water. Selling cleaning supplies as power that is added to water with a spray bottle. Redesigning containers so that more of them can be shipped in a smaller space. Perhaps this idea is the best way to add value to any commodity product and one small business can compete and realize a healthy profit.
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