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WEB/DIGITAL Please help me understand this, or is it just bad business

Discussion in 'Business Models, Niches, Industries' started by biophase, Jan 14, 2008.

  1. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    I've been researching new online retail businesses and I've come across a few that make me scratch my head. I wanted to see if there is an upside for a business to do this:

    Example 1: Product XYZ, sold by many online retail stores at a price of $90-$120.00. Wholesale cost of product direct from manufacturer, $55.00.

    Seen on Ebay for sale by the manufacturer for $49, Buy it now! ??? WTF?


    Example 2: Product ABC sold by many online retail stores at $320-$450.00. Wholesale cost of product $230.00. Suggested retail price of product $580.00.

    Sold on manufacturer's website to public for $290.00. Again.. WTF?

    I do not understand why businesses do this to themselves. My opinion is that you would want to remain B2B. Let the retail shops do the SEO and marketing. Let them sell your stuff. Why undercut them? Why have a suggested retail price if you are selling at 50% of it?

    Am I missing something or do these people not understand that they'd make more money letting retailers sell for them.

    I obviously can't compete with my supplier. They're dumb enough to run a PPC campaign next to mine. In the first example, why sell to the public for $49?? Let me sell them and I'll pay you $55 AND you don't have to pay for clicks. Again...

    :wtf:
     
  2. MJ DeMarco
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    MJ DeMarco Raving Lunatic Staff Member Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Kenric,

    What you're experiencing is the ability of manufacturers to now directly sell to the consumer via the internet. Without the internet, this would not happen. The web is destroying the middleman and allowing manufacturers to go directly to the consumer. This is one of the many things the internet will ultimately destroy behind stockbrokers and travel agents ... you might not like it, but the manufacturer loves it and the consumers get the best price. Being a distributor is a fastlane passenger arrangement while the manufacturer is the driver ... its all about control.
     
    TheCj, 4symmetry and Yankees338 like this.
  3. mtnman
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    mtnman Bronze Contributor FASTLANE INSIDER Speedway Pass

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    I forget the analogy, but they may be taking a hit to get consumers in the door. All the while, making a killing on other products they offer.
     
  4. hakrjak
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    hakrjak Bronze Contributor Read Millionaire Fastlane

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    I've experienced this a couple times, owning a small mail order company myself... Depending on the size of the manufacturer, you'll sometimes have them trying to compete out there on Ebay, or maybe the guys wife, or a savvy employees has started their own business and because of their inside connections, they are able to beat everybody on price and offer the products direct to the market place. Great for them, tough for people in the middleman business.

    The morale to the story for us middlemen is that you have to insulate yourself from this. Even if you manage to find a cheap product that you can offer for a good mark-up, chances are that someone will come in and undercut you some day. You make a calculated bet every time you buy inventory -- buying more to cut costs on S&H, etc -- but maybe holding less so you don't get stuck with $10k of product if the competition gets too fierce. It takes a few years to get the hang of this business, but once you're in it -- it's like anything else... profits can be made.

    Cheers,

    - Hakrjak
     
  5. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    MJ,

    I guess I do not understand this model. Because I can clearly see from their direct sales site that they are not web savvy. Let's say that they undercut everyone and all retail online stores selling their product went out of business. Now, the public can only buy at their website and their price.

    Now they are tasked with all the marketing, advertising, customer service and order processing. They are clearly better at manufacturing that internet marketing or website design.

    Is this better than having 50 online stores selling for you?

    So if you are going to sell 100,000 units of your product this year due to demand. Is it better to have 100,000 customers buy 1 each, or 100 customers buying 1,000? I guess it really depends on the difference in pricing.
     
  6. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Regarding the:
    Example 1: Product XYZ, sold by many online retail stores at a price of $90-$120.00. Wholesale cost of product direct from manufacturer, $55.00.

    Seen on Ebay for sale by the manufacturer for $49, Buy it now! ??? WTF?


    I don't see how this makes any sense from even a direct sales stand point.
     
  7. Andrew
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    Andrew Contributor

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    I think you need to examine your positioning.

    If you move a small volume, you have little say. Move to something new.

    Lets say you have been pushing sales to this company for a while, and are responsible for a significant volume. Will they react if you pull the plug? If so, then you need to switch to pushing a competitor's product immediately.

    I understand what you are saying about them not being web savy. The first thing a "newbie" will do to get sales online is lower the price. Very likely they are working on slim margins, and because they do not understand what they are doing, they are converting far fewer visitors into customers. Overall, making a lot less money.

    There is a spot for the middle man, but you really need proprietary data and technology to stay in this position, combined with doing enough volume to "matter."

    Also look closely at other channels. There is more than PPC, SEO, and ebay.
     
  8. Diane Kennedy
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    Diane Kennedy Bronze Contributor

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    The business model I've always used is that you can compete based one of two things:

    innovation
    price

    I've always chosen innovation. So, my approach would be to find out how I could package whatever it is I'm selling in a unique way so that I don't have to compete on price.

    If I'm selling real estate, I provide financing (rent to own programs), that type of thing

    I don't know if that is even relevant for what you're doing, just a thought. (By the way, if I had to compete on price I just wouldn't do it - I'd find something else. Again, that's just me)
     
  9. randallg99
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    randallg99 Bronze Contributor

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    biophase- I have a question- where are these products made? where is corporate entity based from? there are a lot of "knock-offs" that are practically identical in the marketplace because Chinese factories keep maximum capacity irregardless of how many orders it's asked to fill....

    thoughts immediately came to mind-

    a) manufacturer does not take on any risk for receivables when they sell direct to public. The carrying cost/service might amount to 5%+/-
    b) overstock is a serious threat to bottom line... perhaps they are just getting rid of inventory of slow performing products?

    you and MJ both have good points.

    I continue to ponder how internet procurement continues to increase at the expense of the middleman but at what price?
     
  10. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Hi Diane,

    I am not competing on price. I keep my prices very high and get sales due to marketing. My question and concern is that "if" these manufacturers actually understood internet marketing and hired an SEO firm they could essentially kill off any retail business.

    However, these companies are not doing SEO. It seems like they just said, well why don't we sell them to the public from our site too.

    I was searching around yesterday and found a site that is retail and they are marking up products about $2-$5! These are $100+ products! They have horrible SEO so they don't show up unless you're on page 20. Imagine if this store ended up near the top search pages.
     
  11. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Hi Randall,

    These products are made overseas. The manufacturer ships them over to US in large quantities and then distributes them throughout the US. These products are patented in the US. There actually are no knock-offs available here. I was pondering getting someone in China to make these for me. I'd have to see how close I could come to them without pushing up against the patent.

    I want to clarify, that I don't sell all these products I'm mentioning. I sell some. But I've been researching alot of products for another market and come across this pricing many times.
     
  12. LightHouse
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    LightHouse Legendary Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Just a theory, Would it be possible for a manufacture to facilitate building ecommerce sites (ghost sites) with higher prices to drive them back to a lower priced alternative ( their site) by which getting direct sales and not having to deal with the middle man? Always wondered that when i saw this senario, which seems to be becoming a common trend.
     
  13. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    I read somewhere that this is a lead-generation technique. The seller gets the people that bid on that product but don't win it, and then contact them directly to offer them the same product at the winning bid price. This helps them to move the product and create a list of customers. This is helpful when the product lends itself to repetitive buyers, but I guess it can also work in others circumstances as well.

    How effective is this? no idea... but for sure generates some buzz from your customers...
     
  14. fred333
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    fred333 Banned

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    Very interesting technique.
     

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