|
What-is-Wholesale--Revealing-the-Wholesale-Myth
by Stuart Lisonbee
Running a successful retail business is a very hard thing. We at Doba understand that, and we do our best to simplify your life and make at least one part of running a business -- product sourcing -- as painless as possible.
But every once in a while, we'll come across somebody that falsely assumes if they can just get access to wholesale pricing, they'll become instantly successful.
Any experienced retailer understands that this is a myth. To understand why, we must first understand what wholesale pricing actually means. Many people believe that wholesale price is simply less than retail price. Others go so far as to say that wholesale means half the retail price.
A quick review of Wal-Mart's public financial records show that during Q1 2006 they had an average markup of about 30% on all products sold. This disproves the "wholesale is half of retail" myth. If that myth were true, then retailers would be able to mark everything up 100%, especially a big-box retailer like Wal-Mart that gets the best bulk-purchase discounts. But we're not quite done destroying this myth.
During a weekend sale, Wal-Mart sold 700,000 DVD players at a loss. Well, now we've just disproved the "wholesale is less than retail" myth. And now you know why Wal-Mart sometimes has prices cheaper than "wholesale".
So what is wholesale price then? It's a lot simpler than you might think. Wholesale price is the price at which you buy something with the intent of reselling it. It's that simple. Hopefully the price you resell the item for is higher than the price you paid. But as we saw from the above example of Wal-Mart purposely selling at a loss, it might not always be the case.
Many people too often assume that getting items at wholesale pricing means they'll get pricing lower than what any retailer is selling the item for, and will therefore always be able to make a ton of money by reselling it. The reality is pricing has far less to do with making money than most people think. This is evidenced by taking a look at Wal-Mart rival Target. A look at their public financial records shows that their average markup during Q1 2006 is about 50%, much higher than Wal-Mart. What this means, essentially, is that Target is selling their items at a higher price than Wal-Mart.
Despite the fact that Target charges more than Wal-Mart, Target's revenue per store is much higher. Target also sells fewer items per store, but still makes more money because of their higher profit per sale. This destroys another common myth that the person with the lowest price is going to get all the sales and make the most money.
I have said several times before, lowering your price simply cuts into your profit margins. Although there are legitimate strategic reasons for lowering the price on a particular item, even to the point of taking a loss like Wal-Mart often does, it is very bad strategy and poor business management to have the lowest price on everything.
The biggest key to making sales is in the marketing. Remember back to your marketing and entrepreneurial classes from school. The so-called 4 P's of marketing are:
* Product
* Promotion
* Price
* Placement (distribution)
Price is just one part of that equation, and no where is it said that the price you set has to be the lowest (the earlier example of Target vs. Wal-Mart is a clear case of how price is not as important as we might think). If you focus too much on the price, then you'll be ignoring 75% of what is needed to be able to sell a product or service successfully.
If you've been wearing blinders that have resulted in tunnel vision, it's time to take them off and focus on the whole solution. Success requires the ability to see the big picture. Remember to step back from your business every once in a while and take a look at it from a distance.
In future articles, I'll discuss each of the 4 P's in detail, and talk about how each can be used in your marketing efforts to boost your business.
Stuart Lisonbee is an eBay PowerSeller, eBay Certified Consultant, and former eBay employee. He currently works for Doba, a drop ship service provider, at www.doba.com |
|
