Are You Paying Retail, or Wholesale, or What?
There is so much advertising today on buying services or products with substantial discounts, or buying wholesale, or even buying below wholesale. What is the Truth? Let’s examine exactly what’s going on in business. First, let’s define the terms.
RETAIL. The final price usually set by the manufacturer to be charged to the final customer “YOU” when paying at the checkout line. Whether it’s an automobile, clothing, jewelry, electronic gizmos, or groceries. We Americans have become so indoctrinated that we have to pay the stated price, we don’t even question it anymore.
And when a store puts on a “SALE”, 10% off, or 15%, or 25% or even 50%, we flock to the store to BUY. That’s the general idea behind a sale. Many of us have become very jaded when it comes to sales. They have sales for President’s birthdays, anniversaries, Holidays, End of the Month, End of the Year, , etc, etc. These so-called sales have become meaningless today. When a manufacturer first introduces a new product, it tries to generate a lot of enthusiasm for the product, so people will want and desire it. Some items will be one of those “I just got to have it” type of item. This is a retailers dream.
The pricing structure works like this. Let’s take a hot item, such as cell phones, iPhones, Blackberry and such. While it may have been invented in the USA, it will probably be manufactured in China, Korea, Mexico or other third world country, where wages are around 50Ë a hour, with little or no fringe benefits or health benefits.
Let’s use these numbers as an example. The item costs $20 to manufacture and ship to USA. The marketing department determines a good selling price for this item for the general public will be $95. If they anticipate through advance marketing that there will a great demand for the product, they will probably introduce the item for $145. They know there is about 10% to 15% of the public that will pay the price because it’s ‘hot’ and want to be the first to have it. When that crowd has been sold, then the price drops to $119, to get the next bunch who didn’t want to pay $145, but will buy a $119. When that crown is saturated, then the price drops to the original price they originally projected, $95. That’s when the bulk of the US population will buy.
As the market gets saturated, the retailers, and stores like WalMart buy huge quantities of the item, numbering in the millions. They sell it for about $70. They probably paid about $35-$40. It also gets sold online, places like eBay, Craigslist and other auction sites, and even standalone websites. They advertise 50% off, or even 60% off retail. But, what is retail price? They probably are referring to the original list price of $145. So 50% is $72.50. If they buy it at $30 or $40, they also make a nice profit.
So when you see a brand new item come out, especially electronics, save the original advertisements, and check back in a year or two. And watch the price drop as I just explained. Now there are numerous companies that advertise online, and through the Business Opportunities magazines, they will set up a website for you and you can sell these items. Some advertise 50% to 80% off retail. Big Deal. One such type business opportunity I heard advertised on the radio, bragged about their set up, and for only $400 or so dollars, you not only get your own website, but the right to buy at 40% off. But 40% of what?
You could probably buy the same thing at WalMart for similar price. At 80% discount, you have a shot at it, but remember, the big surge in sales has already passed. Like the huge wave a surfer is looking for, it’s too late after the wave has passed.
You can make a killing by getting in early, buying from the manufacturer directly, but you probably need to buy thousands if not hundreds of thousands to get a good price. It’s difficult to compete in consumer goods with companies like WalMart, KMart, Costco, Sams and so forth. The secret is to find a product that is not sold in these stores. And that’s difficult to do.
So I go back to my original question, how good is that discount? If you’re just buying one for yourself, you may overpay $20 or $30, but beware if you are tempted to buy in bulk. Know your prices. Before committing to a product, check around. Do the big guys sell it? And what are they charging? Remember the old caveat, “Buyer Beware”.