subject: Busting Common Myths About Buying Wholesale Products [print this page] By definition, "wholesale" is "the sale of commodities in quantity usually for resale by a retail merchant." Some misinformed merchants falsely conclude from that that access to wholesale pricing guarantees retail success. In this article, I bust the two most common wholesale myths and reveal that only by focusing on the 4 P's of retailing can you build and expand a successful retail business.
Myth #1: Wholesale prices are at least 50% lower than retail
Busting this myth is child's play. Just take a look at these facts and figures from the largest retailer in the U.S., a well-known, publicly traded (which gives us access to their financial records) retail store. We'll call them Big Box Store #1:
- In Q1 2006 Big Box Store #1's average markup was about 30%. Because they move so much merchandise, they gets the best bulk-purchase discounts, and it still has an average markup of a mere 30%!
- During a weekend sale, this same store sold 700,000 DVD players at a loss.
Everyone knows that if you always sell stuff for less than you pay for it, your business will go bust, and I'm certainly not recommending that you employ selling at a loss as a business strategy. I'm only encouraging you to look at the numbers and develop a realistic perspective about wholesale pricing.
Myth #2: In retailing, lowest price wins
Retailers often assume that wholesale pricing enables them to sell products for much less than other retailers and make a ton of money. The reality is that pricing has far less to do with making money than most people think. This is evidenced by taking a look at some facts and figures from Big Box Store #1's biggest rival, which we'll call Big Box Store #2:
- According to Big Box Store #2's public financial records their average markup during Q1 2006 was about 50%--that's 20% higher than Store #1's markup. In other words, Store #2 has higher average prices than Store #1.
- Store #2 sells fewer items per store than Store #1.
- Store #2's per-store revenue is higher than Store #1.
Conclusion: In the retail business, lowest price doesn't always win. Lowering your prices simply cuts into your profit margins. Although you may have legitimate strategic reasons for slashing the price on a particular item, even to the point of taking a loss like Store #1 often does, offering the lowest price on everything is usually a bad idea.
Brushing up on the 4 P's of Marketing
Finding access to wholesale pricing through various product sourcing and drop shipping services can help you set reasonable, competitive prices, but effectively marketing your products requires more than simply undercutting the competition's price. Look at the big picture and focus on the 4 P's of marketing:
- Product
- Promotion
- Price
- Placement (distribution)
Focus on the 4 P's in your marketing efforts and you won't have to worry about getting stuck in a rut by competing on price alone.
