Online company - what to do?

quikquest

hey,

Im in the process of making an online store. I have sourced a catalogue of items which i want to sell. Now heres the problem.

There is an Irish (fully owned) company who is selling the exact same products (same supplier). Now this company is doing very very well and its a popular website! (You would all know it if i mentioned it)

As an genuine example on their site they are selling item A for €50 euro, where by I could sell it for €20 and still make 50% profit. (Maybe they have higher running costs? Or greedy :P )

I would be happy to sell the products for a low price (like the example), but Im afraid of 2 things:
1. People may not buy from me as they might think they are fake?
2. The backlash that could be caused by this competitor.

I don't want to "upset" the competitor (due to their online presense) So im now thinking maybe if i just sell the items for a just little less? Downside is that why would people buy from me when they could by from a trusted website.

Although im also thinking if im selling the same products for half the price, it could help me to get a presence online, and would also help with promoting the site (word of mouth etc).

Anyone been in the same boat? Advice very much appreciated!!

drunkmonkey

Have you added vat to your trade prices? Selling items for half price and still making a good profit seems a bit too good to be true.

When your selling online you need to also build in extra costs like fraud, merchant fees, postage etc. Are you sure you've all your costs correct?

bigneacy

I think just go for it. Sell your product at your price and fuck them if they don't like it.
You don't owe them anything if they are being greedy. Sure what could they do to you if they don't like it? Competition is healthy. I don't know why some Irish companies can't see that.

When I first started doing what i'm doing for half the price of the rest, the local, already established, businesses thought I was mad (they still do actually! :pac:) but it just proves that it can be done cheaper.

Don't worry about anyone else. People love bargains. They'll go to you if you're cheaper. The only problem with being cheaper is you have to spend the first month or two proving that you're just as reliable and good as the rest but do a good job and that'll sort itself out.

quikquest

drunkmonkey wrote: »

Have you added vat to your trade prices? Selling items for half price and still making a good profit seems a bit too good to be true.

When your selling online you need to also build in extra costs like fraud, merchant fees, postage etc. Are you sure you've all your costs correct?

Yes it does seem too good to be true. Im obsessed with this website. I know that they are a big company and have another site so maybe there just spreading out their costs?

I have factored all those in. Im looking at the above exmaple i gave on their website now. Their item is selling at €51. I can get it for just under €12 inc VAT.

So i was thinking of charging €20-€25. Its a small item so the postage would be €5.75 registered post. Which i may or may not absorb have to think some more about it.

I was thinking of just making a small profit to get out there and if the site is a success then maybe increase prices a little (no way near what they charge).

I like that point bigneacy, and im thinking of just selling the items much cheaper. A friend of mine told me I should put up a price comparision like Tesco/Lidl etc do. But i think thats a bit too underhanded. (trying to be nice)

Bigneacy did you suffer any backlash selling your products much cheaper?

Im just afraid that they might blacken my site or something. I know these are a large enough company, whereas im only a 1 person shop (at the minute).

nickyone

Hi quikquest, I sent you pm, please read it

bigneacy

quikquest wrote: »

I like that point bigneacy, and im thinking of just selling the items much cheaper. A friend of mine told me I should put up a price comparision like Tesco/Lidl etc do. But i think thats a bit too underhanded. (trying to be nice)

Bigneacy did you suffer any backlash selling your products much cheaper?

Im just afraid that they might blacken my site or something. I know these are a large enough company, whereas im only a 1 person shop (at the minute).

Not really backlash. Mostly disbelief that I was able to sell it at the price. The fact remains last weekend I was completely sold out, whereas my competitors (who, to date, have a much greater online presence) were not. I even ended up completely selling out two of my competitors from referrals to them....

I can keep them sweet by sending overflow to them, whereas you don't have that luxury.

At the end of the day, its (presumably :pac:) not the mafia you're up against so just go with your undercutting and, as well as that, I say do your comparison on your website.

Michael O Leary didn't get where he is today by being nice and fearing the big boys.

I'm deathly curious now also.. can you give a hint as to who you're up against? Or PM me the URL?

EIREHotspur

Why not sell the item for €45 including post.

Do not seriously undercut them by a wide margin or people will ask why it is too good to be true.

Working in a Supermarket in my youth, I used to be amazed at the price bread rolls were made for years ago and how the retail price was 20-30 times the cost.

Like a previous poster said you need to factor in a lot of extras that cost you into the retail price.

If you undercut them by 5-10euro it will give you scope for sale/give away deals down the line and your reputation will grow and you will gain better credibility. People will then make a point of coming back to check your weekly deals.

antoinolachtnai

bigneacy wrote: »

Michael O Leary didn't get where he is today by being nice and fearing the big boys.

He mainly built it by building sustainable competitive advantage. Ryanair did no end of aggressive pricing in the early days but it didn't really work until O'Leary made the model sustainable in the face of competition.

bigneacy

antoinolachtnai wrote: »

He mainly built it by building sustainable competitive advantage. Ryanair did no end of aggressive pricing in the early days but it didn't really work until O'Leary made the model sustainable in the face of competition.

Yeah, and by the sounds of it, our friend quikquest will be able to do the same thing as a bigger company is doing, only cheaper. He has lower costs and overheads and is able to clear a profit at a much lower level.

Low cost in high volume, thats the key.

antoinolachtnai

Not necessarily. We don't know that the competitor has higher costs and overheads. We only know that they are charging more.

Low cost and high volume isn't necessarily the key. It depends on the product and the market. If the market has room for growth, fine. If not, it will get some initial market share for sure, but what if the inumbent player just cuts his prices?

bigneacy

to comment any futher I think we need more info on the market in question.

quikquest

Those points are true. I could sell them just a €5 cheaper and make big profits maybe (if lucky at beginning) i might sell just 1 or 2 a week and make a €30/€40 profit per item. But people may think "Ah for the extra €5 ill stick with this company as i know them/used before."

But if i sold them half the price, i might sell more, just with lower profit per item. People might then think "Ill try this new site, sure its half the price". Or like i said in the previous post, if i made just €5 profit, more people might take the chance.?

About the company, ha i dont really want to say who they are as im sure you all know them and some may have used them. Im thinking if people find out who they are, they themselves might cop its them and start reducing their prices right down before i make a presence. Then if i compete with them there wont be as much of a price difference and people probably will stick with them!:D

ill give you a clue though.... xmas and halloween might be there busyiest time

Zonua

Hi Quikquest I do think that you are right to think carefully about the price.

Even though we do all love a bargain, it seems that we do (in Ireland at least) often tend to equate price with quality.

I would not set the price due to fear of the bigger company.

I would set the price at a price that gives you a profit, but also is low enough for people to buy from you. Just one thing about profit, there are always things that one doesn't factor in at the start, for example, the VAT YOU may have to charge, the cost of advertising and letting people know about your site, tax you must pay on your profit, the cost of your phone-bill, the cost of your flyers and website, the printed material you want to accompany your products, etc.

If your website has a nice, friendly, trustable feel, you provide a means to contact you, and answer enquiries about your products, and if you build up a reputation for quick postage and people see that the quality is as you say, then there should be no problem with people thinking you are selling counterfeit items, or that you are 'dodgy'.

Best of luck, it's very exciting setting up a new business and I'm looking forward to checking out what you have this Halloween, and buying whatever it is at such a bargain!

TheCostumeShop.ie: Ronan

The big issue here is why they are selling at such a margin? Is it because there is literally zero competition, in which case awesome go for it or have you not looked into all the costs associated with running a business.

A common attitude is to say if I buy at 10 and sell at 20 then that's great, I make 5 Euro. But then not factoring in how many sales are made per day, the cost of your time, overheads like processing the credit card. Insurance, warehouse (since your operating from home at the start but if you grow you can't afford the space to expand because theres no room for the overhead), staff, packaging, ongoing website R&D, Pay per click advertising etc etc etc.

Also how will people find your site? Whats the marketing budget per sale and cost of capital? Will your profits generate enough working capital to allow you to be able to handle the orders if you get busy?

Take stationary, you can buy a pen for say 5c in asia and sell for a euro here. But taking on the big stationary companies would be an epic challenge. The cost of customer acquisition is high, competition would crush you at a whim if they felt like it. Poaching customers is common. So high gross profit, low net profit.

The worst thing about the internet is there are some scam companies that give all us online traders a bad name, I see it every year - for example website arrives claims to be the biggest in the world, offers prices too good to be true and disappears a few days before Halloween so customers have no recourse when the product they wanted doesn't arrive. For this reason customers are wary of a site that is "too cheap".

Saying that customers love VALUE, good service at reasonable prices that solves a problem. You're doing customers no favours if you can't sell them all the products they need (in the stationary example) or that you have the perfect solution to their problem but they can't find your site because you have no marketing budget left.

Price can be a great tool, taking on the big boys - i'm all for that, but you need a unique selling point rather than a me too company and just be cheaper, in that way price differentiation as a strategy is a poor one. But if you can build a system that means you can sell cheaper because you execute the business in a more cost effective manner - then your on to something.

Best of luck with the project!

StupidLikeAFox

If you sell at €20, you are only making €16.53 after 21% tax is taken off it. Its probably something you could get away without paying for a while but if you're seriously considering doing this you'll want to keep everything above board from the start. You probably dont want to piss off the taxman!

SouperComputer

Have you done any research into the size of the market? If so, what were the results? That alone will tell you a lot.
Oh, and ***k the competitor, worry about your customers first.

drunkmonkey

ColHol wrote: »

If you sell at €20, you are only making €16.53 after 21% tax is taken off it. Its probably something you could get away without paying for a while but if you're seriously considering doing this you'll want to keep everything above board from the start. You probably dont want to piss off the taxman!

That's Vat and if your collecting it you have to charge it. The Revenue will go back to your money from the Tooth Fairy if they audit you.

Colm_purchase

Having briefly looked through the thread Im just wondering is the product a 'one off purchase' or it is something that they will buy again and again?
If its a 'one off purchase' you potentially might do well in the short run but where is the business model once the market is saturated with the product?
Before finalising your price remember you got to

- build an ecommerce site,

- pay to market it, (all well and good to set up at website but if nobody knows about it then its no good to you)

- pay merchant fees per sale (paypal starts from 3.4% plus 35 cent per transaction until you trade at more than 3,000 euro per month which is alot of 20 euros starting off)

- pay your customs duty (if coming from outside the EU, different rates for different products so check out http://www.revenue.ie/en/contact/customs-division.html)

- pay for transportation (to Ireland and on to end user),

- pay of storage,

- pay VAT (if you are serious about the business its best to assume you will trade at over 70k in year one)

If you can take on an established company and under-cut them on price by over 100% well done. In fact we need more people to start doing it because things are still away too expensive in this country where the monopoly culture is still raging strongly.

Just be sure you have your facts and figures completely in order first.
If its too good to be true well unfortunately sometimes it actually is but in this case I hope im wrong:)

quikquest

Hey guys,

Wrote a reply but computer crashed so here goes again!

I do understand all those costs listed above. I also understand that I want to keep all these low!

Im going to keep the site basic and may only offer paypal at the beginning. I know this will effect people with laser but i also want to just test the water. I could have a cool website i've put loads into but ill just have to pass that on to the consumer. The highest cost really i have is the marketing and also the postage here in ireland! Im going to make the site myself as luckily i know php/css etc.

I have done the sums on costs and importing and those examples i showed above include all this. I gave those as examples and included the VAT just to keep things easy/straightforward. I didnt want it to get into a "Do they include/not include vat". They do.

I have been a powerseller on ebay and did very, very well on it (i know ebay you have a customer base straight away) but left this due to fees/ rule changes. I was selling DVDs which is a saturated market but like i said i did very well.

Theres a lot to take in in the thread and i'm getting really excitied about making this a reality!! I want to offer my products at cheap prices (even if this means i only make a little profit at the start) and build up a customer base.

My best mate (gas man) moved to the US and owns a business in the states (not online). He reckons that in the US (In general) people open online business' and make very little profit, but offer cheap prices. But in Ireland he says people make online business' and charge people a lot in order to fill their own pockets - How true or not this is I don't know and to be honest i dont agree with the statement (He just loves US anyway so he's biased )

Im getting really excited about this now and will be making it a reality very soon! Im going to start off small (i think) and just see how it goes - test the water as such.

Also the items come from the EU. (Cheaper in US but with costs of importing/VAT its only a little less for more hassle!)