The Perfect Online Product

Okay, so there’s no such thing as a perfect online product. But considering what would be perfect might spark ideas of what products are close to excellent… Here, then, is the ideal online product:

• It’s valuable, with high margins. You’re not making a dollar or two per sale; you’re making dozens, perhaps hundreds of dollars.
• It’s in demand. It’s a product people want and is willing to pay for.
• It’s not widely available. Buying online may be the only way to find the product or the particular variety of the product.
• It’s a “research” product. People are looking online for this product right now. (Most products are not research products. At this very moment, out of hundreds of millions of Internet users, probably only one or two are trying to find out how to buy sugar online.)
• It’s light and non-fragile, so it’s cheap and easy to ship.
• There’s little or no competition online.
• People love the product so much they will tell their friends about you.
• No smell, texture, or anything else makes the product one that “just has to be seen.”
• You are intimately connected to the product in some way. The product is related to your hobby or passion.
• Oh, and it’s legal! While several illegal substances match the perfect-product criteria, we assume the risk outweighs the benefits.

Understanding the Price Sensitivity of the Online Buyer

Online buyers are far more price sensitive than offline buyers. That is, the cost of the product is much more important for the online buyer than for someone walking into an offline store. When someone buys a product and has to select a particular merchant, they are “sensitive” to various factors, such as these:

• The price of the product from that merchant
• The convenience of purchasing from the merchant
• The confidence they have in the merchant (whether the merchant “backs” the sale, for instance, if anything goes wrong)
• The additional costs, such as sales tax and delivery

Price is only one aspect of the decision to buy. But on the Internet, the weight given to price is much greater. This is a perfectly natural and much-predicted state of affairs. Consider the buyer walking into a brick-and-mortar store and finding a product he’s interested in:

• Many buyers don’t care about pricing much at all. They are more interested in convenience, selection, location, and sales environment.
• Many buyers want the product now and don’t care too much about price as long as it’s “in the ballpark.” If the buyer finds the product, there’s a good chance the sale is made.

• Even if buyers shop for price, there’s a limit to how much driving around they want to do. Again, if the price is “in the ballpark,” the fee may be trumped by convenience.

• Buyers don’t think too much about their confidence in the merchant; if the business can afford a storefront and take credit cards, they’ve already reached a certain level.

We know all this is true because offline prices are often higher than online prices. And haven’t we all been in stores and thought, “How do they sell at that ridiculous price?” The online sales environment is very different, though:

•  Buyers can jump from store to store very quickly. It’s very easy to find a low-priced product extremely fast.
• Many sites will even do the price comparison for you. There are the shopping directories (see Chapter 25) and the merchant sites (Chapter 28), where buyers,  more and more, are beginning their shopping.
• Many buyers are used to and now expect a low price. Price is a much more important factor for them than for most offline shoppers . . . they are much more price sensitive. Getting a low price is why many online buyers are willing to delay gratification (to wait for delivery).
•  Many buyers now do a little research to settle on the exact product they want, then use a shopping-directory comparison tool to search for the product. Then they’ll ask the system to show the products sorted lowest-price first and work their way through the merchants individually. They often won’t even go past the first few low-price merchants before buying.

Understanding these concepts naturally leads to a couple of conclusions:

•  If you have a really good price, you’re in a good competitive position.
• If you don’t have a good price, many marketing techniques won’t be open to you; you’ll find it very difficult to sell through eBay, shopping directories, and merchant sites, for instance.

eBay in particular is a very price-sensitive forum. Your products will be listed alongside other products, the same or similar, so buyers can quickly see the price at which products sell.

Does this mean price is always important, and you can’t sell a product unless you sell at a low price? No, not necessarily. It means you’ll have trouble with sales channels that compare your product with others based on fees, such as eBay, shopping directories, and merchant sites. But it’s possible to position your business—on your website—in ways that are not directly related to price. The lowest price does not always get the sale.

• The big merchants have a real brand advantage. Many buyers buy everything at Amazon under the (not unreasonable) assumption that it’s a pretty good price, if not necessarily the best.

• Selection holds value. Websites with a wide selection have an advantage; if people discover a hard-to-find product on your site, they may stop looking.

• Focus is important. Sites that focus tightly on a particular type of product—and have a wide selection of a very small range of products—have an advantage, too, for the same reason. It makes the unfindable findable.
• A classy site trumps a trashy place. Trashy sites make buyers feel uneasy. Classy-looking sites make them feel more comfortable. Even if your product, in your trashy-looking area, is listed in one of the shopping directories above a product from a classy-looking site, it probably won’t matter how cheaply you sell; the classy site is getting some (much?) of the business.
• Recommendations count for a lot. If a buyer recommends your site to someone because they’re so happy with buying from you, you’ll get sales regardless of price.
• Simplicity is good. Making it easy to buy helps turn visitors into buyers. AllAboardToys, for instance, sells products you could buy on Amazon if you wish, but they make it much easier.
• Brand differentiation matters. Look for ways to make your business stand apart. ShaneCo, for instance, a national jewelry chain, doesn’t compete on price directly; it competes on value and unique designs. They’ve positioned themselves as the price leader for high-quality jewelry, so they don’t have to compete for head to ahead.

To Ship or Not to Ship

Here’s an exciting strategy that has worked well for many companies yet also represents some risk: Take orders, but don’t ship.

No, we’re not talking about scamming buyers; we’re talking about acting as an order taker, not a shipper. This can, in some cases, make perfect sense. You operate the website, the e-commerce store, the auctions, the shopping-directory listing, and so on. You carry out marketing campaigns to bring in sales, and you process the sales. But you don’t ship the products; rather, you send the order to a manufacturer, wholesaler, distributor, or even retailer, who manages the shipment. (This is known as drop shipping; you take the order, and your partner “drop ships” it.) This type of business has some huge advantages:

• Lower initial investment You don’t have to buy your initial inventory.
• Less hassle Packing, shipping, and managing returns are nuisances you can do without.
• Tighter focus You get to focus on Internet marketing and sales, not managing inventory, packing, shipping, and returns.

Of course there are different ways to play this game. Another scenario is to put everything from sales transaction to shipping to customer service in the hands of the supplier. All you do is manage the store and the marketing and let the supplier do everything else, including running the transaction through their own credit-card merchant account, almost totally absolving you of all responsibility.

Conversely, there are dangers and disadvantages:

• If the supplier doesn’t ship it, you get blamed!
• You get a lower cut of the sales price and profit.
• You have less control over the quality of the products shipped to your customers.

Watch out for the scams! There are plenty of companies that will be happy to sign you up, to act for you as a drop shipper or wholesaler. Most of these are bad deals, selling junk. Be very careful and only get into business with reputable companies. In fact, you’re probably not looking for a company that touts itself as a drop shipper. You’re looking for a company that already ships products, that is willing to also ship for you.

How would you find an arrangement like this? Keep your eyes open, local research companies, spend a lot of time looking in stores, reading mail-order catalogs, and so on. Then, when you think you’ve found a good opportunity, you’ll have to make personal contact.

WorldWideBrands is a well-respected directory of drop-ship wholesalers. For $69.95 you’ll get a lifetime membership to the directory, which contains information on thousands of actual wholesalers that have agreed to drop ship for small businesses.

Drop shipping has a bad name, but that doesn’t mean there aren’t good drop-shipping arrangements.  The first major success in online music sales was CDnow (the type that into your browser, and you’ll arrive at Amazon, which bought them up a few years ago). CDnow found a wholesaler that was willing to ship small, individual orders, which the retailer already did anyway when a music store called up and ordered one or two CDs.

This relationship provided CDnow with an enormous selection, almost all the music sold in North America, with minimal investment (at the time, the company was being run by two 24-year-old brothers from their parent’s basement). And the wholesaler also provided CDnow with a ready-made shipping department. All CDnow had to take the sales and transmit the orders electronically to the wholesaler. Another company that used this strategy very well is RedWagons (which started with a Yahoo! store and still uses Yahoo! for its e-commerce needs). The company went into business selling Radio Flyer products; they convinced the company to ship for them. RedWagons took the orders and forwarded them to Radio Flyer for fulfillment.

Preparing to Sell on eBay

The Perfect Online Product