posted on December 2, 2002 08:46:27 AM new
Hi all,
My aunt makes widgets. She contracts a factory in China to make them and wholesales them across the U.S. and various stores large and small. She has found out that several of her buyers are using Ebay to sell her widgets starting at double the price she charges them. She wants me to teacher her how to use E-bay so that she can get in on this action. I do not know if she is going to start at their price (the wholesale price) and beat them that way, or start at their price and compete with them on their level. Either way, I see some conflicts coming. Any Suggestions? Just typing now, I think I will recomend that she set up a new company, get a new PO box with a new address. Try to shield herself behind a company name so that her buyers don't know that their new competitor is in fact their supplier. Any Thoughts, Ideas, information, so on?
She is going to hire me as her Consultant to teach her what to do and how to do it. I make $50 a hour in my full time profession, other people I've started were charged 10% of all sales for the first 6 months, and 1% per call or visit per month after that (so after 6 months, if they don't need any help, they pay me nothing that month. If they need a lot of help, they pay the 10% or less depending on how much help they need). If the person sells an item that competes with what I Sell, I charge double
posted on December 2, 2002 09:13:32 AM new
sounds like your aunt wants to run her customers out of business... if she becomes a competitor, then these current customers will quit buying and then she will have fewer wholesale customers.
So what is her plan once she runs her customers out business?
Will she be just strictly eBay?
I personally think that if she wants a piece of the eBay pie, at least have enough integrity/honesty to inform her current customers.
posted on December 2, 2002 09:59:23 AM new
I have to agree with twelvepole on this. It sounds like she is getting greedy. I see 2 scenarios in this. #1, She quits selling wholesale & becomes an eBay seller 100%, Thus being the sole seller of this widget. #2, She continues being the wholesaler to all that are selling on eBay. In scenario #1, it wouldn't be too long & somebody would find another source of the widgets & start giving her competion. They could possibly undercut her price & drive her out business.
posted on December 2, 2002 10:15:53 AM new
Agree with the two above. Why in the world would someone ruin a good business and hope that she can sell better on eBay. Well, maybe she can but I will bet her wholesale business will last longer than eBay.
posted on December 2, 2002 11:40:45 AM newShe has found out that several of her buyers are using Ebay to sell her widgets starting at double the price she charges them. She wants me to teacher her how to use E-bay so that she can get in on this action.
I think everyone may be reading too much into the scenario as presented thusfar.
Let's say the aunt sells the widgets for $4 and they retail for $8. Now some sellers are selling them for $8 on ebay. Why can't the aunt sell them for $7 and weaken that phase of the market for the resalers and get her greater profits at the same time? She only wants a piece of the pie. A few customers may get angry but she's the only one with the widgets. I like the shielded company plan so there is no direct link to the aunt's company. A great business plan in my eyes.
posted on December 2, 2002 12:08:23 PM new
This hits close to home for a lot of you, and I have to agree I would be annoyed if my supplier became my competition. She should really look close and see if she would make more because what will happen is that she will probably damage the business of the people she sells to, and they will move on to another product. She might make more being the importer and retailer, but the time it takes might make it not as profitable. It all depends on if it is profitable or not.
posted on December 2, 2002 01:03:16 PM new
Good suppliers want to build successful relationships with their retailers so they guarantee future sales for future products.
They count on the retailers to open the marketplace for their products.
If they want to compete then they lower the price and lessen repeat orders from the retailers. They had better be prepared to work extra hard if they want the whole market to themselves.
And the factory in China has most likely made a version of this same product at a lower cost and it will be hitting the stores fairly soon.
posted on December 2, 2002 01:14:48 PM new
she would be smarter to increase her wholesale price slightly, thus keeping her customers and still making more money.
posted on December 2, 2002 01:21:08 PM new
Is she still going to do wholesale to all these people in the U.S. ? Or drop the wholesale thing, and totally go retail herself on ebay? (I would stick with the wholesale, as you never know just how long ebay will last, and she would most likely always have customers buying for their B&M stores)
I have to agree with what kiara said, mfgs. in China have more than likely used the design and already mass producing the same thing, and selling for cheaper.
posted on December 2, 2002 02:19:22 PM newA great business plan in my eyes.
Besides the lack of honesty and integrity in the plan, how is it a great business plan?
IF she is planning on staying in the wholesale business, and sells on eBay in the long run she will kill her wholesale business because her "customers" won't be able to compete and therefore won't be buying from her.
IF she gets out the the wholesale business and decides to sell on eBay, then that would be a good business decision.
eBay is actually a small community and sooner or later her cutomers would find out she is backstabbing them by being competition. That is not good business, but I guess if she doesn't care about her business rep, go ahead and sneak and start auctioning.
Ain't Life Grand...
[ edited by Twelvepole on Dec 2, 2002 02:20 PM ]
posted on December 2, 2002 02:47:39 PM new
What your aunt is proposing is just another efficiency of the internet, i.e., cutting out the middlemen. That's the way it is going to be. If a step can be efficiently by-passed, it will be. It is no different than an worker that is no longer needed- they get fired.
Your aunt's wholesale customers are middlemen.
I would think that the eBay market is only a small part of the market. What percent of inventory do her wholesalers sell at B&M ? Taking the eBay market may be a nice profit for her and have very little effect on her wholesale business.
But be prepared- sooner or later the factories in China, mexico, Malaysia, etc., will all be selling direct through eBay.
posted on December 2, 2002 02:54:49 PM newBut be prepared- sooner or later the factories in China, mexico, Malaysia, etc., will all be selling direct through eBay
Bingo! And they will. There are so many now selling direct via their own websites or other venues.
In the end the importer will get pushed out.
posted on December 2, 2002 03:16:19 PM new
Keep it simple.
Your Aunt is the manufacturer
She sells in the US Wholesale for $x.
She sets a "suggested Retail" price for her wholesale buyers which is keystoned or marked up 50 to 100% what ever the market will bear and her distributors are doing that for her.
She can compete with her distributors at the suggested retail price. She is now a Wholesale/retail supplier and this is a common business practice. She should set a minimum wholesale quantity keeping her established dealers happy first.
Her distributors will figure out who she is on ebay just by ordering a widget, so she should be up front with who she is on Ebay.
At this point she might be better selling wholesale on Ebay assuming she has a good markup. 100 widgets for......$xx. Then let the retailers fight it out and undercut each other.
From experience, once you compete with distributors they find a new widget that is easier to sell.
Your Aunt needs to know its a lot more work selling retail than it is to sell wholesale when you have a good stable of distributors.
posted on December 2, 2002 04:07:08 PM new
does it ever dawn on any of you this aunt aint no big time importer/distributor?
there are many wholesalers selling on ebay,because they are pathetic and have no orders to make ends meet.
a successul wholesale distributor spends her time working with the factory and keeping her customers happy and manning the warehouse and her staff and her books and looking for new customers.
posted on December 2, 2002 04:26:10 PM new
Middlemen are no longer near as necessary as they once were, especially on ebay. Many sellers on ebay are merely middlemen. Their time is nearly at an end. They will be bitter and resentful but they will be replaced. Hard reality.
posted on December 2, 2002 05:57:45 PM new
Bill Gates started in the Garage so maybe the little guy can build a big business <G> The joy is in the trying.....and the dream.
posted on December 2, 2002 08:55:40 PM new
am I correctly ASSuming that she will be selling in bulk (wholesale) yet selling individual units (eBaY)?
In addition to the competitive considerations, there are also Major differences in shipping / packaging / supplies / labor / time / other associated costs when dealing with oodles off customers w/small widget orders vs. not-as-many customers ordering a kazillion widgets at a time.
2/10 net 30 @ BIG $$ vs. PayPal, money orders, & personal checks?
This may not be as profitable of a transition as it seems, not even mentioning how she may shoot herself in the foot competitively.
If she is having success selling in volume, why not find another line to sell to her existing customers?
Much more cost effective now that she has the widget factory contrat & buyers (who are happily making a profit on the items she sells them!)
posted on December 3, 2002 06:25:48 AM new
she is not doing well selling wholesale,thats why she wants to sell on ebay one item at a time.
many wholesalers are selling on ebay for the same reason.
avoid what she sells,as she will have mucho to unload.
same with brick and mortar shops which are liquidating their stock as they can no longer afford to pay rent of their brick and mortar stores.
sad!!
posted on December 4, 2002 08:03:48 AM new
No, actually I've been busy for a day and was not able to add anything. I actually understand both sides of the issue. If she were my supplier, I would be very unhappy, and would probably change supplier (if it were possible). However, many producers are now starting small online retail outlets, many of which undercut their B&M retailers. It is rare to be a producer's only online outlet. In my aunt's situation, Her online retailers are less then 5% of her business. Her items are quite expensive and have a large mark up. The raw matterials are expensive, so it is doubtful that the producer will be flooding the market with duplicates, unless they are cheap knockoffs made of low quality raw matterial.
posted on December 4, 2002 09:12:22 AM new
I think many are missing the point. She can take over the market for this product and sell it for more than the wholesale price she now charges and make more money.
I advise against it. Her business customers take much of the risk off her shoulders. They will place their orders with anticipation of sales. If the items don't sell, they keep the merchandise, but she still made her money. Now she'd be taking the burden of risk of the manufactuer and retail end by holding the bag if the demand drops.
Maybe the risk is worth if it is in huge demand and she can recover her costs quickly, but if sales are spotty, she should not get involved with direct sales.
posted on December 4, 2002 09:19:07 AM newI think many are missing the point.
No, I don't think many are. If Aunty has never sold on ebay she has no idea of the work involved.
it is doubtful that the producer will be flooding the market with duplicates, unless they are cheap knockoffs made of low quality raw matterial.
If it is a successful item, that is what the factory may do. They will do a cheap knockoff and it will hit the dollar stores. Many people want "the look" without paying for the quality. This has been proven time and time again.
posted on December 4, 2002 10:04:40 AM new
They won't do a cheap knockoff though until Aunty's sales are very high. It takes a lot of work and money to create and produce a knockoff from scratch. For all we know Aunty only sell 300 or 400 units annually or less.
posted on December 4, 2002 10:51:41 AM new
<Her items are quite expensive and have a large mark up. The raw matterials are expensive, so it is doubtful that the producer will be flooding the market with duplicates, unless they are cheap knockoffs made of low quality raw matterial.>
Here is an example regarding knockoffs. Not all knock offs are cheap or low quality. Last year a very successful artist created beautiful bronze sculptures and decided on having them cast at one of the quality foundries in China. Cost are cheaper and the hand crafting was outstanding and she had several done as Limited Editions. Foundry work in this country is very expensive. Her premier show in NYC was very successful and while she was in town, from the West Coast, she did some local shopping. And she was shocked when she found her sculpture knockoffs being sold by street vendors the same time her show was opening at a prestigious gallery.
Turns out China doesn't recognize international copyright laws. So at this point anything goes in some countries.
posted on December 4, 2002 11:56:12 AM new
I think if she can sell 2 or 3 a week, she will be very happy. Anyhow, all of the above will be taken into consideration and she will be advised as to what I think, what you think, and she will make her decision based on what she thinks.
posted on December 4, 2002 11:57:09 AM new
Fundamentally this cannot be totally answered without understanding the product itself. Is it unique? Difficult to produce? Costly? Trademarked or copyrighted? What is the competition like? Is demand elastic or inelastic? What's the target demographic? Etc.
But, really, as many have pointed out this is a growing trend. The Internet (and not just eBay) is huge for eliminating the distribution layer. Very few people will pay extra to get something from a retailer anymore. This is why places like Sam's Club and Costco succeed: people will put up with inconvenience to save money, generally.
In fact, one could make the argument that not only COULD Auntie do this, she had BETTER do this. Why? Because sooner or later, her competition will, lowering their prices. Sales from Auntie's retailers will dwindle, and now she'll be FORCED to do this, only she'll be behind the 8-ball.
I understand this isn't a nice way to treat the retailers. I've been there. I worked for a VAR that dealt in Sun Microsystems stuff, and Sun was forever undercutting us. What I did not realize then (but do now) is that it was merely a harbinger of what was to come. VARs and higher-priced computer retailers are all but dead now. I would argue that the same is coming for Auntie's retailers. Being someone that buys something, marks it up and resells it is not a good long-term business model anymore, and it's not Auntie's fault. She should therefore not feel responsible for how this impacts them. This isn't about being nice.
