in need of some business advice

DanielQ

DanielQ

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Jun 29, 2008
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A police state.
Hey WF,

Not sure if this is the best place for this post.

I deal in a legally gray business online. Business has been slow but constant for the past two months. However, recently two new competitors have entered the market. They cut prices by 20% and 45% of what I was charging. What would you do in this situation? Since they entered the market my normal sales of 2-3 new orders a day have dropped to 0 per day. The two clearest choices are either cut prices myself or find a new customer base.

If I cut prices, my profit margin is dropping more than I'd like. I'm fine with cutting prices 20% but I can't go lower; lowering my prices would be obviously a response to my competitors price cut. They chop again and I can't compete (I could probably just sell remaining inventory and exist the niche, but I don't want to, I want to make profit and reinvest) Plus if I cut prices I'm on par with them price-wise.

Finding a new customer base, because of the sensitive legal issues of the market, is difficult. I can't simply pay to advertise the product (such as through AdSense) because of this. And I can't easily get more people interested unless I send out unsolicited messages on niche sites/forums, which would have it's own consequences. Any ideas for finding new customers? A publicity stunt? In this particular niche it'd likely be easy to get new customers if they're interested in the product - the issue for them is they usually don't know where to find it.

Given these details, what's best choice of action? What would you do? Are there any options other than cut prices or find a new customer base that I'm missing?

This is particularly troubling because I need to clear the inventory asap.

Thoughts?
 


Choice 1: Sell inventory at cost to clear it.

Choice 2: If you have cash, invest in marketing, or destroy your competition.

Choice 3: If you don't have cash, think of creative ways to market your product.

Choice 4: Think about a unique selling point, why is your product more expensive?

Choice 5: Negotiate a better price from your supplier. Promise them more orders.

Choice 6: Don't make a choice and fail.

That's all I can think of.
 
I don't know all your business model so I can't give you a real advice but in general I can say:
Always try to expend your customers base, even if you have no competition
Have a USP (unique selling point) if your competitors are able to sell in a lower price find another point that you are better.
Your market have changed, make a new assessment of the market as if you were to get in to it for the first time and see if it is still profitable.

Always be creative, in marketing in product and in selling. never stop thinking how to improve your business or you will stay behind.
 
Since you gave no details it's difficult to give specific advice.

Build a relationship with your customers.
Add a metric shitload of value to whatever you're selling.
Then increase your prices to take into account your added value.
 
Find out how your comp is able to offer such low prices. It's possible they could be incurring zero profits or even a slight loss just to bump you out of the market. If this is the case, drop your prices by 15-20% and keep them stuck in a bind. They can't continue to operate at a loss.

If they are still making profits at that level, then they are obviously more efficient than you. Find out how you can reduce your costs as well.

Pretty much all I can offer based on what you have said.
 
Not sure if applicable in your niche but if you can, try and find the shittiest, cheapest version of your product available, and sell it for dirt cheap right alongside your "premium" (current) model.

The majority of the users will go "oh, well the premium model is only $x.xx more, and obviously worth more" and hit the order button.

It's a tactic I've used successfully in the past... 'perceived value'.
 
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This is the name of life. However, what people tend to do online that use this tactic is they go out of business quickly. They have little real business knowledge, once they do it for a few months, they jump ship because the time it takes to provide the service versus their income isn't making sense.

However, if you can still make decent money by cutting your prices, I would perhaps consider competing. Otherwise, I would hang out and watch them fail.
 
Think of new ways to market but most importantly find out why they can sell so much cheaper than you. If you can find out why you can take the best action. Without knowing youre kind of swinging in the dark.
 
Are they making more on shipping than you? A lot of people use price as a doorbuster (misuse of the term) and then make it back on shipping.

Just a thought....
 
In addition to whats been suggested another option is to offer something free with orders as a bonus - (something that doesn't cost you anything or peanuts). Or find a new upstart business that has a complimentary product/accessory that fits with what you have, and who's looking for a way to expose their product and bundle their sample with your product (cross promotion).
 
Well considering the fact that I am a marketing grad, my advice to you would be to sell of your old inventory at low prices. This is hoping that you wanted to get rid of it. Next concentrate on earlier customers; they are basically what you need. Also, try some market research, the fact that playboy has been in the business longer than penthouse does not necessarily mean that they will automatically do better, but it means that they do have a brand name and can swing customers back again in their favour.
 
I recommend not to cut prices, since you're not going to win the lowest price game anyhow. Check who the competitors are (online research + order one product from them) - if they are western, then there is a higher chance that they are just trying to bump you out. If they are Chinese, chances are that they are the manufacturer/his buddies and you'll never sell lower than them.

Note that if both competitors appeared simulteneously, it could be the same player running two sites. You can also play this game.

Offer some extras, like a booklet, trinkets etc. Showcase your product as premium, mention your lower competition and warn the buyer "don't take a chance with these low-priced alternatives, do you want to take this kind of risk with your health?" (and show pics of their products.) Mention that they'll rape the customer on shipping etc.
I really like Bizzykehl's advice.
 
bizzykehl said:
Not sure if applicable in your niche but if you can, try and find the shittiest, cheapest version of your product available, and sell it for dirt cheap right alongside your "premium" (current) model.

The majority of the users will go "oh, well the premium model is only $x.xx more, and obviously worth more" and hit the order button.

It's a tactic I've used successfully in the past... 'perceived value'.
Click to expand...

This works with small children too. I've found that if my daughter is refusing food off the baby spoon, I can offer her the same food on a bigger spoon, and she'll go crazy for it.
 
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