Is Your Online Store Barely Making Money?
By Brad Beiermann
How many of you online store owners love selling items with higher
profit margins? Higher margins, means more money in your pocket, right? If you
are the smart business owner, you have answered yes to both questions. One more
question for you. Why did your customer buy these higher margin, and often
higher priced, items from you? Okay, now the answers start to vary. In truth,
customers buy for their own reasons, not ours. We might think we know why they
bought it with a certain degree of accuracy, but do we ever really know their
innermost reason for why they made the purchase? In fact, most experts will be
quick to point out the fact, we never really know 100%. The reason they buy, is
often different than reason we thought. No matter what you are selling on your
online store, your customer will only buy two things: 1) Solutions to problems,
and 2) Good feelings. The rest of this article will focus on the "good feelings"
part.
When your customer buys from you, they generally feel good about it in some form
or another. Proof...Would you spend your money on something (or someone) you did
not feel good about? Of course not, we want to feel good about the things we
buy. Your customers are no different. So, what is making these folks feel good
about buying from you? In short, it is trust. Good feelings come from trust and
the secure feelings that come with it. Trust is something earned without a fixed
time period. In other words, trust can be built quickly, or it can take a long
time to be built. With a product, trust is often built in the form of value.
They ask themselves, "Is this a good deal?" If the answer is "Yes" the odds of a
transaction occurring goes up greatly. If the answer is "No", you have not won
any good feelings or trust from them. Let's take a look at this thing called
"value" and how it is perceived by your customer.
What exactly is perceived value? By dictionary definition -- It is the state of
worth recognized by interpretation of sensory stimuli based chiefly on memory
insight, intuition, or knowledge gained by the senses. Whew! That's a bunch to
grasp in one reading of that sentence. For the rest of us non-Mensa members,
let's simplify. Perceived value is someone's gut feel about the worth of a
product. It's our own appraisal based on what we know. The original definition
mentions words like sensory, senses, and memory. This suggests we, and our
customers, get perceived value from our surrounding environment, or the things
we have been directly exposed to in the past. Customers have this inherent
feeling before they come to your online store. If you are able to recognize this
fact, you are in a much better position to understand your market. If perceived
value is ignored during your pricing strategies, that could spell trouble.
Last year I helped a friend with a trade show he was having with one of his new
products. He had the product, a very unique household lamp, patented and had it
being made in the USA for just a few dollars labor. Not bad. The parts used in
the lamp brought it's wholesale price close to eighty dollars. Still, not bad
considering this was a unique custom made piece retailing at three hundred
dollars. The product was being offered on his website, the number of inquiries
and emails he was receiving about the product was mind boggling, literally
hundreds a week. This was just for one lamp! It sounded like he had a hit on his
hands. During the four day trade show, thousands of people stopped by the booth
and marveled at this product. There were people stopping by the booth just to
see what all the attention was about. Several TV news stations stopped by the
booth to film the product and interview it's inventor. Customers wanted this
product real bad. As the trade show came to a close on its last day, how many
units were sold? Zero…None…Nada. Ouch! What happened? The number one comment
from customers, "That is awesome!" or "Brilliant!" or "I gotta get one!" The
number two comment from customers "Why is this thing so darn high in price?" or
"That price seems really high." Clearly, perceived value was coming into play.
So how much did these customers expect this product to retail? One show attendee
gave the best clue about the perceived value -- "It seems like this would go for
about $50 at a store like Wal-Mart."
What is the point of all of this? As you look for potential wholesale suppliers
for your online store, it will be important to know about perceived value.
Consider the following questions when evaluating a supplier who has made their
own product:
1. How has the response been to the price points of the product(s) you are
offering?
2. Has the product been market tested at a trade show? How was the response?
3. Does the product sell itself at this price point?
4. Has anyone done a market appraisal of the product?
Getting a barometer on the perceived value will be an important ingredient to
your online product portfolio. Armed with just a few of these questions, you
will have done yourself justice.
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