Selling anything at retail seems like a pretty uncomplicated business doesn’t it? You acquire the product for a price and sell it for another price with the difference being your profit, right? Yes sort of. What about all the overheads involved in making that sale?
One of the overheads commonly forgotten is the daily cost of holding the stock. Some years ago I was with a car dealer as we were trying to promote our newly created LiveMarket product which gives the dealer a look at the competitive position of each of their used vehicles for sale using live market data.
“Paul this is a great product but….”
Once I was finished showing the product, the dealer to me “Paul this is a great product but you see that Landcruiser out there, I’m going to make $5,000 profit on it whether I sell it tomorrow or in 5 weeks time so I don’t need this”. I bet a lot of car dealers, or retailers of any sort for that matter, would think the same.
His logic was that he didn’t have to alter the sell price based on the competitive market because eventually someone would come and pay that price. He had history to prove it. What he wasn’t factoring in was that that $5,000 profit he might get tomorrow wasn’t really worth $5,000 in 5 weeks time. What he also wasn’t counting on is the new Internet age where buyers have as much information and in most cases, more information than the seller (i.e. competitive information at their fingertips).
What if he could sell 4 of those Landcruisers at half the profit on each unit in that same 5 week period ($10,000 vs $5,000)? Which would he rather? It didn’t take long for the penny to drop.
The premise is that by using competitive live market data to buy and sell ensures you are in touch with the market at all times and not buying or selling using sales history or “your gut”. Pricing to sell promotes velocity and helps to ensure your holding costs don’t eat into your profits.