Also, many wholesalers will not sell items
to an individual consumer; they will only do business with an established business that will buy in volume from the
wholesaler. Often the wholesaler will have minimum purchase requirements, which can be as low as $500.00 or as high
as $20,000.00. Basically, most people accept retail prices as a fact of life because it takes some extra effort and
time to figure out how to reach the wholesaler directly, and in many cases, it just is not possible to deal with
the wholesaler, unless you are an actual business (which is a good way to get wholesale prices and which will be
the topic of a later chapter).
Now let's look at the structure of discount
pricing, which is what most people look for in saving their money. When a store offers discount prices, they will
not mark up the item 100%; they will offer a discount from the full retail price of 20-40%. They still need to make
a profit, so they won't reduce the price 50%, but they are making less of a profit in the hopes of getting people
to do business with them. As an example, take an item that normally sells for $100. The store paid $50 for that
item. Instead of charging $100, the store may discount that item to $80 or even $60. At the lowest discount you can
save $40. However, that doesn't give you as much of a saving as buying the item yourself for $50 directly from the
wholesaler. In other words, even the best discount value will not be as good as buying the item at
wholesale.
The only exceptions to this rule are
liquidation or closeout sales, where the store sells the item at below its own cost, because it must regain some of
its original investment in the merchandise. In this case, you may get a better deal from the store than if you went
directly to the wholesaler, but these cases are not easy to find and don't occur very
often.
Another point about buying from a discount
store is that you have to be careful about how many of their products are really being offered at discounts. A
common strategy is to lure buyers into the store with large discounts off normal retail prices on a few popular
items. Then when you are in the store, many of the other items will be selling at full retail price. In many cases,
you just won't be able to tell if an item in that store is full retail or discounted, since it's impossible to do
price comparisons on every item when you're in the store itself.
So far, we've been using the example of a
typical 100% markup. There are many types of products that are not marked up that much, but the overall principles
discussed still apply. For example, products in the electronics business are not marked up as much as gift items.
In other words, an answering machine, considered an electronics product, will be marked up only 50% by the retail
store. Consequently, the discount offered by a discounter of electronic goods will not be as high as 40%; it will
be closer to the range of 15-30%.
Let's take a specific product, a Panasonic
answering machine. Currently, one model retails at about $50. The major discount stores are offering it for $44 (a
discount of 12%). National Wholesale Company (a genuine wholesale company to be discussed in a later chapter)
offers it at $30 (a discount of 40%). Even though the wholesale price is not a 50% discount from retail, it still
gives a large saving when compared with the discount store.
The only issue we haven't addressed is the
importance of volume. We have been slightly simplistic in this discussion, since we haven't considered how volume
changes the wholesale price. If you buy 10 of an item from a wholesaler, the price per item will be less than if
you buy 1. If you buy 1000, the price will be much less than if you buy 10. What this means is that it is possible
to find that a discounter who buys in huge volume may offer a product at the same price at which you could buy it
directly from the wholesaler. Since the discounter is buying from the wholesaler at a lower price than you are, he
can mark the price up a little bit and still match the price you are paying to the wholesaler. This will only apply
to those products where the volume is very large, and again, you must be careful about other products that same
discounter is offering--they may be much higher than the wholesale price you can get
yourself.
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