The resale price of an item is the result of attempting to balance the supply and demand.....the customer sets the purchase price of an item, not the retailer. I look at retail price as having what I call a "strike" value. The retailer must find the "strike" price of an item if they want to move that item.
When demand is low and supply is large, the price must be lower to "balance" the market. The level to which a price falls is the "strike" price.....the price that will start a stagnant item moving.
What kills most local dive stores is a misunderstanding of this simple rule.
In most cases, the local scuba retailer is serving a VERY limited market. Many scuba stores are located in natural markets with a population of under 50,000. When you consider that only about 1% of the population participates in scuba diving, that retailer is serving a very limited number of potential customers. The result....there is limited DEMAND for the new regulator, bc, or computer. The retailer then sets the price quite high and has an almost unimited supply. When the supply is large, the demand is limited, and the retail price is high.......sales will be very slow. The nature of economic laws would dictate that this supplier must lower price to move merchandise and limit the supply. Supply and demand MUST be balanced for ANY business to make money.
Those of us in the on-line scuba business don't discount simply because we want to be the low price supplier. We discount to reach the "strike" price of any particular item. Trust me, if we could sale at a higher price, that is exactly what we would be doing. Internet scuba stores radically expand their potential market by enlarging their natural market. As the demand increases as a result of this larger natural market, we must radically increase our inventory to serve the varied interests of the larger and more diverse market. As our inventory increases, this again puts the market out of balance. We lower price to find the "strike" price to move our larger inventory. The lower price means a lower margin. We are then forced to make larger purchases to lower our wholesale price, thereby increasing our margin. The whole cycle starts over again.
This is important to remember: Each item has some price level that will cause the demand for that item to radically increase. As you have seen, I am calling this the "strike" price. Our experience at Dive Sports Online with finger spools is a perfect example. The "going price" for finger spools was about $25 to $40. This price had the market fairly in balance. Supply was about equal to demand. Sales of finger spools was relatively limited and fairly consistent. I would image that a retailer, even in the most technical market, would be extremely happy to sell say 50 per year. We lowered the price of finger spools to $15 and advertised them widely. The result was that additional demand was created. This resulted in the sale of over 800 finger spools, to retail customers, is a little less than three months.
ANYONE that thinks prices doesn't matter is making a serious mistake. Heck, the scuba industry is a living perfect example of why price matters. You can offer tons of services, all sorts of "added value", throw in freebies, whatever you want. If your price is too high, you will not succeed. If price didn't matter, there would be no Wal Mart, Office Depot, Home Depot, or any of the other stores known for lower prices. The walked into a balanced market for literally millions of items and proved that price not only matters, it is often the MOST IMPORTANT aspect of retailing.
Anyway, just my opinion.........
Famous Last Retailer Words: "I don't want to be known as the lowest cost supplier...I want to provide such good service that price will not matter". (Annon, probably a bankrupt retailer)
Phil Ellis
