This is the fourth of a series of articles about How To Build The Perfect Online Store
Part 4: Finding a Suitable Supplier
We see from our previous article that branded products have attractions in building the perfect online store but the supplier of these products has to meet several criteria
- prices must be competitive
- margins must be good enough to make a reasonable profit
- the supplier must vet potential resellers
- orderly market conditions should prevail
- unfair competition must be prevented
- shipping must be timely
The best way to illustrate what we mean by these points is to look at our own personal experience. Our decision to go ahead with an online store for wine decanters was cemented by our finding an excellent supplier. Ravenscroft Crystal is an up and coming brand with exceptionally beautiful products and an added unique selling point that its products are made from lead free glass. Let us look at the key factors defining a good supplier and illustrate the point by examining how Ravenscroft matches up in practice:
Prices Must Be Competitive
The market for high quality wine decanters is led by names such as Riedel and Waterford. We found that Ravenscroft compared favourably with their prices and had attractive offerings in the range $50 to $100, our main target market.
Margins Must Be Good Enough
Traditional retail markets used to work on a gross margin of 50%, that is the retailer bought for $5 and sold for $10. Traditional retail outlets are finding it increasingly difficult to operate on these margins. Nowadays much higher gross margins are often necessary. Online stores have much lower overheads and so can operate on much lower margins. We found that Ravenscroft expected retailers to work on the 50% gross margin basis.Online we found that we could operate at about 40% gross margin, staying within minimum price guidelines (see below) and absorbing shipping costs (see later article). This put us in a position to give the consumer exceptionally competitive prices.
Resellers Must Be Vetted
A reputable brand owner should check the credentials Coupons of a potential reseller. A rogue trader can do a lot of damage. Ravenscroft is a well-managed brand, selling only through reputable traders. We had to meet their requirements of being a proper company with validated tax registrations. Some companies pursue a disorderly online strategy of selling through retailers and direct to the public online as well. This may make the supplier some short-term profit but is not a long-term model for success. It fails to create a sustainable supply chain, which means that the consumer in the end gets a poor deal. We were happy to comply with the vetting process
Orderly Market Conditions Should Prevail
We have seen the untold problems created by lack of regulation in the financial markets. Consumers want a distinctive product that will retain its value, even increase in value. For example, each Ravenscroft decanter has the Ravenscroft logo etched on the base and comes in stylish packaging, which is so important for presentation as a gift. Ravenscroft offers reasonable margins for the retailer but also imposes rules and regulations on the reseller, recognising that an orderly supply chain has to be sustained.