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How does competition between resellers change the wholesale price, from which (AIUI) the manufacturer's margins are derived?
by rhizome 8y ago
How does competition between resellers change the wholesale price, from which (AIUI) the manufacturer's margins are derived?
- coryfklein 8y agoThe clear inference from OP's remarks is that if the resellers literally stop selling your product, then the manufacturer would be forced to lower the wholesale price to compete for "shelf" space.
- jdietrich 8y agoI offer a product with a wholesale price of €149 and a recommended retail price of €249. Competition between retailers pushes down the actual retail price to €169. Online retailers can make a sliver of profit at that price, but for brick and mortar retailers it's pretty much a break-even proposition. Those retailers will come to me saying "We can't make any money selling your product. Unless we can get a bigger discount, we'll have to discontinue stocking it". I either lose my presence in retail stores and the sales volume that goes with it, or I have to eat into my margins to keep those retailers on board. If I do eat into my margins, there's a good possibility that the online retailers will figure it out and demand a discount too. Big online retailers have good market intelligence resources and considerable negotiating power, so they can demand as good or better wholesale prices than anyone else despite having very low overheads. Left unchecked, everything converges to the margin. I'm making just enough money that it's worth keeping production running, most retailers are making just enough money to justify the shelf space, but we're just barely scraping by. I can't afford to invest in R&D, so I just churn out cheap me-too products. Retailers with high overheads will be driven out of business, leaving only the most efficient of box-shifters. Customers get low prices, but very little more. Sound familiar?