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"Loss Leader" is the term and the problem. A wholesaler sells to a reseller at their usual price. Reseller deliberately sells less than RRP & sometimes less th
by cmroanirgo 5y ago
"Loss Leader" is the term and the problem.
A wholesaler sells to a reseller at their usual price.
Reseller deliberately sells less than RRP & sometimes less than their buy price. It's a good way to guarantee the reseller "owns" the market.
Then, if the reseller is big enough and has captured the market, has the leverage to tell the wholesaler to lower the wholesale price and/or the reseller gets it made elsewhere and becomes the wholesaler.
It's pretty nasty.
It happened to my family business. A big box chain sold the same products for less than their buy price. We were close friends with the wholesaler ( a timber mill), and the sales rep even went to the big box to get them to lift their price.
2 years after shutting us down, the big box store sells the same product, from the same source, for 50% more than we ever used to sell it for.
- galago 5y agoThere used to be a restaurant chain called "Boston Market" (there are a few left). One of their signature products was cooked rotisserie chickens. What killed them was not a direct competitor, but the fact that Costco did, and still sells a similar product at a one dollar loss per chicken. The loss leader is going on forever.
- DoneWithAllThat 5y agoThey have over 300 locations…
- eru 5y agoWhy does this have to be a loss leader? I'm pretty sure Costco can probably make a profit on that chicken?
- fragmede 5y agoIt's more nefarious than simple loss-leadering and undercutting your competitor's margins. That's business 101. Amazon is playing business 201. Amazon took over pricing for the widget, and then undercut that price with their own. Stay with me for a second because 201 is kinda complicated. Widget usually sells for $25. Amazon agrees to buy 1 from you at $20 (you give them a volume discount because it's Amazon buying so you figure it'll sell like hotcakes. You still make a profit at $20.). Amazon then prices your widget on their marketplace for $30. Seems fine so far. The trick is that Amazon turns around and sells their widget, made by an alternate supplier, for $23. Your deal with Amazon means you no longer have control over how much your widget sells for, just that you're selling them to Amazon at $20 and Amazon gets to charge however much they want. To no one's surprise, your widget, priced at $30, doesn't sell because Amazon's is $23. You're not allowed to turn around and sell them on Amazon's marketplace at all, so they just sit there at $30 and don't sell.
- granzymes 5y agoIs there any evidence this happened? It seems like companies would simply leave the "sold by Amazon" program, and quickly.
- dash2 5y agoThe article says so.
- YeBanKo 5y agoIts actually right in the posted link: The “Sold by Amazon” program resulted in prices for some products increasing when Amazon programmed its pricing algorithm to match the prices that certain external retailers offer to online consumers. As a result, when prices increased, some sellers experienced a marked decline in the sales and resulting profits from products enrolled in the program. Faced with price increases, online customers sometimes opted to buy Amazon’s own branded products — particularly its private label products. This resulted in Amazon maximizing its own profits regardless of whether consumers paid a higher price for sales of products enrolled in the “Sold by Amazon” program or settled for buying the same or similar product offered through Amazon.
- granzymes 5y agoYes, I read that. It doesn't address my point, which is that merchants would just leave the program if they faced declining sales.
- KittenInABox 5y agoWhere would they go? Amazon is where the customers are. This is the problem.
- granzymes 5y agoThey’d go back to selling outside of this program. They don’t need to leave Amazon to do that.