Everywhere you look traditional brick and mortar businesses are facing competition from newer online only businesses. Many businesses respond by doing the same and getting an online store and starting to sell online. While this is a logical response, what I have noticed is that they offer the same products at the same price as you would get from going to their physical shop.
This implies that the businesses does not really appreciate that their online stores are a completely different and separate sales channel and therefore as a consequence constantly complain about unfair competition from the newer online businesses. The truth of the matter is that online channels have a completely different cost structure. How different it is depends on the products you sell and the structure of your existing channels and business.
Few businesses really perform a detailed breakdown and analysis of the costs that are directly associated with each channel and and as a result merely replicate their existing price book in their online stores. To make matters even worse, the customer is faced with having to pay shipping costs on top of the price of the product which makes for an unattractive value proposition for the customer. If you operate a physical store it goes without saying that your costs that are directly attributable to that store can be easily compared to the total sales for that store. However few companies even attempt to determine the attributable costs associated with online sales.
I suggest that careful examination of all related costs is likely to reveal surprising results. There are some costs which apply to all sales and these include your purchasing and warehousing overheads but from that point onwards the costs diverge so significantly that it would be imprudent to assume that they are the same.
Online sales do have associated costs such as the cost of operating an online sales system and the cost of online advertising but these are variable and easily identifiable costs and there are obviously other associated costs. The real issue is whether you choose to pass on shipping costs to your customers or whether you decide to treat is as a direct cost of doing business online. Recent reports suggest that more and more online businesses are offering free shipping and this makes customers happier to know that they will not face an additional charge after they have made their buying decision.
The way you decide to price your products online is not that simple when you also sell through other channels especially where these channels make up a big proportion of your sales. However not considering different pricing will consign your efforts to sell online to failure especially if there are competing products that are already being sold online. Take the case of smartphone cases which are being sold on high street at typically around $15 which can be purchased and shipped to your doorstep for as little as $5. If you choose to sell that same case at the same price at $15 you will never be able to bridge that gap and your online sales will rarely achieve it's full potential.
Yes you can always put an argument forth that decries the unfair pricing of vendors from HK and China but you are leaving business on the table by not looking more closely at your own cost structures and pricing. Don't take the easy way out. Do the exercise to see what your real margins are for online sales. You could be surprised.
There are naturally many other factors that contribute to how successfully you can add an online channel to your business and these are equally as important but at least make informed decisions about your online pricing based on a thorough understanding on the real cost of doing business online.
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