If he thought we were backing out, he underestimated my mother. She would rather gnaw off her own foot than forfeit the application fee.
Wrong person to look at - it isn’t Walmart that necessarily makes their money on the Razor vs Blade system - its Gillette. Similarly with video games it isn’t gamestop that makes the big bucks on games vs systems, it’s Sony or Microsoft - the margin is only small for the retailer, not for the Publisher, System Manufacturer, etc.
Eh? That’s not how it works at all. The thin margins on new games are thin for everybody. Game budgets are skyrocketing and selling a game wholesale to a store leaves very little money for the publisher.
The only one that gets any east money is the system manufacturer, who gets a royalty every time a game for their system is sold. But considering how much money it costs to develop, market, and sell a system (MS was in the black for years after the original Xbox came out and Sony has squandered all of their PS2 billions on PS3/PSP losses), this is hardly a “give away the razor and sell the blades” situation.
The item could be a loss leader. That is to say he is willing to take a loss on the razor so he can make money off selling the blades.
I worked retail sales during the 90s. We would periodically have merchandise we should at a loss merely to clear the shelves. I’m talking about discontinued models, of course. There’d be a markdown schedule. A 32" Sony Triniton, say, might be $800 when first introduced. When the new models were in, we’d drop the price on the old to $600, where we’d still be making a profit. But six months into the new model year, we’d be pricing that model at $200 or less, and the only point was to minimize the loss.
A manager who let that happen to a lot of merchandise would get canned.
ETA: I just thought of another example. When I was selling cars around 2000 or so, in Memphis, the dealership mistakenly got in a new Ford Focus (or perhaps Escort; it was a logn time ago) that didn’t have air conditioning. That made it pretty much unsellable thereabouts, and it was impractical to do a dealer trade to someplace like Seattle where such a vehicle would have been practical. We sold it at a loss too, and I got a bonus just for getting rid of the thing.
This is quite common in business to business transactions. A small manufacturer will gladly do a job at or below cost for a huge customer if it means getting on the Approved Supplier List and proving their abilities, thus opening up future, more lucrative contracts.
It’s true a lot of the time. The cost of carrying inventory and making space for it in the store makes it absolutely imperative to get rid of non-movers. This is Retail 101. Success in retail is all about profit margins and turning the merchandise. From an internal accounting point of view non-movers may actually have a negative value.
Retail is a risky business if you make too many of the the wrong choices re how much to carry or what’s going to be popular no amount of salesmanship or marketing is going to save your ass.
I pickedthis notebook up from Staples the other day for $ 260 (floor unit like new) on clearance before tax. I guarantee you they had far more than that into it.
AS others have said, it’s true a lot more often than you think. If something is marked down for clearence or an adcertised special that seems really cheap, it may well be sold at cost or below cost. It’s a reality of doing business. At some point something just hanging arounf taking up shelf space is a loss even if it’s still marked at more than what you initially paid for it.
foir some products, competition has made profit margin so thin that any discount means there’s no profit.
That said, there’s no point speculating on whether it’s sincere or not. Haggle away if you want to and let them decide what they can afford. You get to decide what you’re willing to spend, how badly you want it, and when.
I had a customer just today that wanted something thrown in on an item that was 50% off.
No sir nothing thrown in on this sale.
Oh come on, I’m not asking for much.
Sorry, can’t do it.
He knew he had no real bargianing power with that sale, and paid up.
I can see that it’s often true, but I don’t see any real reason to tell you this if it were. Chances are that I would have paid higher, so all you’re really telling me is that you let me negotiate you to such a low amount that you aren’t making money on it. You’re telling me I did a good job. Why do I need to know this unless I really am not?
Also, it’s impossible for a loan at above the interest rate of the bank to not be making you money. Money that gets used up by overhead is still money, even if it’s not profit.
I doubt they made anything (or if any, only peanuts) when I bought my wedding dress. It was original around $1800, discontinued, I bought it for $180. She did make some on the “package” wherein they keep it for you and steam it and let you use their seamstress and all, but the dress itself had to be a loss that she just didn’t want on the damned floor anymore.
Does this actually work?
Every time I have seen this tried it just means that the client expects that low of a price and if you try to raise it to a more reasonable level later on they just don’t use you.
The CEO of the company I worked at before my current one put a nix on this strategy because of this reason. he said that he went through the records and not one company attracted to us with this strategy ever became worthwhile.
However, I am curious if this strategy has ever worked for anyone else?
It can happen but it’s often bullshit and it’s definitely not your problem. You are not there to supplement their income, you are there to get something that is worth to you what you’re paying for it.
Oh, absolutely. I’ve seen many examples.
Sounds like Groupon.
Supermarkets often pass on that loss to their suppliers; that is, it’ll be written into the supply contract that if the supermarket wants to slash the price of a product in a promotion, the cost is borne by the producer/supplier, so the supermarket can maintain its margin.
Suppliers complain at the risk of having their entire product range dropped, so the supermarket buyers have them over a barrel.
Grocery stores routinely have “loss leaders” – items they put on deep discount, sometimes even lower than their cost. The point is to drive people to the store; most people will come for the loss leaders, but buy other items that are not on sale and have a better markup.
Sorry to choose your post for this example but here goes.
I worked for a very large music instrument supply store, you’ve heard of them. One day the namesakes of the company stopped by and listened to a few complaints. Someone in the DJ department said “We’re getting killed on these turntables that people rap about”
Their response was pretty much “Fuck those guys”. We’ll sell them at a loss, just so they don’t get sales.
It sounds like a loss-leader to me, but this wasn’t advertised. Business wasn’t being drawn in via marketing or anything else, we would just beat the other guy’s prices if pressed. The “lead” portion of loss-leader suggests to me that they’re being lead in to buy other more profitable stuff, but this was by itself.
We were actually selling these at a net loss profit just to spite the competition. These were hot movers too, no overstock or any shit like that. [sub]Technics 1200s[/sub]
I guess it qualifies as a loss leader, but not really. Thoughts?