A fairly common question that I have been getting lately, particularly from people who have never sold online before is: “Why do people pay the prices that allow you to make a profit when they could buy it in store on their own for less?”
This is a valid question, and one that is often hard to grasp when people are just getting started out with selling online. There is one main difference in the products that I buy to resell online that is important for the answer to this question. The difference is items that I buy on closeouts or clearance versus items I buy at retail to resell.
When buying clearance I am generally buying items at 50% or more off of the retail price. I then am able to sell items close to original retail prices, and my profit margin comes from my opportunity to purchase the item at a lower cost than is generally available. This makes sense as clearance varies from region to region, and many people will gladly pay a price equivalent to what is available in their local stores to have the item arrive directly to their door (oftentimes they will pay more for this convenience). Overall, buying at clearance prices and reselling at retail is pretty intuitive, so let’s look at the other type of products that I am buying to resell that is harder to understand.
When buying items at retail prices to resell, I am paying the price that is generally available all of the time in many stores. For example, let’s say there is a toy I can buy at Walgreens for a cost of $10 and it is currently selling on amazon for $30. The question becomes, “why would someone pay $30 for an item when they could buy it for $10 off the shelf at their local Walgreens?”
There are several reasons they may be willing to pay this price:
- They are unaware the item is available for $10 at their local Walgreens
- They do not have time to go to a variety of stores to go toy shopping
- They value the item at $30
- They value their time at more than the price difference. For example if someone valued their time at $60 an hour and it would take them half an hour to go to Walgreens and buy this $10 toy and get back home, they would be losing $30 in time value plus $10 in cash, for a total cost of $40, not to mention the cost of gas, wear and tear on their vehicle, etc. When this item is available for $30 online with a few clicks of a mouse, the time savings more than make up for the difference in asking price.
- They are buying a gift that needs to be shipped to a recipient. Shipping can be burdensome to people who do not often ship items (it can be burdensome to online sellers as well) and this adds to the $10 cost of the item. The giver of the gift would have to spend the time to go to Walgreens, spend $10 to buy the item, find a box, pack the item, go to the post office, pay $5-$10 for postage, and then return home. Granted there may be more efficient options for a few of these steps, but not everyone is aware of buying shipping online, USPS pickups, and other efficiencies, but I would argue that much of the general public is not aware of many of these options. As a result this person is looking at a total cost of $15-$20 to pay for this item and ship it to the recipient, plus a significant amount of time. The price of $30 online is starting to look pretty reasonable.
These are just a few options why people may be willing to pay $30 for an item that is available on stores across the US for $10.
Here’s another way to look at this. Let’s say you ran out of toothpaste and you dropped your tooth brush in the toilet by accident. You go to your local store with the intention of buying toothpaste and a tooth brush. You go to the store with a preconceived notion of what you are willing to pay for these items without knowing what the prices are. This is true for virtually all items that you buy. Any item that you put into your cart at any store, odds are you would have paid at least a little bit more for that item if the price tag had a higher price, all based on your perceived value of the product at any given time. For the tooth brush and toothpaste example, let’s say normal retail prices are $3 each, let’s say your threshold (although you probably would not have thought this out) would be $5 each, if the price is any less than $5 each you will buy both of these items. If it’s over $5 each you may scoff at the ridiculous prices, and leave the store empty handed. If these are on the shelf for $3 each you gladly will buy them on the spot, and secretly think the store left profit on the table.
But, let’s say it’s Friday morning at 6:00 AM and you have a job interview at 8:30 AM and you realize you don’t have a toothbrush or tooth paste. If you don’t go to the store prior to your interview you will self-conscious about your breath and not be able to focus to perform your best for the interview. You decide to go to the store for a tooth brush and toothpaste (gum, breath mints, mouthwash, etc. just won’t cut it). The only store that you can get to in time to still get to the interview has each of these items priced at $15 each, would you pay this price for these items given the circumstances? I am willing to bet that there is a decent chance you would. I am not saying that everyone would, but there are some buyers that will, and they are my favorite kind of buyer to sell to.
Maybe the tooth brush and tooth paste example doesn’t do it for you. How about if your child’s birthday is 3 days away and there is a toy that they picked as the first item on their wish list, it’s sold out in the stores near you, but available online for triple the retail price, would you buy it?
Or you are hosting Thanksgiving dinner at your house, 2 days before you realize you didn’t buy any stuffing to go with the turkey and it’s your uncle’s favorite part of the meal, you have so much to get done before then that you don’t have time to go to the store, would you pay triple the retail price plus upgrade to one day shipping so you can serve your uncle’s favorite dish and avoid going to the store?
These are just a few examples of why people might be willing to pay prices higher than retail. I will concede that these may be rather ridiculous examples, and hopefully you find this to be more than rambling nonsense, but there are reasons every day that people are willing to pay what some consider obscene amounts for products that are readily available to the masses.
Keep in mind when you are buying to resell that you are not looking for items that you would buy, but what items customers will buy. People value time, money, and many other factors differently, consider this as well.
If you have any questions or comments, please leave them below, or send me an email at email@example.com.