Sales for January Are $4,119, A Very Successful Year and Why Competing on Price is No Strategy Most of the Time

January finished with sales of $4,119, bringing the total sales of stamps for the fiscal year ended to $65,970. Of that total, $49,864 came from repeat customers - some 75.6% of the total. The year before, total sales were $41,197 and the proportion represented by repeat customers was just $18,736 or 45% of the total. So not only did total sales increase by $24,773, or 60%, but the proportion of the sales coming from repeat customers went up as well. If you look at sales from new customers, it was roughly $22,400 in fiscal 2016-2017 and $15,900 in fiscal 2017-2018. So the sales from new customers did decrease slightly in terms of dollars, but not in terms of volume. I am still adding roughly 50 new customers a month to my customer base. So what all of this means is that a larger and larger proportion of the new customers are becoming repeat customers. That is amazing news because it generally means that as long as I continue to list new material and I continue to attract new customers, that sales will keep increasing. This all brings me to today's topic, which I alluded to in my last post about the importance of having a vision: competing purely on price is a non-strategy most of the time.

I don't have to look very far among my competitors to see the following:

• Selling perfectly good stamps for 25-30% of catalogue value.
• Not charging sales tax and including it in the price.
• Offering free shipping regardless of the size of the order.
• Bragging on E-bay that they are the cheapest on E-bay.

All of these things point to a pervasive tendency by businesses to try and compete solely by offering the lowest price. The thinking behind such a strategy is obvious: if they offer the lowest price, then people will keep coming back and the increase in volume will make up for the lower prices. 

There are many, many problems with this strategy for most businesses, which I will get into. But for the moment, let me start by discussing those businesses that have mastered the low-price, high volume strategy. The best one that comes to mind is Wal-Mart. They make billions of dollars and are all over the world. But lets stop and think for a minute about what they sell and how they execute their strategy:

1. They sell essential, every day household goods and now groceries. The merchandise itself is all stuff for which the demand is relatively inelastic in the sense people need it, and will surely buy it. The question is simply where they will buy it. 
2. Their supplier relationships are extremely tightly controlled such that they have complete control over all their input costs and they can replenish stock quickly and easily.
3. They spend a lot on advertising to reinforce the perception that they are the cheapest.
4. They have such large financial reserves that they can afford to operate at a loss at a particular store until the local competition has been all but eliminated and then they can raise prices slightly, or they can leave them and the increase in volume from the now vanquished competitors will be enough to make them profitable at that particular location.
5. They have access to an almost infinite pool of cheap, unskilled labour.

In short, Wal-Mart follows very well executed and deliberate strategy that works primarily because the merchandise can be obtained easily and it is the type of merchandise that can sell in very high volumes.

Such is not the case with collectibles:

1. Most of the expensive collectibles and stamps are scarce. You can't simply call someone up and order 1,000 units to replenish stock. So inventory has to be built up over time if it is to be sourced at the best possible price. You can't sell what you don't have, and if you sell material too cheap and sell out, then you may be depriving yourself of the opportunity to sell that item more profitably later to someone who really wants it.
2. Collectors are picky and are looking for very specific varieties much of the time, or very specific grades.
3. Collectors generally buy when they want a particular item, though some do buy when the price is so low they can't resist. 
4. The market for collectibles is limited to small percentage of the general population, but that market is one of repeat buyers. Collectors generally never finish collecting per se. 

So what a lot of businesses, many of my competitors included, fail to recognize is that if they pursue a low price strategy, it doesn't generally result in a high enough volume to compensate for the lower price. All that generally happens is that they sell their material at a lower price and they attract that small percentage of the market that only shops when the price is low, and that segment of the market isn't loyal to anybody. Plus, when your margin is already very low, i.e. less than 50%, it doesn't take much to cause you to lose money on an individual sale, and once that becomes a pattern, higher volume actually leads to higher losses. 

Take for example, a stamp dealer on E-bay who is selling stamps for 30% of catalogue value. Chances are that unless that dealer is literally low-balling estates and picking up collections for 5% of catalogue, they are probably not paying less than 10-15%. Let's take a specific dollar example. Suppose they sell a stamp cataloging $100 for $30. Their cost on that stamp is somewhere between $10 and $15, lets say $12.50. E-bay's final value fee at 6% will be $1.80 and Paypal will take another $1. If they offer free shipping, then that is a minimum of $1 again. Envelopes and packing material including a 102 card are another $0.10 or so. So their total variable cost before labour is between $15.40 and $16.40, leaving a gross profit of between $13.60-14.60. Initially, that might sound high, but the problem is they haven't even covered their fixed costs yet:

• labour
• rent
• E-bay store rent

E-bay charges around $350 a month for an anchor store. There are cheaper store formats, but those require you to pay a listing fee of up to 25 cents per item. So to avoid these fees and improve visibility an anchor store makes sense where the breadth of your inventory is large, as it would be for stamps. To cover just that fee, the seller in the above example would have to sell 22-23 items. So to cover labour and rent the volume required is much, much higher. 

Many sellers do manage to sell enough volume to cover their costs, but they get locked into a treadmill-like situation where they are always scrambling to meet their sales targets in real time. Everything they list sells as they list and so they are always having to spend time sourcing new material. Finally because they are selling volume to the types of customers who are price conscious, they cannot get top dollar for that rare and elusive item when they do get it because the types of customers who pay top dollar will not perceive them as sufficiently expert to know how scarce the item is and its true value, so they are forced to sell these items for less as well. While they may do a significant amount of repeat business, that business is heavily dependent on their ability to keep offering cheap material that their customers do not already have. 

So how do you break out of this type of race-to-the bottom treadmill? The answer is to focus on value creation. While some customers are only concerned with price, there are many for whom shopping is an experience itself:

1. They enjoy interacting with a salesperson who treats them well and remembers what they like.
2. They like being offered special merchandise that they weren't aware existed. 
3. They like to get a reasonable price, but for them dealing with someone that they trust is more important.
4. They like the convenience of being able to buy what they want, when they want. 

A business that can focus on the total customer experience is creating value, and because it does so, it does not need to focus on price. It can focus instead on offering the best selection of inventory and the best service.

This is what my business does. When you buy a stamp from me, it is fully described to a level of detail in my e-bay store that allows you to be completely confident that what you are buying is the exact stamp you want, even if you are an extreme specialist and you collect to a level way beyond the standard catalogues. If you want a deal, you can make an offer and most of the time it will be accepted, provided it is reasonable. My stamps are consistently graded and I usually have most grades in stock at different prices, so that you can get an appreciation for the price-quality trade-off and can chose a grade that is most suitable for your needs. All of this is before you have even bought the stamp. You will also see a very extensive stock so that if you are looking to buy several stamps, you don't have to go to several sellers and pay postage several times. You can do all your shopping with me and save on shipping.

When your stamp arrives and it is the first time you have bought from me, you will receive a tri-fold brochure from me giving you an overview of my specialties, my blogs and a never-expiring 10% discount that will apply in certain circumstances. You will also receive a welcome letter outlining all the services I provide that go beyond the sale of stamps such as opinions and consigning, as well as what my blog post for the week is. You will also receive a copy of my yearly philatelic programme which tells you which topics will be covered in my blog for the year as well as which issues I am going to focus on listing for the year. The stamp itself will be packed in cardboard wrapped in plastic to protect it from bending and water damage. So, from the time my stamp arrives you should feel welcome to contact me with questions, you are aware that there are online resources you can access for free and you have advance notice of offerings coming up so that you can look forward to them.

If you come back your selections will include personalized letters that will change to suit what you are collecting and are designed to let you know that I am thinking of you and keeping a mental note of what interests you. This is fully personalized service.

When I list material I focus on one issue at a time and I take all my existing stock, all my consigments and I buy as much of it as I can before I list it. Then I spend the time to properly identify it and grade it, before listing it all en-masse. It then becomes the largest single offering of that material anywhere on E-bay or online for that matter. So my customers, as they get to know me begin to understand that when I do these listings, they are very likely to have many items of interest. I write blog articles on these issues before I list the material usually to create awareness and interest in the material. 

Because I do all of this, my customers regard me as an expert who has the largest stock online. I do not have a complete stock, far from it. But I am always improving it and as long as I am the largest, then I will always be in a position to charge a little more than my competitors. When my customers are ready to sell, they know they can come to me and trust that I will help them get top dollar for their stamps because they have seen that I do not low-ball material, but rather I sell it for what I believe it is worth. 

This is how you can focus on the total customer experience. A low price strategy does not generally do this and focuses on only one aspect of the customer experience. For some things it works, but for many goods or services, it fails. As a business owner you have to really understand your business and your customers to determine if a low price strategy is really suitable for your business.