Amazon Versus Walmart. Who will emerge victorious?

To understand why Walmart survives while at the same time Amazon thrives you must look at the basic business models of each shopping experience.

Walmart is a traditional mass merchandise retailer. Walmart offers products for sale and hopes to make a profit on everything they sell. They also rely on the shoppers choosing to pick up additional items while they are in the store so the net shopping cart value can be quite high in many cases.

They have marketed themselves as having a large selection and generally low everyday prices. Shoppers may visit a Walmart store because they want to see the merchandise, try it on, touch the fabric, read the instructions on the box, or ask the department merchandiser a question. There is a lot of psychology involved in a Walmart shopping experience including the store layout and product placement. Thru marketing, they have convinced their customer base that Walmart is low priced on all items. If you do any amount of comparison shopping you know that Walmart is low priced on what they considered the Market basket products that every mass merchant retailer should be selling. These are also the products that most consumers can identify as a good value if the price is right. Everything else in the store may not be a great value but the customers won’t take the time to comparison shop. After all, who cares if that 300 pack of paper plates is 10% more expensive. The customer the customer is already in the store so they just throw it in the cart along with all the other impulse items they see as they shop.

Amazon is both an e-commerce retailer and a third party selling platform.

Amazon’s business model emphasized growth over profits. Jeff Bezos was fortunate to attract enough investment capital to grow the business without the pressure of trying to be profitable. Even with massive year over year growth, it still took around 15 years for Amazon to turn a profit.

As an e-commerce retailer, Amazon offers many private label products they have developed. They have these goods manufactured for Amazon, they buy and sell in large quantities, and they normally make money on the sale.

As a third party seller, Amazon charges sellers a fee after a listed item is sold. This fee includes some level of Amazon customer service, marketing services, and order payment processing services. The fee varies by product category. Amazon probably makes a little profit on each sale but not much. Amazon business model calls for cash flow growth rather than actual profit in these areas.

Amazon as a subscription service. Amazon sells Amazon Prime subscription services offering free shipping, Amazon prime video, and several other services. These services, will not necessarily profitable, do build customer loyalty.

The major differences between Walmart and Amazon with regards to revenue.

Walmart sells, or at least hopes to sell multiple items to every shopper coming in thru the front door. This increases profitability since many of the items are larger profit impulse items.

Many Amazon orders are single item checkouts. Customers come to Amazon, shop for a specific item, put it in their cart and checkout. Even with Amazon’s affinity sales algorithms, it is a difficult web site to shop. You normally will only search for your specific items of interest and seldom add impulse items.

Both retailers have a bright future and both are taking steps to build market presence in each other market strengths. Amazon is opening and has plans to purchase brick and mortar stores, and Walmart has made many major purchases of online, e-commerce sellers.

Strap in, the next 5 years or so in the retail world may become very interesting.

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What is Economy of scale?

In a production or manufacturing environment, Economy of scale is a simple concept that tells us that the larger the production run, the lower the per unit cost will be.

Think of it this way:

If I purchase component parts for 1000 units I pay my parts supplier x dollars per unit. If I purchase component parts for 10,000 units I might pay x- 10% dollars per unit.

The higher volume should mean lower handling costs per unit for your supplier, and also lower handling costs per unit for your receiving department and warehouse staff.

It costs me the same amount to issue a purchase order and pay my suppliers invoice if I order 1000 pieces or 10,000 pieces, so again, lower per unit cost.

Actual manufacturing production line set up costs are a major cost of production. It takes time to modify each production work station, set up tools and testing equipment, and assign workers to specific tasks. It may take several hours to set up a production line for a specific product. If I want to produce 1000 pieces I may keep my production line busy for 1 day to produce 1,000 pieces. Then I have to retool for the next new item on the production line. If I start a production run for 10,000 pieces I may not have to retool the production line for 10 days. That amounts to a significant cost savings.

When you add up all of the cost savings from a larger production run vs a smaller run, the savings might be significant. The manufacturer may elect to pass some of those cost savings along to their customer resulting in a lower product price.

How to try and avoid fraud when dealing with Chinese Suppliers.

When you buy from a Chinese supplier, you have to do what is called due diligence or research about the supplier you want to do business with. Check out reviews from previous customers, request and analyze samples, and do everything possible to verify the manufacturer is reputable before placing your order. A visit to the factory is essential if you are going to be buying large quantities. Once you decide on the factory and place your order, arrange to hire an inspection service to do a QC check before shipment is made. If possible pay using a secure payment method like credit card or PayPal so you at least have a small chance of recovering your money if the deal goes bad.

These are some things you should be doing before you make any purchases, whether it is merchandise from a local supplier or an expensive item for your personal use. Do your Research!

Remember, it is your money you are spending and your customers that you are shipping the merchandise to.

Is it worth risking your money and your business reputation on an unknown supplier, just to save some money?

Now if you are worried about finding a supplier to build your patented product or IP product, that is a whole other set of concerns. As a new buyer from China all I can tell you is buyer beware. No amount of Non disclosure agreements or iron clad contracts will protect you if the factory chooses to defraud you. The distance you are from the factory, communication or language problems, and the differences in the legal systems will give you only a very small chance of success in resolving any patent or IP issues. Get everything in writing. Do not rely on any verbal agreements.

The two most common scenarios are as follows. I like to call them front door fraud and back door fraud.

Front door fraud. You are based in the USA. The factory is visited by a buyer from some other country, say South Africa, and sees your product on the production line. He asks for a quote. Now the proper way to handle this would be for the factory to refer him to you for a quote, but little Mary sales girl sees an opportunity to make a commission for herself or to reach her sales quota so she can get a bonus, so she quotes the South African buyer direct. She thinks since you, the patent owner is based in the USA, and the buyer is located far away, you will never know. If you ever find out about the sale, the factory owner will simply say, oh sorry, the sales girl is new and didn’t know better.

The second scenario is as follows. Back door fraud. Engineers from the factory, or management employees that have access to your files, steal your info and either sell the info to a different factory, or establish a production line themselves and manufacture and sell your product. In this situation, nobody knows nothing. The production line can be shutdown or renamed easily. you will probably never be able to find them. Or, if you do find them and try and sue, the cost of legal expenses makes this extremely difficult. You can spend a lot and sue, you may even win a judgement, but will you every be able to collect anything from a small factory?

So as a new company looking for a factory to produce your patented or IP product, preventing fraud requires extreme measures.

  1. Have different sub assemblies manufactured at different factories, them do final assembly in a different facility.
  2. Build the sub assemblies in China and bring them back to the USA for final assembly.

You may be able to save some money, sometimes even a lot of money, having a product manufactured in China, but if you’re not big enough to spend the money on security, quality control, and patent protection, will it be even worth it?

How Soon Can You Expect To Make A Profit With A New Drop Shipping Business?

You could start to make a profit from drop shipping in your first month, or you could work forever and always lose money. It’s all up to you, the choices you make, and how hard you want to work.

  • You need to choose unique products that are not facing huge competition in the e-commerce world.
  • You need to choose products with a high enough selling price to maximize your chances to make a profit.
  • You need to negotiate the best prices possible from your suppliers.
  • You need to find suppliers that will give you rapid order processing and shipping service so customer satisfaction is outstanding.
  • You need to answer customer questions and handle customer service issues rapidly.
  • You need to target your marketing to the correct demographics to most efficiently use your marketing dollars.
  • You need to vigorously control your business expenses to try and maximize potential profits.

If you are successful in handling the issues above and choose the right products, you may have a chance of being profitable.

How do you find a mentor?

Someone asked me the other day how he could find a mentor to help him build his business.

You don’t find mentors, mentors find you. They see you at school or work and become impressed with your intelligence, work ethic, specific areas of knowledge, your natural curiosity to learn, and your passion for doing a good job and getting the job done.

Think about it for a while. A mentor gives his time and advice to someone. If he paid attention to everyone that needed a mentor or asked him to mentor them, he would have no time left for his job and life. So go out there and get an education, get a job, join groups and organizations and meet people. Impress them with what you can do and how you go about doing it.

You don’t just go out and find a mentor to help you for free. If you want someone to help you build your business, go out and hire a business consultant or find an employee to hire that has the skills you need.

What strategies exist to identify profitable dropshipping products?

Research, then more research, then a lot more research.

To find a profitable product you need to know the potential competition, what they are currently selling, and what they are selling the product for.

You need to know what areas have problems with no current solutions.

You need to know what products people are looking for and what they are willing to pay.

You need to be an expert so you can identify products that are currently being sold that may be marketed incorrectly. These are the kinds of products you can create an effective advertising campaign to reach the right customers in the right markets.

Take a walk thru your local mass merchant. What do you see? If you just see a big mess of assorted products, you need to look more closely. In a big brick and mortar store, every product in the store is placed there for a reason. Each store is organized by departments, and each department has an employee or staff at the corporate level that is in charge of each department. These are called buyers, category managers, product managers, merchandisers, or some other descriptive term. These are the “experts” that have done their research and determined what should be in the product mix or what should be offered for sale.

You need to develop your research so you become the expert with regards to your chosen product. Research and product knowledge are your strategies.

If drop shipping is so easy and profitable, Why aren’t more people doing it?

Drop shipping is only profitable if you have a unique product or brand name that makes you different from all of the competition.

  • If you are trying to sell by drop shipping the exact same item from the same supplier that many other sellers are buying from you will have trouble being competitively priced. You will be faced with razor thin profit margins. Remember, drop ship suppliers do charge you for their service and they really don’t care which one of their customers makes the final sale. They make the same profit no matter who sends them the order.
  • Also, you need to develop some unique and creative ways to convince the customer to buy from you instead of all of the other sellers offering the same product. If you try and compete on price alone, you have already lost the sales game. Someone else will always be willing to cut their price to compete, and if you are drop shipping and someone else is importing direct and fulfilling orders from their own warehouse, I guarantee, they are paying a lower price than you.

So here are the facts about drop shipping, good and bad:

Pros– Drop shipping makes it easy for you to enter the market. No big investment in inventory, no need for a warehouse of storage space, no need to pack and ship customer orders.

Cons– The same easy entry into the market means that it is easy for ANYONE to start a drop ship business. That means lots of competition on items.

Pros– You don’t have to pack and ship orders.

Cons- You have no control over how fast a drop ship supplier will process and ship your order for you. If a bigger customer comes along with more orders he may go to the head of the line, then maybe your orders gets pushed back and are not shipped for a day or 2.

Cons– Customer service by the drop ship supplier is not controlled. Maybe Gladys in the drop shippers customer service office takes a few sick days. Her job is to send you tracking numbers when the order is shipped. You have advertised to your customers next day shipping. All of a sudden you start to get a lot of customer calls and emails asking for tracking numbers. Your workload just when thru the roof. OOPS.

Cons– Returns. If a customer wants to return a defective product or just doesn’t like what he received how do you handle the return process. Do you accept the return back to your address? Or, do you have it returned back to the supplier and hope the supplier handles it properly. Remember, if you are selling on Amazon or eBay your account can be suspended because of poor service or lots of customer complaints. That would be a big price for you to pay for the convenience of drop shipping since it is extremely difficult to get your account reinstated.

Cons– Passive income. Many people advertise drop shipping as an easy way to make passive income. Let me assure you, drop shipping is not a passive business, no matter how much automation you can introduce in your order handling process. There are still many, many tasks that must be checked and verified. You must make sure your supplier does not run out of inventory. You must make sure your supplier hasn’t raised his price. You must make sure your supplier has actually shipped your orders on time and correctly, and then notify your customer of the ship date and tracking number. You must offer customer service to answer any questions or handle any problems.

As you can see from the list, there are a lot more cons than there are pros, and this is just a simple list. So why don’t more people drop ship? because it is not as easy as many people advertise it to be.

What do you do when you have a great idea but no skills or resources to Execute?

Write your idea down, then develop it into a business plan complete with details and estimates about what you think it will take to get it developed into an MVP.

By writing everything down, you will be forcing yourself to actually think step by step and this will give you a chance to get organized Refine your plan and make sure you include everything you expect to need. Then, redo the plan The goal is to develop your idea to the point that you can actually present your idea logically to recruit a team or attract potential investors.

Since you don’t or can’t develop your app by yourself, the goal is to execute your idea up to the actual point that someone else can build the app based on the framework you have detailed.

Can a small business outsource their marketing manager?

The question is can a small business outsource their marketing manager?  But just as important is the question, Should a small business outsource their marketing manager?Yes, as a small company you can, and many companies do outsource their marketing services.

Yes, as a small company you can, and many companies do outsource their marketing services. You outsource to get access to marketing skills you could not otherwise afford.  You outsource to access part-time “experts” to form and deliver your message.

Just make sure you can clearly communicate your company image and marketing goals to your outsourced manager so you can work towards a consistent company brand, image, and presentation. It was your idea, dedication, and hard work that started the company in the first place and you should have the best input about the direction you want for your company.  Try and maintain a working relationship with one marketing manager and don’t jump from marketing company to marketing company unless you are not getting the results you desire.

One of the most important messages a marketing program can project is consistency and a standardized image in all stages of the company presentation. You want customers to see you as a valued, professional company and a unified look on your website and marketing materials helps to build trust with your customers.

How do I start to import product from China into the USA and Canada?

Over the years I have exported many products to Canada from both China and from the United States. Fortunately, I was over 18 so I never had to face any of the issues you will face. I am not sure about the age of majority in Canada but to legally sign contracts you need to have reached that age. You may need to be at that age to set up an Amazon sellers account, register a business, open a business bank account, deal with Freight companies, and customs agents.

In the US the age is 18 is sign contracts, register businesses and all the other legal stuff you will need to do. The Good news is Income tax laws. In the USA the tax man will take money from anybody, and I would guess Canada will be similar. You will probably need to contact an accountant or Tax attorney for Canada specific regulations.

You want to create your own brand and yes this is legal to add your own label here or have the factory apply for you if the quantity is large enough. With China factories, everything is negotiable based on the quantity of order.

When you import you will have to make sure the product is labeled made in China. Most factories are very aware of this requirement so it is almost a no-brainer. If your laptop bags are constructed of manmade materials there should be no special labeling requirement. If you want to make them out of animal skins, you will need some additional documentation to show they are not made from endangered species skins. Other products like electronics, chemicals, food products, nutritional supplements, children’s toys and clothing, and more, all have must stricter requirements for labeling and certifications.

Product selection.

Do your research and planning carefully. You have mentioned laptop bags. If possible, pick products you have an interest in or are knowledgeable about. This simple step will make it a lot easier to develop unique sales content for your Amazon listings. Your goal will always be to figure out why a customer would buy from you rather than from one of your competitors.

Take a look at the listings of competitors selling on Amazon, you will see product after product being sold using exactly the same sales copy and photos as everyone else. You need to develop a unique look and sales approach to attract customers to your listing. I did a quick search on Amazon CA for laptop bags and there are only 503,901 listings to choose from. Many, many choices and many look very similar to each other.

Use unique high-quality photos and in use photos, Clothes on real people instead of mannequins, Auto parts installed on vehicles, product shots showing the product in use, anything to let your customer see the intended use and the benefits of the product.

Write unique sales copy detailing the product’s features and benefits. How will this product help the customer? What will it do for them? Will it make some part of their life easier or better? Will it solve a problem? Find something to say that your competition does not mention. Always list accessories required to hook up the product, tools required to install the product, anything necessary to enhance the performance of what the customer has purchased. The extra sales you make can make the difference between making a profit on a sale, and making a really good profit on the sale. You can charge a higher price since the customer will hit the buy button based on convenience. They don’t have to order from someone else, the items may help qualify for free shipping, etc.

Vendor selection.

You want to buy from China. There are a lot of options available.

  1. Aliexpress is good if you only want to buy a few pieces at a time. You won’t get the lowest price and shipping may be higher but, if the supplier does rip you off you have only invested a little bit of money.
  2. Alibaba- Many sellers are listed, some are factories, some are only trading companies, simply taking orders for the factories, and shipping to you. Again, for you as a small, newer seller, verification of the seller will be difficult. You pay upfront when you place the order and take your chances about when the product will be shipped, and the quality level you will receive. My recommendation is to hire an inspection service to do a quality check before the merchandise is shipped. If you receive a container load of bad quality merchandise it will be very difficult to negotiate a refund or return privilege to get the problem corrected.
  3. Search engines- You may be able to identify factories from their websites. Similar problems to buying from Alibaba.
  4. Trade shows- This would be my number # 1 choice to find suppliers. There are trade shows available for all types of product categories and located all over the world. Use your favorite search engine to find a listing of trade shows. Most major shows have many foreign factories exhibiting at the shows. These factories are usually very reliable since they do spend a lot to attend and exhibit at these shows. As a bonus, you may find a local supplier available where you can buy smaller quantities as needed to test the market.

Shipping and Customs clearance.

If you are only placing small orders that are being shipped by mail or EMS service, simply ask your supplier to quote you a delivered price to your destination. It is called CIF price and means the cost of merchandise, insurance, and freight.

If you are shipping larger orders by container, it will be best to use a freight forwarder and customs clearance agent. Some companies will handle both these functions, sometimes you will need to use separate companies. The freight arrangements, documents, required, and customs forms will be a little difficult for a beginner.

That is about it for a simple explanation. 500-page Textbooks have been written to cover most of the details and even them not everything can be covered easily.

If you have any further questions, please feel free to ask again.