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  1. #1
    Newbie
    Join Date
    January 17th, 2005
    Posts
    1,537
    If you are a merchant, you need to read a new book called 'The Strategy Game.'

    Basically, the premise is that the Net is doing something of major importance to all businesses - it's breaking down the old guard sales channels and sales chains.

    Because of this fact, merchants will NOT be able to maintain a variety of different pricing structures, channels etc.

    Everything will be a commodity with one exception - information. What this new paradigm does is make the "information supply chain" the only value added way to make money.

    The object for all businesses then is to develop information supply chaind - i.e communities, affiliates, membership groups, etc.

    Here's an example:

    If you look at say Walmart, they have about 3,000 stores and operate off a 25% profit margin using sophisticated inventory control and payment systems to make a profit. It's the Walmart "Information Supply Chain" that gives them competitive advantage not their low prices. They can only sell at lower prices because they have this system in place.

    Everything Walmart sells is basically treated as a commoditiy.

    Online merchants should look at things in the same way. Build an affiliate network where YOUR products and services are treated as commodities and use the affiliates as information providers.

    Ad networks like CJ, Snare and BeScrewed are eventually going to go away because the 30% juice they charge on sales is a transaction cost that limits merchants and affiliate profits.

    Here's how it all will work:

    As a merchant you set up an in house affiliate program - if can be a free program or you can charge a small fee for affiliates to join.

    You treat all your products as commodities and sell them at the lowest price you can with the shipping and profit built in.

    For example: your cost for widget A is X.
    Shipping is $5. You factor in the profit at say $10. So your price is X+$15.

    You pay your affiliate network say $5 per sale on ALL sales for this product.

    Now here's the kicker: Say you have 1,000 affiliates - each one sells 1 unit per month
    on average.

    You make a $5,000 gross profit. If the affiliates increase sales to 2 units per month on average, you increase profits 100% to $10,000.

    The point is that the larger your network, the lower the profit margin you need per sale to profit. Therefore you can and should pay at least 50% of your profit to affiliates.

    The end result you always sell at the lowest price and affiliates make money.

    You work backwards from the price, instead of forward from the costs. You object is to eliminate as many transaction costs in time and money as you possibly can.

    Take a CD for example: Cost to produce $1.50 each. Cost to creator of content $1 each.
    Cost for shipping $1.50. Payment to affiliates $1. Gross profit $1. Total cost of product to customer $6.

    You have covered all the transaction costs.
    So you sell this product at a price competitiors can't match unless they do the same thing you do.

    Our CD is then plugged into our 'information supply chain' of affiliates who tell the world we have this product at this price.

    If you sell 1,000 you make $1,000 profit. If you sell 10,000 you make $10,000 etc.

    And your affiliates make the same percentage profit on the deal as you do. You maximize profits by the size of your 'information supply chain' not by your profit margin.

    Everyone is a partgner in the deal - customers, affiliates and merchant.

  2. #2
    ABW Ambassador
    Join Date
    January 18th, 2005
    Location
    Canada
    Posts
    1,650
    I have one small independent merchant selling an ebook who takes this line of thought seriously. After his costs are covered, I actually make *more* from each sale than he does. Now that's motivating!

    If anyone wants his info, PM me. I owe him some favors!

    Elisabeth Archambault

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