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One of the best ways to spend money
promoting your Web site is to lower your prices. You can't lose. When you spend money on a banner
ad, you have to pay for everyone who sees it, whether they buy
anything or not. But when you "spend" money by charging less, you
only have to pay for the people who actually place orders. So you
never pay for this form of promotion unless it works.
Security concerns are not what prevent people from ordering online.
The real problem is that online shopping is just not a regular part
of people's lives yet. Most people have a collection of physical
stores and mail order catalogs that they buy from regularly. But
online shopping is so new that most Web users haven't yet found
their regular Web stores.
This is good news for you. It means that there is room for you in
their list of regular online stores. But you need to nudge them
into ordering from you, if you want to become part of their regular
routine. And there are few more effective nudges than the prospect of
getting the very cheapest price for something.
The emotional satisfaction of getting
something at the cheapest price is almost like a drug. People will
go to any length to get it. If you want to see online commerce
happen, take some commodity item like a Sony Walkman and offer it
for sale on the Web for $10 less than people can get it anywhere
else.
It will be worth it, believe me, if you can establish yourself as
one of everyone's regular stores. Amazon Books has done that, and
now they have every prospect of being the place to buy books
online. If Borders and Barnes & Noble
are not panicking, they should be. They waited too long. Someone
else has occupied the space they thought was reserved for them,
and it's going to be very expensive, and perhaps even impossible,
to dislodge them.
If you use lower prices to make your site a habit with some group
of consumers, you can likewise lock up a valuable piece of real
estate. (Hint: start today.)
Lowering prices is not just a good trick to jump-start sales.
It also makes economic sense in the long run. It's much cheaper
to sell on the Web. If you split the savings with the consumer,
you both win.
Many Yahoo! Store users are catalog companies, and they tell us it costs
between 40 cents and a dollar apiece to print and mail catalogs.
The percentage of people who order from your catalog is called the
conversion rate. You're lucky if you get a conversion rate of 3%.
A 3% conversion rate means that 1 person out of 33 orders. So that
1 person has to pay for printing and mailing 33 catalogs! If the
catalogs cost 70 cents each, that's $23 right off the top of the
order.
Under conditions like these, it is a testament to the drive and
ingenuity of the catalog companies that they can make a profit at
all. And those who do make a profit are totally at the mercy of
postal rates and paper costs. If you can convert a substantial
fraction of your consumers to the Web, you can not only increase
your profits, but also decrease your vulnerability to factors like
paper costs, which are outside your control. From this point of
view, lower prices are a strategic investment.
Text copyright © 1999 Paul Graham. Feel free to reproduce any of this text on your own Web site, so long as you reproduce it verbatim, and include this message. For any other use, please contact the author. Yahoo! and Yahoo! Store are trademarks of Yahoo! Inc. All other trademarks are the property of their respective owners.
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