How are online stores able to give a discount or coupons on a product?

Question

why are things cheaper on the net...i mean same costs would be for company to transport things and stuff directly to the customers as compared to distributing thru local distributors....
or even more....

Answer 1

Best to answer this question if we look at an example. Let's suppose that we are in the business of selling surfing themed T-shirts. If we are a small (or even a medium sized) design shop the following is a description of our supply chain. [def: A supply chain is a coordinated system of people, activities, and resources involved in producing & moving a product from supplier to customer.]

We design the shirt's graphics which are then replicated by the manufacture onto the desired quantity of shirts. These shirts are then all shipped to a 'pick-n-pack' facility that serves as our agent warehouse. As we receive orders the pick-n-pack facility pulls the goods required to fill each ratailer's order and ships them to the prescribed location.

Now that we have a general feel for the production process we can look at the item costs and mark-ups. In retail the typical mark-up (http://en.wikipedia.org/wiki/Markup_%28business%29) imposed by each independent handler is 100%.

Now for the numbers. In our simple case there are two independent handlers, ourselves and the retail store. If the design. manufacturing, and warehousing cost for each t-shirt is $8 and we want to make a 20% margin we need to sell them for $10 each. In the traditional model we sell to the retailer for $10 and they mark it up 100% ($10) to cover thier costs and desired profit. The final price the consumer pays is $20.

If we decide to sell directly to the public we may have to pay the pick-n-packer and extra few dollars, for example purposes let's say $2. The total cost for the product is now composed of manufacturing, warehousing, and any incrematal marketing/sales that is required to connect directly with the consumer (say $2 per shirt). The total cost is now $8+$2+$2=$12. Adding in our desired margin of 20% we can sell the t-shirts for around $14.50. As you can see if one can go direct they can capture more profit and sell for less than the traditional channel model.

Answer 2

Well, the distributors or retailers get the products from company which has an edge to sell directly to the customer. The company if sells through a retailer sells first to distributor who will have his margin added, then to retailer who will earn his margin as well. So if the company sells directly to the end-customer this saves the profit margin added by the distributor and the retailer and therefore the prices are lower as compared to the retail shops.

Answer 3

I don't think things are CHEAPER on the net. It is often the same price. The online stores still need a building to house the merchandise. They need employees to man the orders etc.

Answer 4

Much depends on what stores you are talking about. Off-line stores can give discounts & coupons too - & usually do more than online stores.

Answer 5

They don't have to pay the rent on a store. Also often they order the merchandise when you buy it and then have it drop-shipped to your address by the manufacturer - so they don't have inventory and packaging costs.

Answer 6

Because it is harder to by it on the net.

Say Horgy Shmorgy.