eBay for System Builders, Part 1

In this TechBuilder Recipe, I&ll detail strategies that can help you become more competitive by using eBay and other auction sites effectively. I&ve included sourcing tips, such as how to source on eBay and through foreign manufacturing companies. I&ll also provide marketing strategies that will help you get the most profit from your sales.

Developing a Niche

Let's first focus on market niche and product differentiation. Let&s face it: Tier-one computer vendors are probably going to beat you out on price. HP and Dell, to name just two, already have in place distribution agreements and conduct volume contracts that lock in low component sourcing prices. You'll have a hard time beating that. But you can develop a profitable business niche by learning to differentiate your offerings.

To do that, it helps to become familiar with an important auctioneering term: scarcity. All things being equal, scarce goods sell for a higher price than less-scarce goods. That doesn't mean, however, that you always have to buy scarce goods at a high price. Some vendors offer scarcity by knowing a particular customer niche intimately. Because they&ve established an inside track, they cater to a narrow set of needs and deliver superior products and services. Others have developed a niche based around service. Since they ship faster or provide onsite service, some customers will be willing to pay more for those kinds of services.

A handful of system builders excel by offering deep expertise in their particular fields and by providing extensive education to their customers. A recent CRN article attests to this: A few savvy system builders have varied their products to fit specific customer verticals. The firms cited are successfully building custom systems for big hospitals, schools, and real-estate agencies because they&re intimately involved with the needs and requirements of these clients. They know what these customers want because they&ve taken pains to develop their niches.

It pays to differentiate your offerings effectively, the way these companies have. If you can successfully differentiate your offerings, you&ll be way ahead of the pack.

The eBay Connection

Even with differentiated products, you&ll still need to buy low to maximize your profits. So where do you find components at prices similar to those that Dell, eMachines and others enjoy?

EBay is a great place to start. If you&re currently buying components at Best Buy, CompUSA or Fry&s Electronics, you&ll be surprised at the bargains available on eBay by comparison. Let&s say you&re building Wi-Fi PDA systems for a real-estate agency with mobile capabilities. You can buy Wi-Fi PC cards on eBay for far less than you'd pay at Best Buy, CompUSA or Fry&s.

Online Overseas Sourcing

You can also venture deeper into the sourcing world and buy components on overseas sites such as Alibaba.com, which had a big presence at the eBay Live trade show in Las Vegas this past June. Essentially, the site connects you with overseas and Chinese manufacturers so you can lower your sourcing costs.

Alibaba.com bills itself as the “world's largest online marketplaces for both international and domestic China trade,” and they&re not just talking through their hat. In August Yahoo shelled out $1 billion for a 40 percent share in Alibaba. The partnership will likely challenge both eBay and Baidu.com, a Chinese search-engine firm, for online-auctioneering market share. What's more, system builders can source goods through, say, China at very low cost, and then resell them on eBay. I took a spin through Alibaba&s site and found a wide range of technology manufacturers and categories to choose from which would be of interest to a system builder. For example, the site has product/manufacturer categories that include computer hardware components, computer peripherals, and computer software. Those listings alone contain more than 10,000 different products, along with contact information for each manufacturer.

There are a few other avenues to explore for overseas sourcing. Google search on "product manufacturing sourcing," and you'll come up with several other China-based outfits. If you decide to go this route, however, be aware that some overseas companies could possibly be flaky at best, or scams at worst. Do some research to make sure the outfit you&re interested in is legit. Marketing Strategies

To increase profit, you need to buy at the lowest possible price, then sell as high as you can. Again, it only sounds easy.

Most reasonably experienced resellers can buy at low prices. There are resources that can assist you in finding out if you are actually doing that. For example, eBay gives historical data on past pricing. So, after a search for a particular item, check the “completed sales” checkbox in the left-hand column to analyze historical prices. This helps you track the lowest prices and also see what the general market is paying for a particular item.

But to make the big bucks, you&ll need to deploy three fundamental marketing strategies:

• Sell value
• Differentiate your products from those of your competitors
• Use persuasion techniques at the point of sale

Let's look at each strategy in more detail:

1.) Sell value: This means you should base your price on the benefits offered to the customer, rather than on the price you purchased the equipment for. You build up that value to extend your margins. For example, if you sell a real-estate client a custom Wi-Fi PDA system with pre-installed real estate listing-tracking software, you&re offering unique value to a well-defined market. You may not have to compete on price alone, because you could be the only supplier in your area offering this, and/or the only supplier providing local support.

2.) Differentiate your products: You may not even have direct competitors because of the niche you&ve developed. However, if you do have direct competitors and there&s no way of breaking away from the pack, you can differentiate in other ways to turn a profit.

For example, you may be the fastest, most reliable shipper in your market. Or you might consider offering free white papers to customers. Or you could simply help customers to conduct their business more productively or intelligently. If you act as an information resource and educational partner, you&ll develop strong return business and excellent rates of referral.

You can also develop closer relationships with customers, eschewing the typical mass-marketing approaches of impersonal e-mails and Web forms. You&d be surprised how many people value direct human contact, whether it&s on the phone, in person or through a VoIP service like Skype.

3.) Use persuasion: At the point of sale--whether it&s the result of a Web form, brochure, direct mail, or radio or TV campaign—you need to actually close the sale. Consider offering bonuses, cross-sells, up-sells and strategic discounts. Companies that do these invariably outsell their competitors. On the other hand, those companies that low-ball by constantly trimming profit margins commoditize the market and can eventually price themselves right out of business.

Further, think about starting an e-mail newsletter or setting up a blog site to keep prospective customers aware of your company&s latest developments. Another option is adding zero or low-cost premiums, or using quantity discounts to get buyers motivated.

Also strive to develop a unique brand. Whenever you have a chance to communicate with your customers—whether through your product packaging, customer-support e-mails, or over the phone--reinforce your message. For instance, if you&re the fastest shipper, state that fact in all your communications with customers. Or, if you offer high-quality engineering, hammer that message home every chance you get.

Remember: To win in this system-building game, combine sensible sourcing, unique product/solution positioning, and aggressive marketing techniques. That's a combination your competitors will find hard to beat.

This is Part 1 of a two-part Recipe. Part 2 shows how to find PC components on eBay at rock-bottom prices: eBay for System Builders, Part 2.

PHIL DUNN is a writer and strategic consultant. He is co-author of a new book, The 7 Essential Steps to Successful eBay Marketing (McGraw-Hill, 2005). Phil also writes the EBay Markeing blog and Marketing Writing blog.