Planning for Success
New Product Price and Demand Research
By Steven Pollack
Mar 12, 2006, 18:51

It is often said in retail that money is made when buying, not when selling.  The truth of this statement can be broken out into two separate parts.  The first and most obvious issue is that the price you pay will determine to a large extent the price you charge.  The better you are at buying low, the better prices you can offer your customers and the more sales you will make.

The second part of buying is figuring out what the demand is for the items you are considering and knowing at what prices they are selling in the market.  This data is very hard to come by and most retailers will simply use anecdotal evidence for demand and competitors list prices as an indication of market price.

The first time a customer comes in and asks for something you do not carry will make you wonder if it is an item you should stock. The second time a similar request cannot be satisfied most retailers will break out into a panic to get the item in stock thinking a new trend has emerged and the store is losing out on potential sales.

The problem with this method is that a few requests may indicate nothing more than a competitor taking out an ad in the paper.  The trend may be very short lived and not support you adding three new styles with a dozen of each for back stock.  So how do you know how much demand there is and at what price points?

Data Mining Online Marketplaces

One of the best ways to find this data is to search closed transactions on eBay.  You will need to have an account to access this data. 

In order to do this you simply search for an item such as leather bar stool, garnet pinky ring, or whatever your particular inventory item is.  After the search comes up check the box on the left for completed listings.  This will pull up all the closed transactions for the past few months for that search result. 

You can quickly scan the pages to see what percentage of the items sold because the prices of the sold items show up as green while the unsold item prices are red.  This will give you an immediate sense of whether a high percentage of the listed items sold or only a few.  After determining if the sold item is sufficiently similar to your item you can analyze the prices achieved for the items you plan to introduce.

A few caveats about this method of price and demand discovery.  eBay is a market unto itself and the prices tend to be lower than what you can sell for in a retail store for several reasons. First, many people tend to be more comfortable buying local, if only for convenience.  Second, you need to look at the entire price on eBay including shipping because you will not need to ship out of a physical location.  Finally, you are more likely to market the goods in a way that creates perceived value whereas many sellers on eBay simply list a few lines of description and several paragraphs of seller policies.