Product Research: Drop Shipping Basic Principles

Why? Because what sells well is whatever is in high demand and low supply, and in retail, the supply and demand changes as often as the tides.

Instead of telling you which products to sell, we would rather empower you to discover products on your own - products that you can most effectively market. To achieve that goal, this tutorial presents four articles that reveal basic research principles and techniques.

Learning to fish

An old Chinese proverb advises, "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime." Admittedly, this adage has become cliche, but it serves as a perfect summation of the need for acquiring product research skills. Doba can tell you what to sell today, but what you can sell today for a profit, you may have to sell tomorrow at a loss - if you can even sell it.

Doba wants to "teach you how to fish," so when customers aren't biting on your current product line, you can quickly change the bait.

Applying the laws of supply and demand

Anyone who's grown up in a capitalistic society knows the laws of supply and demand, but you may not know some of the nuances. The following list explains the basics, variations on the laws, and how to apply them to running a retail business:

* Cashing in on high demand and low supply: When a product that everyone wants or needs is in short supply, it's easy to sell a lot of the product for a high price. Just look at the price of gas.
* Going bust with low demand and high supply: When the market has a surplus of a particular product—way more than anyone wants or needs—competition heats up and prices drop, so retail merchants make little profit selling it.
* Holding steady with a moderate supply and demand: When a market levels out, you can make a decent profit even if the market has sufficient supplies to meet demand.
* Creating a need or want: If you have a lot of capital and marketing resources, you can create a need or desire for a product. Think "pet rock," "microwave oven," or "dishwasher." Nobody needed that stuff when it first hit the market, but eventually, through commitment and savvy marketing, those products became popular. Most retail merchants don't have the capital or resources to build a market from scratch, but it can be done.
* Creating a shortage: Just as someone can create a demand, someone or some event can create a shortage. For example, a major oil supplier can close the taps on its oil pipelines to raise the price of gas. Again, this probably isn't within the realm of the average retailer.
* Increasing demand through marketing: Although you may not have the resources to create your own national or global market for a particular product, you can increase demand (on a smaller scale) through effective marketing campaigns and excellent customer service.

Focus on products that are in moderate to short supply and moderate to high demand. Remember the following formula:

high demand + low supply + marketing + customer service = profitable sales

Using turn-key market research solutions

Several paid services and tools promise to help retailers determine demand for different sales venues. We've tried some of these "turn-key" solutions and haven't been too impressed.

Scott Adam, author of the Dilbert comics, summed up our feelings about turn-key market research solutions in The Dilbert Future : "There are many methods for predicting the future. For example, you can read horoscopes, tea leaves, tarot cards, or crystal balls. Collectively, these methods are known as 'nutty methods.' Or you can put well-researched facts into sophisticated computer models, more commonly referred to as 'a complete waste of time.'"

Putting supply and demand in perspective

Although the laws of supply and demand generally govern the marketability of a product, they're not the sole determining factor of whether a product will sell at a good price. Use supply and demand as one piece of the research puzzle. The best researchers not only have a clear estimate of the demand for their products, but they also know who is demanding those products. They know their customers, and they have an accurate assessment of their ability to market specific products to these customers.

Estimate the actual market for a product, guesstimate the potential market, and know why the people in your market want or need (or may want or need) the product, so you can choose the right product and then effectively market it.

Studying the competition

In any competitive arena, you gain an edge by studying your competition. In the retail business, you can learn a great deal from other retailers who sell the same or similar products:

* How readily available the product already is (supply)

* The prices that other retailers are charging for the product

* Where other retailers are trying to sell the product

* How other retailers are marketing the product

* How other retailers might react to a new competitor

Gaining marketing savvy

As you study your potential competition, take note of how they market a particular product and ask yourself how you can incorporate their best ideas into your marketing strategy. Copying exact text or images from a competitor constitutes copyright infringement, which is illegal, but copying best practices and business methods from several competitors is competitive intelligence and is considered smart business.

Competing on more than price

Don't succumb to the common temptation to battle your competition by lowering your prices. Focusing solely on price often delivers negative results:

* Lower profit margins for you

* Price wars that lower profits for you and your competitors

* Missed opportunities to sell products for a higher price than your competitors by marketing your products more effectively

Making a time commitment

Doba carries a wide selection of products, some of which sell well at a good price, and some of which don't. Finding potentially profitable products requires time and energy, especially when you're first getting started.

By keeping the laws of supply and demand in mind, you can weed out low-profit-potential products. For example, the first items many novice retailers want to sell are DVD players, but while demand for DVD players is high, supply is even higher. This results in stiff competition, which leads to low profit margins. We're not saying that you can't make money selling DVD players, but the surplus makes selling DVD players more difficult.

By checking the item's wholesale cost to you and its selling price on eBay and other webstores, you can quickly determine if the item is worth selling.

How much time is enough?

Dedicate at least two hours a day for an entire week to product research before attempting to sell anything. If you do that, you will find a good selection of products to start selling.

Expecting a few duds

According to renowned scientist Marston Bates, "Research is the process of going up alleys to see if they are blind." In other words, in the process of finding good products to sell, you'll run into a lot of "blind alleys" and discover an abundance of products that won't sell well for you. Don't give up just because you hit a few dead ends, and don't quit even if the first few products you pick after researching don't sell well.

Research takes time, energy, and determination, especially when you're first starting out. If you keep at it, you'll discover that finding potentially profitable products becomes easier and your business becomes more profitable.