The Lessons Learned from My Kids’ Lemonade Stand

Posted on November 9, 2008. Filed under: eBay | Tags: , , , |

My kids, age 8 and 10, are budding entrepreneurs.  They work for us at our family-owned business and they are always excited at the number of video games they can purchase with the money they earn.  My kids have listened to their parents talk business at various times and places — at the dinner table, while driving in the car, and while cooking dinner.  And, surprisingly, our kids ask questions sometimes as they seem genuinely interested in knowing how our business works and why we make certain decisions.
Not too long ago, as we were preparing dinner one night, we were discussing our Amazon selling experience and the kids were listening to the conversation as they were setting the dinner table.  We have been very successful selling on Amazon, becoming a featured merchant in just a few short months and, yet, we have noticed that recently several former eBay sellers had begun offering their items for sale on Amazon.  We have watched with interest as these new Amazon sellers continually lowered their selling price and yet we have continued to successfully sell the same item at a higher price.  One of our children asked a question and we could have tried describing the 4Ps of marketing to them -product, price, place, promotion – to explain why we have been able to sell our items at a higher price (note: see wikipedia’s definition of marketing mix by clicking HERE)
We told the kids to imagine they owned a successful lemonade stand, selling lemonade for $1 a cup, that was located out in our front lawn.  And then we told the kids to imagine that their friend, who lives two doors down, opens a lemonade stand and began offering lemonade for 99 cents a cup.  We asked the kids how they would react.  Now, you would expect kids to say something like “Let’s lower the price” but instead my kids started brainstorming and came up with some other ideas:
1. How about increasing the variety of lemonade we offer?  Instead of just regular lemonade, let’s also offer pink lemonade and sugar-free lemonade also.
2. We could offer a “frequent buyer” reward card.
3. How about making Tuesdays, our slowest selling day, a “Buy a friend lemonade day” for an entire month where we give out one free lemonade with the purchase of another lemonade.
4. We could offer a discount to customers who bring their own cup, instead of us having to use a disposable cup, so that we are helping the environment at the same time.
5. What about selling homemade cookies along with the lemonade?
We then asked the kids what they thought would happen if they were to lower their price to 95 cents a cup and they responded right away that the neighbor’s kid would probably lower her price, too.  We then talked about the consequences, both short-term and long-term.
Now, my kids are smart and they “get it”.  Price, although important, is not the only thing that most consumers consider when making their purchase.  And any business person who focuses only on price, and who continually lowers their price to make a sale, will not be around in the long-term.  It is easy to lower your price to get the sale; it is not so easy to think of ways to offer the same product in a better way or to provide better customer service without increasing the overall costs.
eBay sellers know that you can drop your price and steal some sales away from your competitor.  But on Amazon, dropping the price doesn’t necessarily lead to increased sales.   There are many reasons, but mainly the “Place” portion of the marketing mix is so strong for the Amazon marketplace.
eBay is advertising that they are the “cheapest” place on the internet to buy items and that is what eBay wants to focus on – being cheap.  I do acknowledge that one marketing strategy for a business is to be the low-cost leader and Wal-mart is proud to offer “low cost” on items.  Of course, Wal-mart can successfully employ that marketing strategy because of their buying power, which is enormous.  Wal-mart can and often does dictate to the manufacturers the price they will pay for an item which is often significantly lower than anyone else and this gives Wal-Mart a competitive advantage.  But, even then, Wal-mart is “low cost” on some, but not all, things they offer for sale. 
eBay can never hope to be the Wal-mart of the internet for many reasons but, where sellers are concerned, there are two main reasons.  First, eBay sellers in the aggregate may sell huge amounts but individually sellers can never hope to get manufacturer pricing anywhere near what Wal-mart can and, thus, they cannot pass along savings to customers like Wal-Mart can.  Second, selling on eBay is incredibly expensive both in terms of the time it takes to list items on eBay and to service eBay customers as well the monetary cost to sell on eBay and, therefore, eBay sellers cannot afford to offer the lowest prices with such high costs to bear.
So, if we know that eBay cannot employ the low-cost leader strategy successfully then why are they trying to force it to happen?   Because it is simple, that is why.  It is easy for eBay to attempt to force sellers to offer low prices and free shipping to rise to the top of the Best Match search and it is easy to throw discount coupons at buyers to entice them to buy on eBay.  eBay is known for taking the easy road and they also have the reputation of forcing sellers to pull up the slack when the real work has to be done.  As an example, it was asked of eBay several times how they planned on taking responsibility for the Paperless Payments Policy and not put the burden on sellers to have to inform and educate buyers and many times eBay stated that they would make sure to let buyers know that checks and money orders were not allowed on the site anymore.  However, I have yet to see that happen despite the check and money order payment option already having been removed from the Sell-Your-Item form.  There have been no emails to eBay buyers , much less an education program, to let buyers know about the many changes to the site including the Paperless Payments Policy.  Once again, the hard work is left to the sellers while eBay takes the easy road.
Unfortunately for eBay, while they are busy trying to transform themselves into the next Wal-Mart of the internet, the number of competitors is increasing and those competitors are busy developing a unique strategy.  Amazon provides quality service, Etsy is “the” place for handmade items, is an up and coming site, and Bonanzle is quickly on its way to becoming the place to locate special and unique items on the internet.  There are, of course, many more sites competiting with eBay.  What makes eBay unique now?  What sustainable competitive advantage do they have?  Those are questions that eBay needs to answer quickly.  Perhaps eBay could visit my kids’ virtual lemonade stand and mull things over while they enjoy a cool refreshing drink and a homemade cookie at an affordable, but not cheap, price.

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7 Responses to “The Lessons Learned from My Kids’ Lemonade Stand”

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The price game is so tough to play these days.

Brews – as usual, you hit the nail right on the head…BUT will Ebay read it and if they do read it do you think they’ll listen? Such has not been the case so far and literally thousands have posted how adverse they are to Donahoe’s disruptive new policies and the way they are forcing sellers to offer free shipping and take only paperless transactions. Its almost as though they are completely oblivious to the way that site is viewed today – they are numb to any change and feel they are still the only game in town..take it or leave it. Its truly sad. I can only hope the present management is swept out before Ebay is completely destroyed.

The famous “race to the bottom” no one wins this one in the long term. But while ebay continues to attract a stedy stream of busy fools it will continue.

The smart one’s will move elsewhere, the busy fools will eventually go bust and wonder why.

Stop and think for a moment just how much extra stock you could have bought with all those eBay fees.

No matter how clever you are at marketing, nine times out of ten when you sell on ebay or you’re a third party seller on another site cheapest wins. On your own web site marketing the way you’ve mentioned can and does work, with eBay there’s very limited scope for it no matter how clever you are and the way things are going even that will reduce.

Brews, it’s not just your kids, you’ve ‘got it’ too, and you’ve taught your kids well. Fantastic article. Thanks.

Judy, thank you so very much for the compliment. How very kind of you. 🙂

[…] wrote a blog post titled “The Lessons Learned From My Kids’ Lemonade Stand (click  HERE for that article) where I described what I thought about eBay’s attempt to become the […]

[…] – a very late in the day find on The BrewsNews – in a post about what they learned from their kids and a hypothetical lemonade stand in the front garden (emphasis is mine) – eBay can never hope to be the Wal-mart of the […]

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