Peter Zapf of Global Sources has 15 years' experience of sourcing from his hot seat in the action in Hong Kong.  He spoke with me at the end of March about all things China Sourcing related. In Episode 34, he discusses tactics. But in this half of the interview, he discusses some big picture strategies with huge implications. Required listening for the ambitious Amazon Entrepreneur!

SHOW NOTES FOR EPISODE #35

1)      Product strategies: 

a.       commoditized light vs. differentiated heavy 

Many people are using the same Criteria for product selection,  e.g., light, small, can be air freighted, etc.

The problem is that if everyone uses the same product criteria, you end up with huge competition.  Yes, they’re easy products to start with, but the space ends up crowded.

There is  nothing wrong with starting with RA (retail Arbitrage)  or commoditized products - it’s a great way to learn about importing, working with Chinese suppliers, creating a product listing, PPC (Pay Per Click) advertising etc.  It just doesn’t seem like a long term business to Peter.

If for example you choose large, heavy products, you have to use ocean shipping, which means there currently is a lot less competition.

You’ll order need to place a larger order to make the logistics make sense.  So there is more capital needed upfront and it is tied up for longer sitting on the ocean.

These are problems to solve but they are also barriers to entry.

  Your own design is the next step as an even bigger barrier to entry.

In retail Arbitrage, you’re competing for the buy box with the exact same product.

With private labelling, at least you are not competing for the buy box. But If the supplier designs the product, you are competing for ranking with essentially a commoditised product that others can sell.

Your design will protect you more from the competition if it is harder to copy. For example, a longer or thicker yoga mat is not a very hard difference to copy.  Often this depends on the amount of money you have or are prepared to invest.

If you need for example to use a designer, get regulatory compliance checks done, use lawyers and legal contracts with manufacturer, the supplier needs to make a new mould…this all adds to the cost and complexity and makes it harder to duplicate.

This then becomes more about how to minimize your upfront risk. Say if you create 8 new products, how can you set things up such that you only need 4 to succeed to break even, rather than say 5?

There was a famous example of a company called “Quirky” which went out of business recently.  They spent $400,000 ( http://www.theverge.com/2015/4/24/8488531/quirky-invention-powered-by-quirky) designing a blue tooth speaker - and then sold 30 units!!

Trademarking and Patent protection can be complex.

But Trademarking is much easier, faster and cheaper than patents. It might be that you can get a U.S. trademark something for a few hundred dollars. Worth checking with a company like Legal Zoom. 

How to minimize your risk/reduce costs

Think about reducing supply chain costs:

  Logistics:  use ocean shipping to improve your price competitiveness (or have more margin to put into advertising).

How can you fill a container to make the max use of the space?

Can you spend $200 to have the pallets of goods delivered from US port to an Amazon warehouse in California rather than $hundreds to go across the US?

Reducing supply chain costs by removing a step:

Flexport recently explained to Peter there are two options: