Red Flags of Alibaba Series: #2 When You Get Unusually Low Factory Prices

Mar 11, 2024 | 0 comments

Welcome back to my “Red Flags of Alibaba” series. 

Red flag 2 plays on our desire for a bargain.

Because who doesn’t like a bargain?

Just ask Temu shoppers.

And so, we arrive at the next red flag…

Red Flag 2: Unusually Low Prices

You know that expression “if it feels too good to be true, then it probably is?

Well, Grandma was probably right when she said that.

Lower prices can be a big draw. Especially in the current landscape where profit margins are shrinking. But buyer beware.

There are many reasons behind a low quoted price, some of them legitimate and others not so much.

Here’s what to know:

(A) You may be sacrificing quality

No surprise here, right? Lower prices often mean lower quality.

Suppliers may cut corners to keep costs down, impacting your product’s durability, functionality or look. And ultimately making for unhappy customers.

Do you like horror stories? I don’t, but here’s one anyway:

We heard of someone (not one of our clients) who got a great price on a mug, only to have an inferior clay mixture used, that was significantly thinner than what was agreed upon. To simulate weight, the bottom was hollowed out and a cheap, heavy substance was added. All of this was not disclosed to the buyer and only discovered later.

(B) You may be part of a bait and switch scheme

In this classic play, the buyer gets quoted a great price.

Once they have a foot in the door and time invested, the factory starts adding previously “unforeseen” costs.

Suddenly, that once great quote doesn’t look so good anymore.

Disclaimer: It’s somewhat normal to have costs increase as you refine your design if it’s going to involve additional materials or labour. Just watch out for very large increases.

(C) You are buying overstock or discontinued items

If you are buying something “off the shelf” and not customized, you may be able to take advantage of low prices on products the factory wants to move out of storage.

Just understand fully what you’re buying and get an inspection done to ensure the product is still of high enough quality and condition for sale.

(D) You are talking with a factory that is heavily into automation

This is a perfectly legit reason why your product quote may be cheaper.

A factory with more automation can usually charge less because it spends less on labor than other factories.

(E) Your quoting factory may have lower overhead costs

If sourcing from a factory in regions where rent, wages, and other overhead costs are lower, then you can normally expect a more competitive price.

Just be aware of potentially higher shipping costs to get it to the port of export.

F. You are working with a newer factory

Less experienced factories may provide lower pricing to attract new customers. Even if it means operating at lower margins or a loss.

But is it a good idea to work with newer factories? Read more about this in my post about Red Flag 1.

And stay tuned for Red Flag 3

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