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A new old approach: Online category killer
DeepDiscountDVD.com revives an old online retailing idea: focus on one product and sell it for less than anyone else.
We’ve heard this before: launch a web store, specialize in a commodity product priced 30% below retail, and make free shipping standard. It’s a business model that has kept other web merchants in the red and blown several into oblivion, but it seems to be a winner for DeepDiscountDVD.com.
The Itasca, Ill.-based web store has shipped some 250,000 DVDs since it launched last February-at a profit, says David Barker, director of e-commerce, though he won’t say how big a profit. The site has just beefed up server capacity to handle the holiday spike and expanded its inventory to include virtually all of the 9,000 DVD titles now available (with the exception of adult titles).
“There’s plenty of room to take on new customers, there’s no big number two in DVDs behind Amazon,” points out Barker. It doesn’t seem to make sense to go after the number two spot with the kind of formula that hasn’t even worked for Number One yet, but there’s more to DeepDiscountDVD than meets the eye. It’s a division of Infinity Resources, a private company that’s also a cataloger with a fulfillment operation which uses its excess capacity handling orders for others. Infinity’s flagship division, Critics Choice Video, a catalog and web site, was recently acquired from Playboy Enterprises Inc., and as part of the deal, Infinity still does all fulfillment for Playboy.com and other Playboy catalogs.
“Adding the new customer base drives down the cost per order for the whole building,” says Barker. With the fulfillment operation in place, a web site built at a cost of less than $100,000, and marketing and hosting costs kept to under 10% of revenues, DeepDiscountDVD.com has made a positive contribution to Infinity’s revenues from the beginning, he adds.
Free standard shipping is built into the cost structure: the company uses an inexpensive USPS service called Media Mail. And the company’s best advertising so far has cost nothing: it’s the buzz about the site in DVD chat rooms and demand from new owners of DVD players on a buying spree.
Indeed, with sales of DVD players at 20 million worldwide over the past four years, consumers have embraced DVDs at a faster rate than any previous consumer electronics device. “We know this growth rate is going to level off, but as long as it continues to make a positive contribution, we’re going to run this business,” Barker says. “We’re looking at the long term.”