217-A Pricing Scheme Guaranteed to Fail

There is a new gift card brokerage product coming to the online market. It’s called CardWoo.com. This company buys your unwanted gift cards at a discount. You mail in your card and they will send you a check for it. The amount of the check, as a percentage of the card value, is not stated in their online information. You, then, have fourteen days to decide whether to accept the check or send it back and get your gift card back.

The problem comes on the other side of the deal. CardWoo then takes the cards it buys and resells them online. The problem is their discount. Most of these cards have face values of $10 to $75. The majority seem to fall in the $25 to $50 range. The discounts CardWoo offers the purchaser of the card range anywhere from 0% (why would anyone do that?) to 5%. 5% of $50, the higher end of most of the cards, comes to all of $2.50. This discount is far too small to really attract many customers. (See “Audio Tip #143: Offensive Pricing Guidelines” on StrategyStreet.com.)

We have looked at more than 800 examples of discounted products. The median discount offered in a marketplace is 25%. 75% of discounts are 10% or more. CardWoo’s discounts are far too low to attract a mass audience. (See “Audio Tip #137: Price Shavers and Their Pricng” on StrategyStreet.com.)

Posted 10/4/10

Update:

CardWoo no longer offers the gift card service. A competing company, GiftCardRescue.com, which was a Shark Tank winner, offered a similar service. It was forced to close down after eight years in business with $12 million in sales in its last year. It was never profitable. Setting a price for a new product can be difficult.  Sooner or later , the price will reflect the costs of the product. In the early stage, a product may have a very high price until competition emerges. In both of these gift card cases, the product price was far below the true cost of providing the service. See HERE and HERE for more perspective on pricing.

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