Competition is the essence of commerce. The only way businesses get stronger and customers benefit over the long haul is if there is competition to do things better, faster, or at lower cost. All that businesses can or should ask for is that the rules of competition are fair to all parties.
The current debate over collection of sales taxes for online purchases is a perfect example of fairness in competition. Current U.S. laws dictate that sales taxes are only collected in states where an online business has a physical presence. The proposed Marketplace Fairness Act legislation would require collection of sales tax for all Internet purchases – a scenario many e-tailers feel would be ruinous to their profitability.
I work for the daily deal website 1SaleADay.com. Imposing sales tax for online purchases will help not only our business model but also, over the long haul, that of all e-tailers. And here’s why.
If a Tomtom GPS sells for $100 at Walmart, it would probably be listed for $80-90 on Amazon. When you factor in mandatory sales tax, an Amazon customer will be paying an average of 8.629 percent sales tax, making the cost dangerously close to Walmart.
Yet discount daily deal websites like ours would sell the same GPS for $39, which would make the deal more attractive even if the consumer pays that extra 8.629 percent. Conventional online prices will be comparable to brick-and-mortar prices – but the pricing advantages of discounted deals will still be significantly more competitive than brick-and-mortar.
Price points separate daily deal sites like 1SaleADay, Fab and Woot from Amazon and eBay (News - Alert). Before we list a product on our site, we comparison shop it with online retailers to ensure our deals are significantly less than what consumers can find elsewhere online.
It may be worthwhile for a consumer to buy at Walmart instead of Newegg because Walmart’s prices will be competitive, but daily deal prices will still consistently beat bricks-and-mortar ones. Comparison shoppers will be compelled to find the better deals online. Those deals are the daily deals.
How are daily deal sites able to offer better prices than both bricks-and-mortar and conventional online retailers? Selling fewer products in greater volume is the key. The more quantity one buys, the better deals the customer gets and, in turn, the cheaper e-tailers can resell.
Other kinds of e-tailers find different formulas. Newegg, for example, sells thousands of different product SKUs, which does not allow for high volume purchasing. Although it drives more overall sales when compared to daily deal websites, it sells less of individual products, which is why their price points don’t match the daily deal model. And yet the company satisfies customer needs.
The point is, the burden of implementing tax-calculating software will be initially painstaking and costly for online companies. But in the long run, e-tailers of all stripes will, by the nature of business, find new ways to compete. Daily deal sites like ours have a formula that allows us to effectively compete with the megasites like Amazon, eBay and others. If we can take on these well-known names and win, surely all e-tailers can find ways to remain competitive – even in an era when sales tax collection becomes mandatory.
Eliyahu Federman is senior vice president and CCO of 1SaleADay.com.
Edited by Stefania Viscusi