Original Equipment Manufacturer, or OEM, products are sold by manufacturers to dealers, who resell them to retail customers. These products are shipped from the manufacturers without some non-key components such as instruction manuals, packaging, or software. This reduces the cost of the product drastically compared to retail products.
The Business Opportunity
Buying and selling OEM products offers a great business opportunity. After buying the products directly from the manufacturer, the dealer then performs a value addition process whereby the product is made ready for the retail market. For example, a reseller can add value to a computer product by installing new software on it. Other resellers add accessories to enhance customer appeal, print out and insert instruction manuals, or enhance the products’ packaging. The dealer then resells the items at the current market rate. The difference between purchase cost and market cost is the reseller’s profit.
Evaluating the Market
Selling OEM products requires more investment than other reseller marketing plans. For one, you need to order merchandise and store it, as opposed to drop shipping, in which a reseller has products shipped to customers directly from the manufacturer. This involves greater cost and greater risk, particularly if you are unable to sell all your stock.
To avoid risks and eliminate unnecessary costs, value added resellers must assess the market before ordering products. In particular, they need to find answers to the following questions:
• Is there considerable demand for the product?
• Can I buy the products at a low cost?
• What is the manufacturer’s minimum wholesale order?
• Can I move all my stock?
• Can I maintain a good profit margin?
• Do I have the required expertise for value addition?
• How much will I need to spend on value addition?
Avoiding Common Mistakes
Reselling original equipment requires considerable planning. The reseller must also have the skills to add true value to make the product attractive to consumers. For this reason, most resellers specialize in computer-related products. It is easier to add simple software or code to a device than to invent in the manufacture of accessories for the product. If a reseller has expertise in creating software, then he or she can add value to the product at little cost.
This does not mean that all resellers should buy and sell computer related products. The wrong niche can doom a business before it takes off. Value added resellers must select products with which they are familiar and can “tinker” with without damaging. The product should also bring in enough profits to cover purchase as well as value addition costs. It also helps if they enjoy working with the products.
Besides computers, laptops, and accessories, resellers can trade in electronic goods such as digital cameras, Bluetooth-enabled devices, and e-readers. Car accessories are also popular. A very lucrative product niche is the medical products market. However, owing to stringent standards, it is important that only people with knowledge of medical products and regulations specialize in this niche.
Another mistake value added resellers make is in the selection of OEM services and suppliers. Your source for OEM products should be reliable, provide timely delivery, and have a ready supply of products. If you are sourcing products from different suppliers to put together a single item for sale, you need to make sure that the products are high quality and compatible with each other.
Some inexperienced resellers pass off fake products as the genuine item. This has serious consequences. First, your business can be shut down for selling fake branded items. Second, your reputation can suffer. The original manufacturers may sue the reseller for copyright infringement or authorities may bring criminal charges against the reseller.
Choosing a Business Model
Using your own expertise for value addition is a low-cost, high-return OEM products business model. If you are not an expert coder or programmer or have no idea how to write instruction booklets, there are other business models to follow. However, they take more time and require the reseller to have access to a basic manufacturing facility. For example, if you can manufacture computer accessories or packaging, a supplier can sell you no-frills products that you can assemble and sell at market prices. The drawback is that this business model is not feasible for those who want to work from home.
If you work from home, you most likely will be reselling original equipment online. Setting up your own website involves additional expenses. You also have to ensure foolproof website security, because the site will be handling customer data such as credit card and contact information.