Pricing Your Product to Sell

How can a guy who doesn't use a personal computer sell $25 million worth of software a year? He found a niche that needed filling and has stuck to his business plan since 1982. "Value-priced software is our only business," says George Johnson, president and CEO of Cosmi Corp. in Rancho Dominguez, California. "We're the only company left that does this on purpose. All our products retail for less than $20."

Johnson's secret of success is simple: Cosmi's software engineers review best-selling software programs and then develop low-cost versions offering similar features. The company produces about 150 titles in all major categories: entertainment, education, business, productivity, travel and lifestyle. Some of its most popular business-oriented programs are Desktop Publisher and PDA Travel Companion. "We don't sell leftover programs at a discount," says Johnson, whose privately held firm has experienced 50 profitable quarters in a row. "We produce products to sell at the lower price point."

Another secret of success is doing everything from developing the programs to manufacturing the disks and CD-ROMs in-house. "We do everything ourselves so we have all the costs under control," says Johnson. "Our competitors don't." Cosmi sells to major retailers like Wal-Mart, Kmart, CompUSA, Software Etc., Staples and Office Depot. Cosmi frequently offers two-for-one or buy-one-get-one free promotions to boost sales and acquaint new customers with their products.

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"We have to be tremendously proactive," says Johnson. "We know what's selling because we get the sell-through information directly from the stores."

Johnson says as smaller retailers disappear, companies wanting to do business with the major retailers like Wal-Mart must embrace what is called "vendor-managed inventory," the next step for manufacturers who already process orders and transmit funds electronically between their companies and major retailers. "Eventually this means vendors, not retailers, will be the ones responsible for creating purchase orders and pulling the items out of stock quickly," says Johnson.

However, preparing his small company to do business with the big guys required Johnson to spend millions of dollars on sophisticated enterprise software. "We were one of the first small companies to install software that allows us to interface directly with these huge companies," says Johnson. "We've become connected to individual retailers electronically so we can manage every aspect of the transaction."

In addition to having long-term profitable relationships with the nation's leading retailers, Johnson attributes his company's longevity to responding to the market rather than creating products someone in the marketing department thinks will sell. He contends most small software companies fail because they produce too many copies of a program that turns out to be a flop. "They end up with a great amount of product that doesn't sell through the channels. That situation destroys most software publishers," says Johnson. "At our price points, we can't have many flops. We don't maintain an inventory of finished goods, just raw materials. That means we don't have warehouses filled with mistakes."

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