Is a Price Below the Market a Scam?

Every product has a cost and a market. That sounds obvious, but it is the single most useful line of defence I have, and I have never seen it used by a buyer.

A price below the market is information, not a discount

When a quote comes in under the market, the instinct is to feel lucky. It should feel like a question instead. Something has to give: either the margin, or the quality, or the truthfulness of the person quoting. Only one of those three is being given away, and it is not usually the margin.

There is a version of this where the supplier is over-estimating what the product costs them, and they are simply being generous. That happens. But the burden of explanation sits with them, and "we can do it cheaper" has never yet turned out to be an explanation.

The transaction that taught me to check

I acted once as purchasing agent on a meat product from another country. The price was under market, and that put me on alert - because I had seen it before, and because a product cannot cost less than it costs.

So I went through the paperwork looking for the problem. Business registration, certificates, the lot. I could not find a fault in any of it. The documents were not sloppy; they were convincing.

What finally settled it was information from the bank. The company did not exist as the documents described it. Everything the seller had shown me was genuine - and none of it was about them. That is the part I still think about: the paperwork was real, and it was about something else entirely.

What I do instead now

I run the number backwards before I read anything else. Landed cost per kilogram, or per drum, on my side, given what I know about the product. Then the quote goes against that floor.

Comfortably above it means room to negotiate, and a normal counterparty. Below it means the conversation has already told me something, and the useful question is no longer "is this a good price" but "what is different about this product".

What I am not telling you to do

There is no checklist here, and I am not going to write one. A checklist is a tool for verifying a supplier you have already decided about. The judgement I am describing is different, and it is not transferable: it is a way of knowing which question is worth asking next, and that only comes from having been on the wrong end of it.

What I can tell you is the shape of the problem. If a quote does not survive a backwards calculation from your own cost, then the material you receive is the thing to think about, not the paperwork that came with it.

Questions this note answers

Does a price below the market always mean fraud?

No, and that is where the useful judgement sits. It usually means one of four things: the supplier is trying to lure you in, the grade is not what the listing implies, there is a real quality problem they have not disclosed, or they are simply over-estimating what the product costs them. The first is fraud. The others are things you can be hurt by. Either way the burden is on the supplier to explain it, and 'we can do it cheaper' is not an explanation.

How do I check whether a quote is realistic?

Work backwards from your own cost. Landed cost per kilogram or per drum, on your side, given what you know about the product. Then put the quote against that floor. If it sits comfortably above, there is room to negotiate and you are talking to a normal counterparty. If it sits below, stop reading the marketing and start asking what is different about the product.

The documents all looked right. Why did that not settle it?

Because documents are not the same as a company. I acted once as purchasing agent on a meat product that came in under market price. The paperwork was complete and I could not find a fault in any of it. What settled it was information from the bank, which showed the company did not exist as the documents described. Everything the seller showed me was genuine, and none of it was about them.

So how do you check a Chinese supplier without going through a checklist?

Ask for something that costs them something to be wrong about, and watch the answer rather than the document. A technical question with a specific answer separates a factory from a broker. A willingness to be visited separates a real operation from a rented address. And a price that makes sense separates a business from an attempt.