Default items are used when adding items to your catalog, to expedite entry. This comes in handy when you are selling items very similar (same product description, attributes, prices etc) and you don't want to have to type out all the form again and again for each product.
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From within your storeadmin, add a product that will act as the default product. Save the product.
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Under the Advanced menu, click on Default Items
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Choose the product you added, from the dropdown list. Then click on the Update Defaults button.
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Click on Products under the E-Store menu.
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Click on the Add button to add a new product.
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Click on the Set Default link at the top.
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Now you should see all the information from the product you used as the Default Item. Change the title, anything in the description, pricing, thumbnail and large image etc.
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Click the Save button to save your new product. Now when you view your products you should see the one you just added.