Can Network Marketing Compete With Retail?
Network marketing's product prices may seem higher, but the value is what keeps customers coming back.
Q: I have been involved in several network marketing companies with great products. However, the products seem higher priced than similar products on the store shelves. Sometimes I struggle with the thought that my products are too expensive, even though my customers don't seem to complain. Are network marketing products overpriced just to create big commissions?
A: The real question you need answered is, "are you and your customer getting what you pay for?" To understand what's going on with the pricing strategy of a reputable network marketing company, you have to understand the basics of price vs. value.
The world's customers are becoming more value-conscious. They want to buy clothing at the lowest price, but don't want them to shrink, fade or shred after the first wash. They want food supplements cheap, but expect them to boost our energy and protect our health.
The bottom line: Customers want value from their purchases. We've all tried the lowest price alternatives. Sometimes they're good and sometimes they're not. So the Holy Grail sought by consumers isn't price alone--it's really value. However, value can be elusive. After all, true value is in the eye of the beholder: your customer. Value is a perception; thus, the popular sales term, "perceived value."
This may sound a little like Philosophy 101, but there's a considerable distinction to be made between low prices and real value, whether you're referring to products screaming for attention from retail store shelves or to products being offered through network marketing.
Let's consider the difference between how products sold in traditional retail channels come to market and how network marketing products are developed. For every 10 products introduced in the general retail marketplace, only one becomes profitable. Competition, positioning, price point, packaging, advertising, timing and distribution are the primary considerations. Notice I didn't mention anything about product excellence or quality. Are these secondary or tertiary considerations? Of course, these products must be good. But they aren't necessarily great. The fact is, introducing a new retail product is basically a numbers game. It costs a few million dollars to introduce the product. If nine out of 10 products fail, those new product launches have to make up for that investment with huge profits. This means the quality of the product is constantly at the mercy of the bottom line.
Network marketing companies, on the other hand, are entirely product-dependent. Sales of their products enable them to grow and flourish. If people don't buy their products, the company dies, along with the dreams of thousands of distributors. Besides, every reputable network marketing company offers its customers an unconditional 30-day money back guarantee. These companies know the products must be top quality and able to deliver on their promises. They also know if the products do live up to and exceed expectations, it'll result in regular reorders and unsolicited testimonials from the customers to friends and relatives. As a result, marketing a phenomenal product is not price sensitive like so many products competing on the retail shelf. This gives the distributing company the latitude to emphasize quality over competitive pricing, with both the customer and the company coming out on top.
In fact, in the network marketing world, "product" is king. Frequently the products are a result of the personal experiences of one of the company's founders. The motive behind the product launch might be more than financial--it may be an altruistic mission.
Network marketing companies must strive for high-quality control standards. If their customers aren't happy, they don't just write off the lack of performance to a bad purchase the way they usually do with off-the-shelf products. They send it back to the network marketing company for a full refund based on the company's written satisfaction guarantee. Anything but the highest standards could break even the most successful network marketing company.
One final point about price: In network marketing, the retail customer has the option of becoming a wholesale buyer, bringing the cost of products for personal consumption, in most cases, below the cost of even the lowest priced retail store competitor.
Michael L. Sheffield is the CEO of Sheffield Resource Network, a full-service direct sales and network marketing consulting firm. He is also the co-founder and chairman of the Multi Level Marketing International Association (MLMIA). He can be contacted through http://www.sheffieldnet.com.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.