“It’s too expensive.”
“No thanks, I found a similar product online and saved $40.”
“I can get it cheaper at the drug store.”
How many times have you been so close to a sale, but your customer saw the price tag and got cold feet? You almost had it! He knew he wanted and needed the product, he read all the educational information on your website and was ready to Buy Today, but that dreadful sticker shock stole yet another customer!
Have you ever wondered…
Why do Direct Sales products usually cost more? Shouldn’t they be less expensive since we’ve eliminated the middleman?
First let’s look at what’s behind the price tag, and discover what you’re actually paying for when you purchase a retail product and a direct sales product.
There are two categories to consider: Cost of Goods and Operating Expenses.
The Cost of Goods is the amount the company spends on the product’s manufacturing, shipping, and handling.
Operating Expenses are all of the costs incurred to help get that product into customers’ hands: marketing and advertising, wholesale intermediaries, retail space, employee wages and commission, office supplies, store utilities, etc.
Retail – Low Cost, High Operation
For a retail product at a large chain store, the cost of goods is drastically less than a direct sales product. This is because most retailers have found ways to cut corners: oversees manufacturers with crushingly low wages and deplorable working conditions for workers, bulk orders for millions of products that are not customizable, low quality ingredients (or a lower potency of expensive ingredients), and more. These shortcuts allow them to purchase mass quantities of mediocre (or worse) homogenous products for a fraction of the cost.
Once we start looking at the operating expenses, the price tag begins to increase. First companies have to spend a fortune on marketing and advertisements to convince consumers they need these products. Then they must pay for their retail space and all of the associated expenses – including stores that must operate 24/7. And even though they only pay their employees minimum wage with little to no benefits, it starts to add up quickly when you’re talking about hundreds of thousands of employees working around the clock. Finally, it goes without saying that the top executives of these large chain retail stores are doing quite well, and their salaries aren’t expected to decline any time soon.
Direct Sales – High Cost, Better Operation
The cost of goods for direct sales products is much higher – and that’s a good thing! Products are manufactured in safe, humane conditions and in much smaller quantities – often customized with the customer’s preferences. Most companies splurge for the finest ingredients or materials, and aren’t stingy in using them. There is usually a huge difference when you compare the potency between the “real deal” and the knock-off version. All of these costly expenses provide a valuable experience for your customer.
Not surprisingly, operating expenses are far less (and more beneficial) for direct sales products. The distribution chain is shorter and more direct, and there are no expensive retail outlets or advertising costs. Instead of TV commercials, direct sellers and MLMers build relationships with their customers and educate them one-on-one about the products. The only operating expense that further increases the final price tag is commission. Instead of paying workers with the lowest possible wage the company can legally get away with, direct sale companies share the wealth. They compensate their sellers enough that these men and women can earn a living wage and actually gain lifelong financial freedom.
Do commission checks drive up the cost of these products? Most likely.**
Is it worth it? The higher quality products, the longevity of those products, the opportunity for sellers…can all of those factors get a customer past sticker shot?
That’s the question that every consumer must answer on his/her own. Because what are you really paying for when you save $15 or $40 or $100 on a retail product? You’re paying for questionable labor. You’re paying for mass production. You’re paying for lower quality that won’t last as long. You’re paying for low wages. You’re paying for poor customer service. You’re paying for cutthroat business tactics.
In our opinion, that’s actually pretty darn costly.
**The Great Exception
LifeVantage is a company based out of Utah that struggled to sell Protandim, a dietary supplement product, in retail stores for years. Then in 2009, the company decided to defy the odds and move their product from dusty retail shelves into the hands of direct sellers. The company SOARED! Their revenue grew from $4 million in 2009 to $208 million in 2013! (Check out LifeVantage’s public financials here) Moral of the story: It pays to empower sellers and share products around the globe person-to-person.
Check back next week to learn the 5 Fail-Proof Steps to Selling High Ticketed Direct Sales Products.