I have probably hurt some feelings lately with my rantings
about so called “work from home” business opportunities. Another name for these types of companies is “Mulit-level
Marketing,” which is a fancy way of describing a pyramid scheme. Broadly, these
are companies that offer an “exclusive” line of products which can only be
bought by someone who has agreed to be a distributor. Usually these distributor agreements come with
a minimum purchase, and usually the distributors are encouraged to sign up
additional distributors which they will then get some sort of credit for.
If you aren’t currently living in a off grid cabin somewhere
out in the bush you probably know what I’m talking about. A huge number of these companies are diet and
health related (see my rant about the diet industry here), and then there’s a
jumble of household goods, fashion, etc that make up the rest of them. I, like most other social media users, am
completely fed up with being invited to “parties” where a friend of a friend
will then pitch me on their exclusive line of branded products. Here’s the thing though…I like having the
opportunity to support my friends. I
shop at my friend’s stores, I get my hair cut by them, I buy their artwork…nothing
makes me happier than shelling out my hard earned cash to someone who I know
will get more advantage from it than if I bought a similar item in the
store. I’m even happy to pay a higher
price for these things because I understand that being a small business person
comes with a higher operating cost than a large corporation.
So why do I immediately delete these party requests without
even looking at the product line? Because
what I absolutely cannot support is my friends being taken advantage of by
large pushy corporations.
Taken advantage of?
Well that seems harsh.
Here’s why I think that.
My work background is in purchasing and inventory management so I am familiar with how wholesale is supposed to work. Most
businesses fall into one of three categories (this is an obvious over
simplification but just stay with me). You can have a Franchise, you can have a
Dealership and you can have what I think of as a “Managed Inventory”
store.
When you buy a Franchise the main thing that you are buying
is a brand. The parent company has done
ALL of the product development for you, they do the advertising campaigns, they
do the packaging, absolutely every detail is taken care of for you. A franchisee is successful when someone from
a different town can walk into the new store and find that it is completely
indistinguishable from the one down the block in their home town. The parent company usually offers the
franchisee a guarantee that they will not sell additional franchise agreements
within a certain area based on geographic distance or population density. Part of the value in being a franchise owner
is knowing that people will seek you out and you will be the only option in the
area. Back in 2005 Krispy Kreme donut
company got in big trouble for over inflating their sales numbers and over
selling franchise agreements….fraud in other words. Not good.
A dealership has some similarities with a franchise but it’s
not so rigid. Some stores act as
dealerships for multiple brands, and frequently stock other items that are not
branded the same. Many fabric stores
are also sewing machine dealerships, for instance. The parent company wants to place their
products into successful stores and the store owners want people to seek them
out because of the reputation of the brands that they sell. It’s a cooperative agreement where both sides
work to prop up the other. When a parent
company and a store owner reach an agreement part of that agreement is that the
parent company will not sell their products to any other stores within a
certain geographic area. This increases
the value of the brand for the store owner because, again, they know that they
have an exclusive product which customers will travel to purchase.
There’s a theme developing here. Exclusivity.
Brand value. Geographic
isolation.
And then there’s what I call “managed inventory”
stores. These are stores where the owner
or purchaser chooses unique items for their stock based on their customers’ interests,
rate of sales, season etc. Most
dealerships also have supporting inventory that works on this system. In this case the exclusivity comes from the
unique mix of items that the store owner has decided to stock. Sure, you can get some of the items at different
stores but then you’d have to make multiple trips. As a purchaser one of the questions that I
want to know when I add a new product line is “who else has this?” Some companies will agree to a geographic
exclusivity clause, and some won’t. It’s
up to me as the inventory manager to know what my competitors are selling, and
to keep my inventory fresh and interesting so that when customers come to my
store they’re excited to buy.
So here’s my main problem with these work from home “opportunities.” For the ones that give kick-backs for people
who sign up additional distributors, they are literally paying you to weaken
your brand. You may be a very conscientious,
respectful marketer but if you sell “XYZ” brand diet shakes then every time
some other distributor mass invites everyone in their social media address book
to an “XYZ” party, your brand is tarnished.
Maybe all of these companies are not guilty of pyramid style marketing
but they are ALL guilty of over oversaturation.
In my opinion it is unethical for a company to sell you on a batch of
products and then set up another distributor in the same market to compete with
you. If I agree to open a Burger Bizzaro
restaurant and then the company tells me “hey, sell another franchise agreement
to your friend from High School and then we can set him up right across the
street from you, but don’t worry we’ll give you 10% of everything he sells!”
that is NOT a good deal for me.
Basically all the customers traveling south will go to his store because
it’s an easier right hand turn and all the customers going north will come to
my store. I’ve lost HALF my customers
for a 10% kickback. Plus there’s another
Burger Bizzaro going in a block away from us because some other guy I don’t
even know bought a franchise and he’s paying college kids in free Burgers to
stand on the street in a clown costume and wave people into the parking
lot. Pretty soon there are so many
Burger Bizzaros in town that people are so sick of hearing the jingle and
smelling stale French fry grease that they all stay home and eat Turkey
Sandwiches instead.
In summary. These
companies are TAKING ADVANTAGE OF YOU, and that makes me mad.
The End.
