Tuesday, January 03, 2017
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.