Star Builder

Background

I'm guessing that anyone who has ever joined an MLM asks this one and gets asked it all the time by the people that they are speaking to about the business opportunity. Indeed I met up with a good friend last night, someone I have personally known for years and where a great level of trust exists (both ways). Along with the typical it's just a pyramid objection, he raised the objection of why if this product is so great are they not selling it to the likes of Tescos and Sainsburys.

It is as if these two objections go hand in hand, one serving to support the legitimacy of the other. In this article we explain why great companies with great products choose the MLM route to market.

Traditional Supply Chain Structure

Before we can compare routes to market, one must first understand the traditional supply chain, often people have an over simplified picture of this in their mind, so it is quite understandable that they raise this question.

Manufacturer

So we start of with the manufacturer, they have decided to pour loads of money into product development. Their marketing gurus have been paid huge sums and they are sure there is willing market for their products. They know a great deal about the market segmentation, and who their John and Jane Doe (their typical user) are, what they do, what shows they watch, what magazines they read, etc.

For our example lets assume that the manufacturer is over in the US, and the market is over here in the UK. What is their next step? Well next they need to find someone to import their goods.

Importer

The importer is responsible for shipping, dealing with customs, storage on arrival in the UK and meeting the demands placed upon them by other elements in this supply chain. The large majority of organisations outsource this to a specialist in logistics. So once the importer has imported it who else is in the traditional chain?

Wholesaler

The wholesaler will keep large stocks in their warehouses, and sell in bulk to retailers. For very large retailers they may bypass the wholesaler and go direct to the importer. However the wholesaler is a necessary step as the importer is not there to provide a sales function - they are purely logistics, and local retailers will tend to buy from their local wholesalers.

Sales Team

There is then a sales team, they may be run by the wholesalers or the manufacturer. Their job is to convince retailers to stock the product over and above another product, keep the retailers happy, and vie for premium shelf space. Yes the position on the shelves and the amount of space allocated is like prime retail space, and they must work hard to convince the retailer to stock a certain product. Sales teams will fight long and hard for the position of those baked bean cans as they know you are more likely to buy it if it is in a certain position!

Advertising

Okay, they now need to create a need for the product. It may be the greatest product in the world, but with out generating awareness and getting people to want your product using every trick in the book, it simply will not sell. Advertising takes many forms, including what people traditionally think of such as television, radio and magazines. But it includes so much more, including PR, websites, pay per click, viral marketing, bill boards, point of sales materials, etc.

The key here is that it costs a lot of money to launch a product in terms of advertising, and the manufacturer will typically foot a large proportion of this. Advertising has to be ongoing, it cannot dry up as you need to keep your product in the mind of the consumer - that's why the likes of Coca Cola still advertise.

Retailers

All retailers work off margins, and typically will not stock a product unless they can make a margin of 20-30%. They will also be very conscious of the shelf life of your product as this lowers their risk. Larger retailers such as the supermarkets also have their suppliers extend credit to them, not your typical 30-60 days, more like 9 months. This is despite receiving money from you the customer straight away!

Lets now look at those in store promotions, such as BOGOF (buy one get one free), these are almost all funded by the manufacturer NOT the supermarket. If the manufacturer does not play ball they will select someone that does - i.e. they tell the supplier this is what they want to do, if the supplier does not agree their products may be pulled from the shelves or moved to less desirable shelf space.

The retailer will also consider whether a product is within what it would expect someone to pay. How many fine wines between £10 and £30 do you see in the supermarket? Simply put they do not sell in sufficient volume to make it worth their while so they will look for a cheaper alternative even if it is inferior.

Customers

The customer frequents a particular retailer, and will decide on a product based upon the advertising, shelf location, personal recommendations etc. There is a whole set of retail psychology that underlines this, that's why IKEA have you walk all the way round there store (unless you know the hidden shortcuts).