(Below we feature PART 2 of our multi-part NutriCellix review where Bo Short, CEO & Founder, discussed how the company’s pricing model differs from traditional network marketing, MLM and direct sales.)
When it comes to creating a successful business, whether in the traditional retail space or the traditional network marketing space, the product price-point is one of the most essential components that many companies get wrong. Today, we’ll discuss traditional product pricing and how NutriCellix decided to take a different path with the product cost structure.
The Traditional Network Marketing Pricing Model
Having lived in board rooms in the network marketing world, I know why products are priced the way that they are. And to be fair, it is the same reasoning in many industries. Most companies will take a look at the marketplace and ask themselves, “How much to our competitors sell equivalent products for?”
Take a meal replacement shake, for example. From my personal experience, a typical network marketing company will take a look at their product offering and then look to see who offers a similar type of product, and how much they are selling it for.
It doesn’t matter if you are selling cars, televisions, etc.; the same rule applies. Almost every company looks to see how much their competitors are selling their products for, and attempt to match or beat that price.
In the network marketing world, you can look at a competitor’s pricing and see that they are selling a similar product for “X” dollars per month. If a company is looking to be competitive, they will price their products accordingly.
How Typical Companies Pay Commissions & How NutriCellix Differs
As a general rule of thumb, 35- 40 cents of every wholesale dollar that comes into a network marketing company, are paid out to the promoters in the form of commissions, bonuses, and incentives. Certain direct sales companies are publicly traded, and this information can be looked up by anyone through their public filings. Some companies pay out more and some less, but typically it falls anywhere between the 35 – 40 cent range out of a wholesale dollar of revenue coming into the company.
When we looked at the industry, we wanted to reward our promoters by paying them on the high-end of the typical amount paid out to the field.
Before I speak more about NutriCellix’s pricing structure, I want you to think about this for a moment: When you look at a network marketing presentation, oftentimes, you’ll hear people talk about traditional sales channels.
They will say something like, “A manufacturer creates a product for “X” amount of dollars. Then by the time it goes through advertising channels, wholesalers, and gets to the actual retailers, the customer pays “X” amount for it, knowing that a portion of that went to all of the people in the middle of the product flow-chain. But in a network marketing company, we remove the middle-men, and we insert YOU.”
Now, there is some truth to that presentation, but the problem is that it NOT JUST YOU. In a network marketing company, you are part of a sales team, and a certain portion of product sales will go to your upline, their upline, and so on, who earn commission overrides on product sales in your organization. So there are still “middle-people” so-to-speak, and there isn’t anything wrong with that, because it is still putting the power of the dollar in the hands of those promoting the products. That great thing is, it is getting paid out to people you DO know rather than people you DON’T know.
My biggest challenge in network marketing is how companies usually price the products to the end-user. Often, the company will look at the size of their sales force (whether they call them distributors, reps, promoters, etc.), and they ask themselves how much they are going to sell the products to THEM. They are focused on selling to what I call a “captive audience,” and are typically not pricing the products for the “general audience.”
A typical phrase that is used to get the sales force to purchase products each month is: “You must be a product of the products.”
However, most people who are trying to build a network marketing / direct sales business wonder, “How come my products are so expensive?” Unfortunately, the answer is that it is just the nature of the business model — that everyone charges a premium for the products because those products are being largely sold to the “captive audience.”
This has nothing to do with whether the products are good or not. In fact, some of the best products in the world have been formulated by companies within this industry. It really has everything to do with VALUE.
An attorney I know gave me a great example many years ago. He said:
“Suppose you find a Cadillac priced for $45,000. For that vehicle, it would be considered a good value. But suppose that same Cadillac is priced at $150,000. There’s no doubt it’s still a great vehicle, but at that price, it is no longer a good VALUE.”
The main point is what companies need to ask themselves is who is their ideal customer and marketplace, and who are they planning on selling to?
If their primary marketplace is the distributor force promoting the products, then the company can typically over-inflate the value because there is a motivation to buy in order to qualify in the compensation plan. This is the problem with primarily selling to a captive audience within your sales force.
Of course, some distributors will sell to customers, but the problem is that because the price has been inflated, due to the captive audience component, the distributors rarely sell the products at the suggested retail price. They will many times sell it at the wholesale price, and simply settle for earning a small commission from the sales volume generated by that commission in the compensation plan. That commissionable volume is also feeding all the distributors in the “upline” who rely on wholesale volume to earn overrides.
NutriCellix is building a new model based on best practices.
When we sat down with our board and founders, we didn’t want to follow the traditional model. We wanted to implement something innovative and much more rewarding, to take the NutriCellix products to the marketplace.
We sought to take best practices from many different industries. As mentioned, there are many things we love about network marketing and the people in the profession, and we still wanted to take the best pieces of that industry and incorporate them into our company. For example, we love the ability the profession affords for people to build teams and be compensated accordingly.
We also wanted to take best practices from companies like Amazon, understanding the power of retail, paying attention to how we priced our products in order to reach a bigger marketplace.
We wanted to take best practices from Harley Davidson, in how they provide stellar customer service, incorporating their philosophies into our own support systems and customer rewards program.
We wanted to take best practices from Facebook in understanding the power of connectivity and how to harness that power through the click of a mouse.
But we knew that pricing was the single most important aspect of our business, and that led us to develop a robust e-commerce platform, using Amazon as our inspiration.
Pricing for the REAL market.
Similar to a traditional network marketing company, NutriCellix will still pay our promoters, whom we call Brand Ambassadors, from every dollar of revenue that comes into the company. That was one of the positive components of the NWM industry that we wanted to include and an area where we didn’t want to compromise. We would rather pay the people to be our advertisers than those same dollars go to advertising companies and other mediums/platforms. NutriCellix also chose to pay out on the high-end of the range through our compensation mechanism, to the Ambassadors that take our products into the marketplace.
But ultimately, we didn’t want to price the products to target network marketers. As mentioned, the problem with doing so, is it makes the products too highly-priced for the general marketplace.
So we came up with a brilliant idea. We knew we could look at our pricing structure from a margin standpoint or a customer loyalty standpoint. We knew that it cost seven times more money to acquire a new customer than it cost to take care of an existing one. We also knew that one of the ways you take care of your existing customers was to offer them a valuable service that is fairly priced for the general consumer marketplace.
We knew with NutriCellix; we had something big in our hands, something remarkable and significant. We firmly believe the technology that drives our product is a game-changer that will dramatically help many people with their weight-management struggles. So we asked ourselves, “What marketplace do we want to appeal to — a captive audience or the millions of people who are looking for a solution?”
That was when the light-bulb went off, and we came up with what we coined our enhanced direct-to-consumer model.
What is the enhanced direct-to-consumer model?
Once we knew who we wanted to appeal to with our products, the decision to structure our pricing and distribution model became easy.
The question we had to ask ourselves was, did we want to build a network marketing company and become the biggest in the world, or were we looking to build something different?
The answer was that we were looking to create the largest custom weight management company in the world. And we knew if that was our goal, that NutriCellix would have to be priced for the world, not to a captive audience. That is why the decision was made to follow companies like Amazon and focus on e-commerce, providing a platform that allows our promoters to sell directly to consumers and get paid accordingly.
Stay tuned for Part 3 of this NutriCellix review, where we will go into further detail on the product pricing, giving examples from our product line-up, and show why NutriCellix has created what we firmly believe to be, the most powerful distribution model on the planet.