The Value Equation

By Terrel Transtrum, Founder of LaunchSmart™

The World Federation of Direct Selling Associations reports that they represent 1,000 companies in 140 countries with 31 million independent business representatives. In the US, it represents $26 billion in annual sales. Sounds big doesn’t it, until you compare it with retail and all the other channels whose sales are $1.3 trillion, or 50 times the size of the direct selling industry? Considering that all these sales channels started around the same time, 135 years ago, why have we stayed so small in relation to non-direct-selling channels?

The answer is value.

To understand the value equation, let’s consider two examples, one from the nutritional products industry, and one from the personal care products industry.

Example #1: Nutritional Supplements

Many companies compete for consumers’ daily vitamin business. Off the shelf in retail stores, the offering is basic and, many would argue, adequate. Through direct selling, where the product story can be told and unique features highlighted, the offerings become unique and interesting, maybe even compelling. But is the offering worth the vast difference in price? Maybe yes, or maybe no. You decide, but here’s what the numbers show us:

  • The average price of vitamin and mineral dietary supplements among the three largest distribution channels (grocery stores, mass market, and pharmacies— we’ll call these the “Big Three”) is $6.75
  • The average price of herbal supplements among the Big Three distribution channels is $7.72
  • The average price of vitamin and mineral dietary supplements sold through the direct sales channel is $19.12, or 283% times the average price of the Big Three
  • The average price of herbal dietary supplements sold through the direct sales channel is $24.16, or 313% times the average price of the Big Three

One conclusion is that direct selling channels in general do not provide value to the market. Another conclusion is that direct selling channels in general provide products that have superior ingredients and manufacturing techniques, and the story needs to be told and the real value needs to be conveyed. Which conclusion applies to your company? If a story needs to be told, are your employees and business builders telling that story, consistently, accurately and passionately?

Example #2: Personal Care Products

Across the nation, demonstrations, presentations and workshops employ the direct sales approach to selling personal care products. In the personal care products markets, direct selling accounts for $13.3 billion of the $52.7 billion1 in total personal care products sales – roughly 25%. Why is direct sales so strong in this market segment?

The product demonstration and education experiences are conducted in homes and similarly comfortable settings where consultants offer convenience, personalized service and attention, helpful information, gift ideas, special offers, and the spice of variety in a social setting. The result is strong value in a direct sales channel.

The key for companies that are building long-term business—and this is the salient point—is to offer real value. And value must be conveyed; an old sales adage accurately maintains, “no tell, no sell.”

The most basic value equation has three components: Price, Quality and Service.

Various mixes of these components will define value in any offering. Consumers will accept sub-standard quality if pricing and service compensate; higher prices can be commanded where the quality and service mix are in a balance that supports price; if service is absent from the equation, quality is more sensitive to price; and so on.

If these value components exist and if they are in balance within your offerings, then what remains is to help your teams (corporate and field) to convey that value. Without value, any attempt to convey an artificial value proposition is empty hype, and it will not last. On the other hand, true value might exist but not be known if it is not effectively conveyed.

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