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The Networking Dilemma

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The Problem
150,000 people join a network marketing business every week
Cell Food Natural Food Retailers

The problem is that network marketers sell product and a lot of it.  They sell so much, as a matter of fact, that companies like Bausch & Lomb, Coca Cola, Corning, GE, IBM, Motorola, Sharp, Texas Instruments, AT&T, MCI, Sprint and Xerox all have products and services distributed in part through network marketing/direct selling industry. 

More than 53% of the general public have made a purchase through direct selling at some time in the past.

You can see the problem.  Over half of the population, instead of or in addition to shopping at your store, is buying health supplements or personal care items from a network marketing distributor. 

How is one to supposed to deal with competition who has no store front and does business from the home.  This is a serious and growing problem.  As a matter of fact, we have personally talked with store owners over the past couple of years who have become so discouraged that they felt that continuing business would not be profitable.

So, what is the solution?
Marketing strategies vary, but some stores are facing the competition and winning.  We want to look at a couple of possibilities that may be useful to you as you work to increase your market share in your area.
Consider the solution Rexall brought to the market.  As you all know, Rexall is a drug store chain doing business all over the United States.  As competition entered the market place, Rexall had difficulty keeping up.  Here is their story and how they dealt with the competition to once again become a household name.

"The Rexall Tradition"

Stephen Barrett, M.D.

Rexall Showcase International (RSI), launched in 1990, is a direct marketing ("multilevel") company that sells weight management products, homeopathic medicines, personal care products, nutritional supplements, and water filtration systems. It is a subsidiary of Rexall Sundown, Inc., of Boca Raton, Florida, whose stock became listed in 1992 on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System.

RSI was originally described to prospective distributors as "the newest member of the Rexall Family of Companies, one of the best known, most successful corporate families in America." [1] The initial distributor kits indicated that RSI intended to capitalize on the Rexall name, "the trust that goes with the name, and the warm fuzzy childhood memories associated with Rexall drugstores." According to an RSI brochure, a survey of more than 30,000 households found that 75% recognized the Rexall name and that trust in the name was "exceptionally high." [2]

Rexall's Roots

In the video "Why Rexall Expands to Network Marketing" (1990), Rexall Division's Chief Executive Officer Armend Szmulewitz provided a brief history of Rexall's development:

In 1903, a gentleman named Louis Liggett decided to do something with the independent pharmacist. Those pharmacists were providing medical care to the individual people. Not the medical care we're used to today; it was done on an individualized basis. Lou said, "If I can pool that strength . . . I can come up with a method of taking individual pharmacists and individual markets and bringing them together into a national organization." It began what came to be known as "the Rexall concept." In the beginning it was called United Drug.

According to Szmulewitz, Liggett developed products that pharmacists "could proudly prescribe on an over-the-counter basis to their patients. That's really the beginning of what we call today OTC, but in those days they were called patent medicines. . . . In 1903 . . . . the pharmacist was the doctor in the town. . . . He worked in concert with the [medical] doctor." Liggett called his line Rexall Products [short for 'Rx to all.']. As the Rexall name gained recognition, Szmulewitz continued, "the items became stronger than the store" and the stores became Rexall stores. In the mid-1980s, the Rexall name and distribution rights were purchased by RSI's parent company.

"With that name came a great tradition," Szmulewitz asserted. "We asked, 'How do we get back to what Rexall was, bringing it back to the person, to the independent pharmacist?' We can't do that. But the person-to-person concept will work-bringing the Rexall store to somebody's house." Noting that people typically take only a second to decide whether to buy a product on the shelf, Szmulewitz said that RSI's story needs to be told in a different format: "Very similar to how the independent pharmacist told it many times. The consumer came in, 'Doc I got something wrong, what do you think? They [pharmacists] spend the time. 'Tell me what's wrong.' 'This is what you need. This is what I think will help.'" Szmulewitz continued: "If we can explain it to someone, if we can train them on how to sell it, train them how to use it, train on what the benefits are, and have those people explain it to other people, we've now brought back what always worked in the Rexall concept: One person talking to another."

What Really Happened

An article in the March 1, 1982 issue of Business Week magazine provides a somewhat less glowing perspective. It states that the Rexall name had once appeared on about 300 company-owned stores and 12,000 franchised outlets (about 20% of the country's drugstores). During the 1970s, however, Rexall was unable to withstand competition from rivals that built modern outlets in high-density shopping areas. In 1977, the chain was sold for $16 million to a group of private investors, which divested itself of the stores, pared its manufacturing capacity, and became primarily a distributor of vitamins, health foods, and plastic products such as toothbrushes. Former franchisees were permitted to keep using the Rexall name, but a former company official said this might not promote Rexall products because some of the stores were "eyesores" that conveyed a negative public image [3].

In 1985, operating control of the Rexall name and distribution rights were acquired by Sundown Vitamins, Inc., a company founded in 1976 by Carl DeSantis. DeSantis, who had worked in advertising and management for Super X Drug Stores and Walgreen Drug Stores, became board chairman, chief executive officer, president, and principal stockholder.

When RSI formed, although many pharmacies still carried Rexall products, few still used the Rexall name. In 1992, I inspected 20 Yellow Page directories selected randomly at the Allentown public library and found only three "Rexall" pharmacies out of about 1,000 listed. Moreover, the law limits what pharmacists can do when people ask them to recommend products.

In April 1993, Sundown Vitamins changed its name to Rexall Sundown, Inc., shortly before raising $32.9 million by selling 2.5 million shares of its stock to the public. For fiscal year 1998 (September 1, 1997 through August 31, 1998), Rexall Sundown reported total sales of $530.7 million, with $158.9 million attributable to Rexall Showcase.

The reality is that most health food stores can't duplicate what Rexall has been able to accomplish.  There are other possibilities availabe to each store that can effectively deal with the network marketing dilemma. 

Believe it or not, network marketing companies consider health food stores their competition too.  They look at a stores customer base as their potential customer as well.  Usually, they are very aggressive with their marketing efforts and will make every effort to make your customers theirs.  In addition, the companies they represent usually will not allow their product line to appear in your store.  If the network marketing company does allow product in stores, suitable profit margins are usually not available on their products making it unprofitable to carry their line anyway.

However, in recent years, some companies have rethought their position on this issue!

A new generation of network marketing companies have recognized that their industry has weaknesses just as most health food stores have weaknesses.  With that recognition comes the awareness that instead of working against retailers, it is much more profitable for everyone to work with each other. The results are that everybody benefits from the new association.
For stores, the nutrition based direct sales companies bring quality products to market and develop brand awareness and product demand.  Many of you remember the time in your stores when "Pycnogenol" was not a part of your stores inventory.  The fact is that Kaire International marketed the product very well.  The result was that many people who would never be a part of a network marketing company became familiar with the product and walked into your store asking for it.  You, like any good store owner, caters to your clienteles desires.  You quickly found a source for Pycnogenol and it became a welcome profit center for you.  In fact, you found that when people came into your store looking for Pycnogenol, most left with it and usually other items as well!
Think about it, that is advertising dollars you didn't have to spend to bring a product to market in your area.  People already had product knowledge, so you didn't have to educate them on the product and it created additional profits. 

For the network marketing company it means greater stability and increased market share for their products. 
As a result, some network marketing companies are addressing some of the issues that have kept their product out of your store.  Some companies are now developing a pricing structure that allows the retailer to attain the margins you need to make the product line a profitable addition to your floor plan. 
In addition, network marketing have always had good marketing tools for their distributors.  Applied to a retail situation, the tools become good sack stuffers for your business.  They have made it possible for you to market their products without building a downline. 

All in all, they are making an effort to tear down barriers and make it a profitable alliance for the network marketing company and your store!


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