It's Not That Easy Being Green (or Multilevel)
I'm preparing to launch a business selling a wide range of "green" merchandise, from leisurewear made from unbleached cloth, to cruelty-free cosmetics, to recycled paper and glassware. I want to sell these products through agents working in their spare time, selling at homes and parties. Eventually, I would like to move over to retail. I would appreciate any opinions on the wisdom of my plans and any advice on environmental products or multilevel marketing.
Kevin J. Stevens
Maple Street Merchandise
You've certainly targeted a growing market. "And that market is very broad and very deep," says Alan Newman, president of Seventh Generation Inc., in Colchester, Vt., a catalog marketer of green home and office products. "It starts with school-age children and continues with teenagers through college and on up."
But the market is swarming with new products. "The wave has crested," Newman says. "There's less room for mistakes. Today a company needs to know what it's doing, and it needs the financial capability to do it."
Newman's partner, Jeff Hollander, sees at least one problem with your plan. "To start with such a wide range of products is a challenge," he says. "We've done a fair amount of business in those categories, and we've seen that any single product comes with a world of considerations. In textiles, for instance, we've moved from using simply all-cotton cloth to organically grown cotton because 50% of the pesticides used in the United States are used in conventional cotton production. And I'm sure skin-care products must meet stringent government requirements."
Being green isn't cheap, either. "If a product is chemical-based, we send it to an independent laboratory that determines whether the chemicals involved are harmful to the environment," Newman says. "Often, too, we're involved in the formulation of the product. It takes a lot of money."
On the home-selling side of the equation, "if your product cost can't be multiplied four times for sale to the customer, then home selling, or multilevel marketing, is the wrong business." So says Larry Depte, president of Correction Connection Inc., in Philadelphia. "That's a quick acid test of a multilevel product's viability." Multilevel, or pyramid, marketing allows individuals to market products to their friends and neighbors and to receive compensation not only for what they sell but also for bringing others into the sales system. "On a $10 item, you'll probably give 25% as profit to the person who sold it. They're buying it for $7.50 from you. Then you will have to pay an average of 25% of sales in commissions to the various levels of salespeople. Now you're down to $5. If it costs you $2.50 to make, you've got only $2.50 for overhead, promotion, product development, and profits."
If your products pass that test, you should next contact the attorneys general in all the states where you want to do business, and ask them for guidelines on multilevel marketing. According to Depte, they'll want a written plan including details on compensation.
What products sell best through multilevel marketing? Depte, whose company sold $9 million worth of diet and nutritional supplements last year through both multilevel marketing and retail, says they are those that can be purchased over and over again. "Thousands of people making small sales to 20 customers each but selling to those customers every week -- that's ideal, because multilevel is based on people knowing people. That's why soap and cosmetics have been big. If you start with a big-ticket item that sells only once, salespeople are going to get disgruntled."
Depte shares Jeff Hollander's concern about the number of products you're planning to offer. "It's difficult to market a whole lot of things unless you have a whole lot of money. You'll need to explain each product to your salespeople, perhaps with videotapes or brochures. It takes money to do that. He should fit his business within the constraints of his working capital."
Will the environmentally conscious consumer buy through home sales? "I hate people calling me up, saying, 'Come to a party!' " says Joan Cooper, cofounder and vice-president of Biobottoms, a Petaluma, Calif., Inc . 500 company that markets wool covers for washable diapers. "Back when green products weren't readily available, I might have gone. But now I can buy them through a catalog, at specialty stores, or even at my local grocery store." You'll have to offer Cooper something for nothing. "If his salespeople offered an analysis of how I can make my house greener, that might be a hook. I'd say, 'Come over,' and then they could sell me things."
Cooper adds that the whole question of the ethics of pyramid-style marketing, where people at the top, who got involved early on, are likely to reap far more than the people at the bottom, who entered late, "could be offensive to green consumers." Biobottoms wanted to avoid that, so when the company set up a home distributor network, it did so without the pyramid -- salespeople didn't recruit other salespeople. Cooper found the system unworkable. "Without the pyramid, how do you publicize your network? How do you grow? And how do you give the real go-getters an incentive to keep working? In a pyramid, good people can rise and rise, and it's stimulating because they're managing, too."
But ethics didn't stop Biobottoms' home-sales experiment; limited resources did. "It requires incredible support," Cooper says. "The people who join networks are trying to combine home and work; they're isolated and they want the interrelation of the workplace, so whether it's through monthly meetings or whatever, you have to supply that." Biobottoms decided it couldn't. Now it sells only through its catalog.
For more information about green products, Hollander recommends the Institute for International Research (437 Madison Ave., 23rd floor, New York, NY 10022; 212-826-1260), a conference company. Speak to Audrey Wu about its seminars on green marketing. Depte suggests Opportunity Connection (P.O. Box 57723, Webster, TX 77598; 713-280-9800) and Money Maker's Monthly (200 S. Frontage, Burr Ridge, IL 60521; 708-920-1118) as resources, but adds, "If Stevens has never done multilevel marketing before, he should sign up with one of the established companies and learn from it how it's done. They all give seminars and training that comes with how-to materials. The experience alone is worth it. I can give you a book on auto mechanics, but it's nice if you've worked in a garage before you bet your life savings that you'll be successful on your own." n