8.20.2006

Nutrition and Direct Selling - Part Two

The article I referenced about R&D investments by networking companies the other day has produced some feedback that made me consider some other aspects.

Obviously, the primary reason for investing company resources in an R&D program is to develop new products to bring to the marketplace for the field personnel to represent. The committed investment in this area is relative to the market segment that the company wishes to occupy and the overall philosophy of the sales and marketing plan.

As companies strive to position themselves to capitalize on emerging trends, such as health and wellness, they are willing to gamble heavily with an increasing budget expenditure to develop the "ground-breaking" or "remarkable" product. But what happens if there is no successful result in this pursuit? The addition of corporate infrastructure seeks a pay-off and when it does not occur, a company may be forced to either scale-back their development efforts or raise prices accordingly.

The author of the aforementioned article notes that "direct marketing stills suffers from image problems". In the industry's effort to legitimize it's existence and validity, many companies have dedicated themselves to promote their commitments to offering "high quality products at affordable prices". Consider the previous paragraph, when a company opts to raise prices, there surfaces a need for price justification and create the perception of value. How can this be accomplished? Incorporate the area of what may be the greatest weakness, a large R&D initiative, into what will be marketed as a competitive advantage.

"Pharmanex, for example, has more than 130 scientists in three labs in the U.S. and China and conducts around 10 human studies, 15 to 20 pre-clinical studies and 10 to 20 safety studies in a year, according to Carsten Smidt, Vice President of Global R&D."

"We have 500 scientists and technicians...."

These statements do not reflect anything meaningful in the absences of actually producing anything marketable and remarkable. "What have you done for me lately" could be considered an apt phrase for an R&D program's efficiency. Otherwise, you could just as easily say, "We have 3 scientists and 10,000 lab rats".

If the R&D effort is not producing anything of significance for the end consumer, does it matter much how large the staff? When you consider that many of these companies ONLY market their products through an MLM / Direct Selling model, if they are not securing patents and/or producing at least one new, unique product every year, they are failing. Research and development efforts give way to quality assurance standards once a product hits the market. Maintenance costs for quality control is significantly less than developmental expenses. Recouping the costs of the R&D are typically achieved in the early stages of the product sale cycle. Over time, consumer prices should actually begin to trend downward, or at least, prices should follow component costs.

The reason for some companies to harvest their own raw materials was to avoid being at the mercy of diminished supply sources through third-party suppliers. This will be for another post.

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