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Diamonds want Quixtar prices lowered |
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| According to site visitor feedback, some Quixtar Diamonds are
talking about an initiative with the IBOA board to get Quixtar to reduce its prices.
The diamonds recognize the Quixtar prices are not competitive. The
diamonds' argument is that Quixtar will sell more product if the products are less
costly. Basically they think what profits Quixtar would lose in price
would be made up on increased volume. When I was surfing over at Quixtar Blog, I found the article on Quixtar's Kick start program. I took a look at Quixtar's product bundles that were used in the program. What struck me was how much money one had to spend to just get 50PV and what one actually got for their money. There were 15 different product bundles. The product bundles were designed to have 50PV and cost between $115.95 and $149.95 with an additional $9.95 for shipping.
Site visitors have also said how they actually calculated the $/PV ratio for various product, and purchased the products with the "biggest bang for the buck". Points rather than value drove their purchases. There goal was to get 100 or 150 personal points one way or another. One needs to look no further than in a distributor's garage or basement to see the inventoried boxes of high PV items like coffee, soap, and cookware to know that many distributors are not buying product that they need, but rather buying the product, which gives them the highest points for the least amount of money. This is also why you will see products such as Amway cookware, Nutrilite vitamins, Amway vacuum cleaners, and the E-spring water treatment system for sale on E-bay and occasionally for less than distributor cost. Site visitors also tell me that there is a predictable drop in their Quixtar volume during the months in which their line of sponsorship has a major function. Distributors are frustrated since they lose product volume when their downline distributors redirect their expenditures to their upline's seminar tickets. Platinum distributors can easily fall below the 7500 point level in months in which there are major functions. This correlation shows the typical distributor is strapped for cash and must make a decision between spending money on the system or on more "points" from Quixtar. It strikes me as rather hypocritical that the Diamonds are complaining about Quixtar's high prices when their "success systems" are obviously competing for the discretionary expenditures of their distributors. When one considers a diamond's system can cost $7,000 per year for gung-ho couples and $2,800 for gung-ho singles (see page on summary from a tax preparer) one can see why there is not a whole lot of cash flow available for Quixtar products. I see the diamond initiative as being more of a smoke screen to keep the IBOs from focusing on the costs of the Diamonds' "success systems". Considering the majority of Quixtar products are sold to distributors themselves looking to "buy their way to success" and to be a player on their team, many of their distributors can be classified as captive, price insensitive customers. Quixtar probably has little incentive to drop prices since their customers are price insensitive. Many distributors are going to buy 100 PV or 150 PV to meet their point goals regardless of the product value they receive. The price insensitivity can be observed with distributor's own actions. 66% of first year distributors do not renew. This tells me the majority of distributors cannot find enough value shopping at Quixtar and leave. Additionally, many diamonds tout the fact that their system sales directly correlate with Quixtar product volume. The system teaches people to disregard the price issue. One argument is that if you recruit enough people and start to make some money, the prices will not be an issue. Their argument is that any bonuses you receive will cover any price premiums you are paying. So distributors are taught to be price insensitive from the tapes and seminars. Will the diamond initiative to lower prices at Quixtar be successful? I doubt it and here is why. First is that any significant price cut would probably have to include a cut in bonuses. Bonuses make up an average of 32% of Quixtar's sales. Bonuses can be as high as 50% for some core line products. It is unlikely that Quixtar could make a significant reduction in prices without affecting the bonuses paid out. This is a two edged sword. Even if Quixtar's fixed overhead costs (costs that are independent of product volume) were 40% of sales, a doubling of volume could reduce fixed overhead cost per unit to 20% of the product price. Therefore a 20% price reduction might be possible without affecting Quixtar profits or distributor bonuses. Since many Quixtar products are much more than 20% overpriced, it is doubtful if sales could be doubled with just a 20% reduction in price. Anyway, it is unlikely that Quixtar has such a high percentage of fixed costs. If, as a percentage of sales, Quixtar has a very low fixed overhead, it will be impossible to drop prices without effecting Quixtar profits, or the distributor bonuses, assuming Quixtar is now "maximizing profits", like all good capitalistic companies do. If you can agree that Quixtar distributors are tied to buying their "points" from Quixtar then we can assume that Quixtar is acting as a "price maker" (read the Economics Refresher Course below). If Quixtar is a "price maker" over its distributors, then it will follow that the diamonds' hopes of convincing Quixtar to reduce prices and increase volume could actually reduce Quixtar corporate profits rather than increase them. Since most of the consumers of Quixtar products are the distributors themselves this creates a strange incentive for the Corporation. Quixtar could price their products at competitive levels and increase their outside sales, but it would not make any difference because there is still very little incentive to sell to retail customers because the advertising, marketing, and time costs to the distributors exceed their commissions - even more so as the margin drops with reduced prices. Alternatively, they have a perverse incentive to RAISE their prices over fair market value because that allows them to pay back a higher percentage of each "sale" as part of the override and fuels more "success" stories to motivate the distributor force. The more they do this, the more difficult it becomes for even the real salespeople to sell the company's products and services to outside customers. I am certain the Diamonds' ideas will be met with deaf ears. Economics Refresher Course - Profit Maximization TutorialFrom an economic standpoint, if Quixtar thought it could earn higher profits by expanding volume through lower prices, they would have already moved to this price/volume level. Quixtar is in the best position to know the price elasticity of is product offerings and not some diamonds who think the prices are too high. Quixtar has no doubt already set prices to maximize their own profit. It could be that Quixtar has found out the reverse is true. Higher prices, with less volume might maximize their profits. I would think Quixtar knows their customers are rather price insensitive and Quixtar is taking advantage of it.
Using the interactive model below you can see how Quixtar profit is changed with the quantity of goods sold. You can see that up to a certain point selling more product for a lower price does not maximize profits for the firm. 1) Use the mouse to drag the green
triangle left or right to simulate changes in output. Try to determine the profit
maximizing level of output. |
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Product Bundle I
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Healthy Start
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