Salon Product Diversion
Salon Product Diversion
Salon Product Diversion
Definition of Product Diversion
In general terms, product diversion refers to products sold by a manufacturer that are distributed into markets other than originally intended in violation of a contract, law or regulation. Product diversion of salon products is very different than general product diversion in that the general product diversion almost exclusively takes advantage of a manufacturer setting different price levels for different markets. In such a scenario, a distributor who pays for the product in the market enjoying lower prices from the manufacturer may undermine the contractual relationship with the manufacturer and sell the products in the market where the product is only available for higher prices. This is particularly common when manufacturers sell the same product internationally.
Unfortunately, salon product diversion has nothing to do with this. Instead, it is the make-believe "boogie-man" that manufactures use to enable themselves to steal all of the value from salon owners and managers. Most salon professionals have seen their favorite salon-exclusive product slowly show up on the shelves in their local Targets, Walmarts, and drugstores of America. Almost all of the popular salon brands from manufacturers like L'Oreal, Redken, Biolage, Paul Mitchell, Sebastian, Matrix, Clairol, Nexxus, and even Aveda have become a part of this somewhat deceptive marketing practice.
Manufacturers are supposed to be fighting this "problem" at every turn, but this is simply insincere. If you follow the money, manufacturers have everything to gain and salon professionals have everything to lose. Manufacturers have long relied on their assumption that salon owners and beauty professionals are not smart enough to figure out their conspiracy, but they have been put on their toes recently as many salon professionals have been asking the tough questions. Sadly, the manufacturers have no good answers because the truth is clear to anyone who digs into this issue. It is the manufacturers themselves that divert their own products and their motive is profit. Read on and you will see why there is simply no other answer. Also, we will tell you the one sure way the salon industry can stop product diversion forever.
Why Product Diversion is Very Bad for Salon Professionals
Have you heard of the salon chain that has the valuations of companies like Google, Facebook, or Microsoft? Have you heard about the salon professional that was recently added to the Forbes 500 richest people of the world? Do you know the reason why salons rarely sell for huge valuations and why salon owners rarely retire as billionaires or even multi-millionaires? The answer is that they have fallen prey to product diversion conspiracy and that oversight alone has allowed other companies reap all of the equity in their business. We'll tell you exactly how.
Consider Jill, a salon owners who has opened shop in her hometown about 12 years ago. Jill had experimented and researched many professional hair color products but decided to carry L'OHair Professional (a fictional manufacturer) products which were exclusively sold to salons only. Despite Jill's continued efforts to differentiate herself with her friendly conversation, exceptional skill, excellent customer service, and innovative ideas; she knew that many clients came to her simply because they loved the result of the L'OHair Professional products. Jill proudly promoted L'Oreal Professional products to take full advantage of this competitive advantage by displaying in-salon posters and other advertising.
Throughout the 12 years, Jill paid dearly for the L'Oreal product but gladly paid because it helped her build a loyal and growing clientele. Prices would increase from time-to-time and Jill was a good partner to L'Oreal and continued to pay them handsomely. Over the 12 year period, Jill would occasionally fall on tough financial times but L'Oreal would always demand payment for her product in a very timely manner. She had very little choice of changing suppliers as her clients increasingly associating Jill, her salon, and the exclusive L'Oreal Professional products.
One day Jill began to realize that her book was less and less full. She began to stop hearing from once loyal clients and she has a more difficult time attracting new ones. Her financial condition worsened and she decided to put her salon up for sale and she sold it at a price below market to one of her stylists as an act of desperation.
One day she bumped into one of her previous clients while shopping. She mentioned that she had sold her salon and decided to inquire as to why the client stopped coming by the salon. She was surprised to hear that the once-salon-exclusive L'Oreal Professional products were now being sold at the drugstore. Only then did Jill realize that she paid L'Oreal a handsome premium for many years so that Jill can have the privilege of building up a loyal client base for L'Oreal to steal from her once their products became popular. Jill then realized that had L'Oreal never intentionally diverted their products her salon would have had much more value when she sold it.
Jill felt infuriated because she felt robbed. Jill went home and called her L'Oreal sales representative who told her how much their company was against diversion and how they have many private investigators across the country trying to stop this problem. They said they are trying to stop diversion of their products and asked that she go back and buy all of the product off the shelf so that L'Oreal can reimburse her. Of course, she wasn't in a financial position to do that.
The Truth About Salon Product Diversion
Sounds like a familiar enough story, right? This might even be happening to you as you read this. So, do you want to know the undeniable truth of what is really happening here?
So many salon product manufacturers like to claim that they are fighting diversion and that they are the good guys on the salon professionals side. Nothing could be further from the truth.
Have you ever talked to a person who has tried to get any product sold on the shelves of WalMart, Target, CVS, or Walgreens? Getting them to carry your product is no small task. At a minimum, you are going to need the following:
- A certificate of insurance from a major carrier demonstrating a large amount of product liability insurance.
- Legal certification that the seller has the rights to use the products brad and trademarks.
- Successful completion of a considerable due diligence exercise where you demonstrate to the retailer that you are able to fulfill future orders at an acceptable volume and on a timely basis. The last thing a retailer wants is to fill their shelves with product, enter the SKU's into their systems, make room in their warehouses, and place ads for products that they will not be able to re-order.
- A bond or financial guarantee that you will be able to honor good-faith returns by customers for faulty product.
These items, especially number 1, 2, & 3; are almost impossible for any distributor to provide unless they either have the complete cooperation and knowledge from the manufacturer or, which is more likely the case, they are the manufacturer themselves.
Why Do Hair Product Manufacturers Divert Their Products?
There are three reasons why hair product manufactures divert their once salon-exclusive products onto retail and drugstore shelves. These are quite simple and straightforward, but we should list them out clearly:
- Because they can - there is no contractual obligation or legal restriction from doing so.
- Because they make more money in doing it - manufacturers understand when a salon-exclusive product has a large enough following with loyal enough customers that will flock to the drugstores to buy it for a much cheaper cost than they were paying at their salon.
- Because they get away with it - because salon professionals continue to believe in the "diversion boogie-man", manufacturers understand that they can continue to get away with this.
This brings us to our final topic... How to stop it!
How to Stop Salon Product Diversion Once and For All
There is a very simple way that we as salon professionals can stop salon product diversion once and for all. This is a three step process that all salon professionals that ever want their salon to increase in financial value and worth must begin to do immediately. Organic Salon Systems only sells products that have NEVER been diverted and operates with the highest integrity under an express and published Salon Non-Diversion Pledge.
Hold your manufacturers responsible. Stop believing their stories about the "Diversion Boogie-Man".
Stop buying products from any manufacturer that has ever diverted any products outside of salons. Be vigilant in this regard. Many manufacturers will change the name and branding slightly but a little bit of research will show it is the same product. Your ex-clients will have already figured this out!
Only buy products that have never been diverted and only buy from manufacturers that have a strict non-diversion pledge.
The final word on salon product diversion
In summary, be aware of the severe damage that salon product diversion will have on the long term value of your salon. Pick your products carefully and know who your partners are. If any of their products have ever shown up on retail shelves in the past, regardless of the manufacturers excuses, expect that they will again.
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