For several years now, I've been reading books and magazines and interviewing entrepreneurs to gain more insight into the process of starting and running a small business.  My business goal is to start with as little cash as possible, start from my apartment, and still maintain my day job.  Based on my discussions with other entrepreneurs, this probably sounds familiar.

One facet of small business I need to learn more about is the marketing of my product ideas.  To that end, I've been contacting people associated with different distribution channels to pick their brains.  From these discussions, I'm learning a lot about the methods available and how best to use them.

The brain I picked for this article is Mark Schneider, 610-363-0216, Product Concepts Company, Philadelphia, PA.  Mark and his associates market products to the TV shopping channels, such as QVC, Home Shopping Network, Value Vision, etc.  As a product representative, he can help a small business jump through the hoops necessary to sell a product on a shopping channel.

The first step is to submit the product to the shopping channel.  This is a form that includes a product description, pictures, and price information.  (Call the channel and they will send you a packet for review.) No product should be sent at this time.

From there the product will be evaluated by a buyer and a team of buyers. Things that are considered during the evaluation are liability of the product, existence of a competing product on the channel, profit margins, uniqueness, and the demonstrability of the product.  Liability and margins are issues dealt with by all companies.

Competing products are not a problem, but they must be in different price ranges.  An example is the different levels of exercise equipment.

The uniqueness and demonstrability are very important for this particular marketing method.  Being on TV allows the product benefits to be demonstrated and explained in detail.  ("The more you tell, the more you sell.") These two features receive the most weight when determining whether a product is accepted.  However, the selection process is still very subjective.

Another issue the evaluators have to deal with are the show's segments. Each segment of the TV show focuses on a different category of products such as home improvement, cosmetics, home decorating, etc.  If the product under consideration does not fit into a category already defined by the show, it may not be selected as a product for sale.

Mark points out that many of the evaluators are not very well qualified. Therefore it is very important to follow through.  This is where having a representative can be useful.  They can call the proper people to be sure that the product is receiving the proper attention.

After a product is selected for sale, it must pass stringent quality assurance tests.  This is where the product is tested to ensure that it will withstand the rigors of shipping.  The product is also evaluated to be sure that it is not dangerous in any way and that the directions are sufficient for the channel's customers to use the product properly.  If there are problems, many times they will work with you to identify a solution to the problems encountered.

Upon passing the evaluation and quality assurance stages and before the product will be programmed, the product must be stocked in the warehouses of the shopping channel.  Most often, there is a minimum quantity of product the manufacturer must supply.  This number is based on how well the channel expects the product to sell.  Initial orders typically fall between $15,000 and $25,000 in retail sales.

It is likely the amount supplied by the manufacturer will be more than the product actually sold.  This is to ensure the channel can sell as much product as possible in the least amount of time and effort.  The warning here to manufacturers is that you must take back all product that does not sell.  This includes all product returned by customers -- for any reason -- within the 30-day return policy.  This is what is referred to as a guaranteed sale (for them that is!).

The shopping channel will mark up the sale price of your product 30% to 50% over the wholesale cost.  Electronics tend to fall in the 30% range and items such as housewares, nutrition and cosmetics fall in the 50% range.  When evaluating a product idea, the inventor must determine whether sufficient margins can be had for all those involved in the sale of the product.  This includes the channel, the representative (if any) and the manufacturer. Failing to have sufficient margins can cause serious cash flow problems and kill a company -- even with a great selling product.

After the program has run (and hopefully your product has sold wildly!), it will be roughly 45 days before you will receive payment for the items that have sold.  At this time you will also receive the excess product that did not sell.  However if your product sold well, the product will be kept and sold again.  And you will likely be asked to supply more product, depending on how well the product sold the first time.

Another possibility if your product sold well is a guest appearance.  If your product is selected for this, you will be asked to be on the show with a shopping channel sales person to extol the benefits of your product and for a longer period of time.  In this case, $50,000 in retail sales inventory will be requested.

Once a product has made it on TV, the product might also be sold in catalogs or through retail stores.  Mark says that having a product on a TV channel can set up lots of opportunities for retail sales.  When developing a product, Mark packages products as if they are going toward a retail store environment.  One reason for this is to be ready for retail sales if the idea takes off.  The other reason is to be ready for the liquidators -- who also prefer it to be packaged for retail sale.

For those with an idea, but lack either capital or the initiative, Mark will also license the product from an entrepreneur.  How much Mark pays will depend on how much the entrepreneur has put into the development of the product.  If a person has only the idea, the royalty fee might be as low as 1% on wholesale sales.  For a fully developed product, Mark might pay as high as 8%.  This would be a situation where the product allows for high margins and has all the trimmings, such as manufacturing and packaging.

When Mark licenses an idea, he turns it over to subcontractors to develop the product.  He invests time and money into the development of the product like a normal manufacturer.  He basically becomes the manufacturer of the item by using subcontractors.  Mark must invest a lot of money in the development and therefore pays very little in royalties.

Mark prefers to deal with products that have some form of protection, such as a patent.  As with all businesses, Mark is trying to protect his investment in the product development and marketing.  However, Mark concedes that this does little good because the entrepreneur can spend a lot of time and money stopping others rather than making new sales.

As a representative for numerous products, Mark does not sign non-disclosure agreements (NDAs).  The reason for this is that Mark or one of his clients might be considering a similar product.  Signing an NDA might put him in legal jeopardy.  Mark also commented that trust is a big factor when giving your product idea to some one with no protection.  Before doing so, due diligence is necessary to understand the person and the company you are dealing with.

Mark suggests that many products can be targeted towards shopping channels.  The demographics for these channels are typically women (70-75%).  They typically buy for themselves, but also buy for the men in their lives.

Because I am at the very start of the product development stage, I asked Mark whether a shopping channel would consider a product that was not fully developed.  He said that if they liked it enough, they would say so and wait for the manufacturer to finish the development.  This might be a good way to test some product ideas without putting a lot of money up front.

The shopping channels do deal with smaller businesses through their vendor relations groups.  Some even have programs to target small-business products and feature their products on special segments.

Seasonal products will sell on shopping channels, but in general (for all mediums) are not good products because of the short window of opportunity. If the product sells well, it is very difficult to restock the product to sell more (product dependent, of course).  The margins for this type of product must be much higher for the manufacturer to compensate for tooling and marketing costs.  Therefore, the product must be able to be sold for a relatively larger retail price.

As for Mark's credentials in marketing to TV shopping channels, Mark started by selling two of his own products to shopping channels.  In the end, his products did very well.  One of his products is still being sold after seven years!

Another twist on the story is that Mark now works for the company that once represented him.

I would appreciate any comments on this article including whether readers found it useful or felt it was lacking in some way.  If anyone has any contacts for other distribution channels, those would be appreciated as well.  I can interview them and possibly write another article.

I can be contacted during the day at 419-244-7394 ext. 109, in the evening at 734-439-1621 or by email at buckingham@picosys.com.

Resources:

Home Shopping Network, 800-284-3400.  (This is the order line, but ask for a vendor packet.)

QVC, 610-701-8282, for a vendor kit.  Also, checkout their Web site: www.qvc.com.