Products sold in this manner suffer from a fundamental flaw that eventually works to the detriment of the purchasers and sometimes (but not always) the original seller: the inability to legally set a minimum price for the resold products.

Price Fixing is Illegal

Most resale rights include specific limitations on where, how and to who the purchaser can resell the product. Despite what those restrictions say, however, the seller cannot require the reseller to sell at a specific price. They are free to suggest a price, of course, but the reseller can price the product as he or she pleases.

The reason is quite simple: price fixing is illegal in most jurisdictions. Rather than go into the reasoning here, though, let me just point you to the extensive entry on price fixing in the Wikipedia.

Prices Trend Downwards

In the tangible world, products cost money to produce. These costs invariably generally set a lower bound for the retail price of the product. Few tangible products are ever sold at a loss, and even “loss leaders” are sold with the expectation that extra purchases (of other products) will make up for the loss.

In the infoproduct world, however, the rules are different. Although the first copy of a product costs money to create, each copy thereafter is essentially created at zero cost. This changes the underlying economics. The lower bound of the price is now zero. Even if a reseller purchases a product for $100, they can recoup their initial investment in the product by selling only 100 copies at $1 each. Everything beyond that is pure profit. (It’s true that I’m simplifying things slightly, obviously there are costs involved in promoting the product, processing payments, etc., but a good infopreneur will spend hardly anything on most of these.)

There’s a joke that goes something like this:

“Bob, we’re losing ten cents on each sale of our product!”

“Don’t worry, Jake, we’ll make it up in volume.”

If the product costs you essentially nothing, though, the joke isn’t a joke anymore… volume does in fact become more important than price… Even if you amortize the cost of the product (what you paid for the resale rights + whatever fixed costs you have for marketing it) over the total number of units sold, the per-unit cost approaches zero as you sell more and more units.

And with non-exclusive resale rights (which is the most common scenario), all it takes is for one reseller to price the product below the suggested retail price range to start the downward spiral. Once the product is out there at a low price, other resellers will follow suit. Eventually, the product will end up selling for several dollars on eBay. Don’t believe me? Check out the information products section on eBay.

Push It Hard, Push It Fast

If you purchase the resale rights to a product, you need to promote it fast and hard. The key is to get the product out at the price you want before other resellers flood the market with lower-priced offers for the same product. You could say that a resale rights product has a short shelf life.

Once a product is widely available at a very low price, the retailer’s profit margin starts to shrink considerably. There are different tactics to use at this point:

• Sell resale rights. If a product was sold with “master” resale rights, you have the ability (but are not required) to sell the resale rights to the product as well as the product itself. If you haven’t already done so, you can start selling the resale rights and not change the price. (This will hasten the decline of the market, of course.)
• Target a new audience. See if you can find a fresh new audience for the product, especially an audience not already flooded with emails from other Internet marketers pushing the same products.
• Setup a membership site. Resale rights products are perfect for membership sites like Mr. OverDeliver, especially those based on the Butterfly Marketing system. Products with resale rights appeal to potential members, especially if the membership to the site itself is free.
• Bundle products together. Create a “super-product” by combining two or more related resale rights products into a single bundle.

Many marketers will simply look for something new to sell, of course.

How the Creator Benefits

You might be wondering how the original creator of the product benefits from selling resale rights? Well, besides providing new income streams from tired products (many products sold with resale rights were originally sold without such rights), it also allows the creator to funnel more people into his or her backend sale system. It can be as simple as embedding affiliate links within a product, or offering free updates to the product if the purchaser registers the product with the creator.

Beware of Resale Rights

If you’re purchasing a product because it comes with resale rights, be careful. Do some research before proceeding. Is the product being sold on eBay? Can you find other websites promoting the same product? At what prices are others selling it? Is is available for free anywhere, like in the popular membership sites?

Don’t forget to look closely at the product itself. Is it a good quality, sellable product? Resale rights may just be the lipstick on an otherwise unsaleable pig.

Don’t get me wrong, it’s not that you can’t make money with resale rights products. But you need to go into the process with your eyes wide open.

Technorati Tags: resale rights, resell rights, affiliate, price fixing, membership sites, Butterfly Marketing

Which brings us to today’s topic: resale rights. In my opinion, and without meaning to offend anyone of Asian origin or inclination, resale rights are the curries of online marketing.

Let me explain.

What Are Resale Rights?

Broadly defined, “resale rights” are the rights to sell a product that someone else created. Resale selling is different from affiliate selling because resellers interact directly with the customers — in other words, the reseller is the vendor. In affiliate selling, the affiliate is not the vendor and is merely acting as a sales agent for the vendor.

There are different kinds of resale rights. Private label rights, for example, allow a reseller to pass a product off as their own creation. PLR articles, for example, can be used to create content-based sites that make money via AdSense and other advertising programs. Master resale rights let you sell not only the product, but also the rights to resell the product. And there are umpteen variations that we can all lump under the general category of “resale rights”.

Resale rights are not unique to Internet marketing. Book and music publishers often sell resale rights to other publishers. And retail selling is perhaps the simplest use of resale rights that everyone understands.

Resale Rights for Online Products

Resale rights for many software and infoproducts are readily available today. On my hard drive I have well over a hundred different products with resale rights, most of them obtained from free membership sites like Mr. OverDeliver and MyFreeGiveaway. I’ve only been able to review a few so far, like Desktop AdSense Cash Machine (review) and Keyword Niche Power (review). It takes time to sort through all those products and find the ones that are worthy of a review.

Every day, more and more products with resale rights appear on the market. Sometimes it’s the same products you’ve seen elsewhere, but in different form — remember those private label rights? — but many are entirely new products. So why are online marketers so hot for resale rights? There are two reasons, one obvious and one not-so-obvious.

Reason 1: Back End Sales

You’ve surely come across free e-books and software before. Just recently, for example, I offered a free copy of Google AdWords Made Easy to my readers. These free products exist primarily to promote, directly or indirectly, other products, products that are not free. This is the “back end” of the sales funnel, so to speak. Give away a product, or sell it cheaply, and make money from the other things you sell to the customer. (For Google AdWords Made Easy, for example, the back end sale is a product called Keyword Elite, which I hope to review here at some point.)

Again, giving things for free in the hopes that you’ll become a paying customer isn’t unique to online marketing — how many free samples have you had at the grocery store? But the cost of giving away product online is basically nothing, so it’s much more prevalent.

The problem with free products is that there’s no money upfront. But with resale rights you can get some money immediately and then make more money later. You also get motivated sellers who get to pocket more of the profit from selling resale products than they would through normal affiliate programs. They can also (depending on what resale rights were acquired) market the product differently, set their own prices, add their own material, etc.

Reason 2: Switching the Market

Here’s the real reason so many products are sold with resale rights. Recall that in Understand Your Meta-Market I described the two online meta-markets: consumers and resellers. When you add resale rights to a product you are changing the meta-market. You’re not targeting the end consumer, but rather the reseller. You’re pushing the product out instead of waiting for consumers to pull the product. It’s a very clever model.

The Curry Analogy

And now you understand what I mean when I say that resale rights are the curries of Internet marketing. Want to spice up your sales? Mix in some resale rights to your products and your product will all of a sudden appeal to a whole different demographic.

The fallacy, of course, is thinking that resale rights will hide product flaws. Better you spend your time creating a better product than tempting others to resell a poorly-made product. If the dish isn’t tasty without the added curry, you’re doing something wrong.

Technorati Tags: resale rights, AdSense, curry, private label rights, meta-market, affiliate, reseller