The Fundamental Flaw in Selling Resale Rights
Many, many infoproducts are now sold with resale rights, also commonly referred to as resell rights. There are many variations of resale rights available, but the general intent is almost always the same: to give the purchaser of a product the legal permission to sell copies of the product to others without paying further monies to the original seller. No royalties or other payments are required, and resale rights are often non-exclusive — in other words, the original seller can grant resale rights to same product to two or more purchasers.
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.
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