ABEVD PROJECT

Calculation of Value Added Margins for the Direct Sales Channel of Cosmetics, Personal Hygiene Products and Non-Cosmetic Products in the State of São Paulo

Brazilian Association of Direct Sales Companies - ABEVD

The project aimed to support the Brazilian Association of Direct Sales Companies - ABEVD in calculating Value Added Margins for the direct sales channel of cosmetics, personal hygiene products and non-cosmetic products in the State of São Paulo. To this end, a specific, previously established, economically and statistically consistent methodological framework was applied. Value Added Margins (VAMs) were calculated in transactions carried out by independent resellers who purchase and resell cosmetics, personal hygiene products and non-cosmetic products from direct sales companies in the state of São Paulo.

The Value Added Margin (VAM) is defined as the difference between the retail price charged and the wholesale distributor's outlet price. In the case of companies that operate exclusively in the direct sales channel for cosmetics, personal hygiene products and non-cosmetic products, the reference prices for independent resellers are given by the prices suggested or indicated by the companies. However, the margins actually earned at the point of sale are affected by discounts and self-consumption, both of which are subject to the individual initiatives of the independent resellers. For these reasons, the estimate of the retail margins actually earned also took into account the average discounts granted by the independent resellers, as well as self-consumption.

The survey of the parameters relating to the average discount practiced by independent resellers and the share of self-consumption in total sales was carried out through field research with a strong statistical basis. The field research presented two lines of investigation. The first aimed to obtain an estimate of the behavior of independent resellers (self-consumption and discounts) in the sale of products purchased under normal conditions, that is, products obtained through normal sales catalogs. The second aimed to obtain estimates of sales of products purchased under special conditions (promotional products). This process would generate two distinct estimators that, after due consideration, would generate consistent estimators for the consumption and sales behaviors of independent resellers. In this way, the data collected in the field research were applied to generate estimates of specific VAMs by product group.