~ Published in "Indian Management" a publication of Business Standard on November 2012
Direct selling in its various forms, once seen as a 'short term phenomenon' has now become a globally accepted business practice for moving goods and achieving global expansion without incurring the massive overheads and investments usually associated with expansion.
The World Federation of Direct Selling (WFDSA) states in its latest report that the official turnover of generated sales volume is $153,727 million. With more than 91 million registered independent sales people involved in selling and distributing goods and services worldwide it is easy to see and understand why these figures are achieved. It also explains why there has never been a decline in sales revenue even in times of recession. These numbers only capture a small segment of companies ( that have joined the WFDSA). The products and services marketed via independent direct sellers cover almost all consumer goods and services.
Such is the success of this model that literally, hundreds of new companies are started every year in the US alone, with that number being multiplied throughout the world. However, as is the case with all new startup companies only a few of the well run operations survive.
In India the survival ratio is even lower due to the fact that the direct selling model has not been fully understood. However that is gradually changing due to the expertise and experience of the management teams of companies, understanding of the business model by various government officials, through education and training the current perception of direct selling among the people - resulting in a far greater success rate for Indian companies and independent distributors alike.
On the surface the business model seems very simple and easy to duplicate. After all it's a business model that takes product and services direct to the consumer without fixed retail locations using independent commission based entrepreneurs thereby reducing fixed overheads like staff, buildings and operating costs. That being said, there is a cost in locating, training and retaining your independent entrepreneurs. Done well your company will do well, survive and prosper. Done incorrectly it will not be long before you see the demise of the company.
In all direct selling companies the greatest asset that the company has is its people - something that is so often overlooked.
The way in which the new direct selling company enters the market is also crucial as there are some very important key elements that need to be included in the business strategy and systems:
Key Elements:
- Consumer centric. Communications have changed the way in which consumers purchase products today. It is no longer just the price that attracts your customer but the level of customer service that you offer. People at the touch of a button can access so much information on you, your competitors, and all aspects of your business. At the same time they can research any and all negative comments that have been posted about you, your product and your service. The future is for direct sellers who build their business around consumers and provide them with a good experience from the performance and value of the products to the advice and service that they receive. This level of one to one, hands on personal service is far superior to any fixed retail store with thousands of products on the shelves.
- Initial Limited Range: You can afford to have exclusive and unique value for money consumable products. You can start with a small range of SKU's (8 -10), bearing in mind that in the long term, and to sustain repeat business and achieve ongoing growth you will need to increase your range of products, but never taking your eye off of your flagship product that attracted your initial customers.
- Financially Rewarding: Independent sales people do not in general terms have loyalty to a company as they are driven by financial rewards and incentives. It is therefore, that as a company you have a competitive and lucrative commission and incentive rewards structure that not only attracts the entrepreneur but also keeps them. Of course we are all very well aware that a financial pie can only be cut into so many pieces, but it is how those pieces are packaged and presented that makes the difference
- Training Modules: A first class training program and a guidance system is essential. This has to be in place from the very outset as it sets the standard and tone for moving forward and providing the best foundations for survival.
- Administration and Support: Always hire the best staff. If you can't hire the best then think twice about starting a business. Hire the best advisors to assess your product, market place and financial rewards package. Then hire the best to launch and run your company. This is a very financially lucrative model, but it is in this area of the start-up business that most fail..
- A code of conduct and code of ethics: You require a strong code of conduct and ethics as that controls and enforces good behaviour in the independent sales force which strengthens your brand and ensures protection of the interest of consumers and your independent distributors. Your business must comply with the spirit of local laws to be a long term successful player in the market. India today is in the midst of a process to bring order to the direct sales industry. Your company needs to be up to date with changes and what they mean in practice.
- Guarantees: A solid satisfaction guarantee (money back) will not only build consumer belief it will also assist in building distributor confidence to sell.
- Developing the "Guru" in You: Not everyone can be a charismatic 'guru' in their direct sales business. In the past this was thought vital as the direct sales businesses were driven by unique individuals who had great stage craft. In fact today many companies are prospering without such leaders, however, you do need an owner who leads by example and becomes the figure head for the right culture that they business will develop.
There's much more of course and a lot depends on the type of direct selling organization that you intend to build. Single level as Avon is known is where distributors earn commissions purely from personal retail sales. Then there is Party Plan like Tupperware where again distributors earn commissions from retail sales as well as a percentage from team sales. Multi Level Marketing (MLM or Networking) where the building of a sales network and earning mainly from commissions and bonuses on the sales of the products or services of the team is the driving force. There are many variations on this model which is why it is so crucial to seek guidance and advice before embarking on this journey.
How to move forward
1. Get help from successful and experienced advisors.
2. Do the market research and get a good understanding of the industry of the major players and watch what they do.
3. Join several companies as a distributor and get the experience first- hand. Study every aspect of their business via the information they will supply.
4. Seek legal and financial advice from people understand and have experience of your business model prior to embarking on the business to avoid costly mistakes.
The future
Direct selling offers a great way to get your products to market not only domestically but globally. It also has the benefit of developing entrepreneurs and is recognized for providing employment and boosting the country economies.
The key is to treat the development of your business with respect and avoid the big pitfalls that can await you if your homework is not done correctly.
