CURRENT DILEMMA: Direct selling
Direct selling companies like Eureka Forbes and Tupperware have put their products online. While online sales volumes may not be huge, the mushrooming of e-commerce websites in India have forced direct selling players to make a hasty shift
Daniel R Pranjal
Chief Strategist, Strategy India
Direct selling as a business model gives people a chance to retail products and earn incentives which are based on the turnover achieved in a particular tenure. Direct sales is usually preferred by companies whose products need to be demonstrated to the consumer. These products have certain unique features that distinguish them from other similar category products, which makes them more attractive option than the others.
These products are retailed by network distributors only and not available in the local markets. Majority of the products are first tried and tested by the network distributors themselves. The direct selling companies conduct product trainings for its network distributors to highlight the uniqueness of its products, instructions for use, cost per use, advantages over other similar products in the market, etc. The distributors then share the product with friends, relatives and acquaintances. Therefore, successful direct selling companies understand the need for their network distributors to have confidence in the products and embolden them by offering satisfaction guarantee on their product range.
During personalised interactions with prospective customers there are more chances of educating them about other available products in the convenience of their homes in the language they understand and addressing the queries they may have thereby increasing the chances of up-selling.
The Achilles heel of direct sales is the loss of network distributors who give up after finding a few customers who like the products but never reorder due to the ordeal of finding a new distributor. For consumers, the exercise of finding a company associate in a particular area is a hassle.
For years, direct selling companies have tried to get their network distributors to maintain records and follow up with customers of distributors who drop out. Seven years ago, research showed that 6 out of 10 customers are lost due to this – the problem of finding a new distributor. But the internet can solve this issue if the company embraces it and shares the funds with the distributor organisation. Indeed it may be a way to improve recruiting and renewal of distributorships, stability and sales growth.
To become and remain effective, direct selling companies must match their great strength in developing relationships with new technologies. This combination will enhance the personal connections so critical to satisfaction, recruitment and retention of both the consumer and the seller.
The importance of ethics in the selling relationship, relative to a presentation of the business model and/or the product or service, has been a longstanding focus of the industry and may well become one of its most important and valued competitive advantages. A good web presence adds to the credibility of the company and products the distributor represents, assisting recruitment of customers and distributors.
If customers and distributors can find correct and detailed information about the product on the internet, then they need not learn every aspect of the product, company, compensation plan etc all at once. The brand is therefore promoted consistently and not misrepresented, whether due to ignorance or on purpose.
The internet also helps the company maintain regular, immediate and cost-effective communication with all the parties for product updates as well as train, inform, motivate and recognise the hundreds and thousands of distributors. In Australia, in the 70s and 80s companies would send out a magazine and wait six weeks for the response to, say, a new product launch. Therefore, internet is a wonderful support system for the direct selling company and lightens the distributors’ logistical burden, leaving them with more time to invest in their business and family. E-commerce portals should seriously consider direct selling to approach majority of our population with limited or no access to the internet.
Associate Professor, IIM Calcutta
E-tailing, which borrows its name from e-commerce, is the new retail channel that is showing fast acceptability and growth. Retailing is an integral part of the value chain in any organisation, whether they deal in products or services. It is a function that provides the ‘last mile connectivity’ between the organisation and its customers; as the organisation’s last ambassador in front of the consumers, it emerges as one of the most potent forces in influencing the performance of the value chain.
In Asia retailers face issues that are unique to the continent not only due to the presence of both traditional as well as new/modern format stores (commonly referred to as organised retailing) but also due to the introduction of digital marketing. The debate on ‘life or death’ of the traditional retailers or direct selling on the entry of e-commerce is always on but we see a trend of both formats growing together. Omni-channel retailing or multi-channel retailing is the name we might give to this emerging prominence.
Online retailing forms the crux of e-commerce. According to a November 2011 report by Avendus Capital, e-commerce in India is estimated at Rs 28,500 crore, with the largest contribution coming from the travel and tourism industry (87 per cent). Social media is on the rise as more people gain access to the internet, prompting more and more companies to take the e-commerce route. But there still exists heterogeneity across category growth. While e-commerce websites have mushroomed in India, internet penetration is still low. And that’s why a healthy mix of traditional mom-and-pop, direct selling and e-tailing is the way forward for companies that wish to address all sections of the consumers. The success rate will vary from category to category. At times, consumers behave differently within the same category. For instance, while men buy T-shirts online, women are averse to buying a sari through the same channel.
Coming back to the topic of ‘life or death’ of direct selling due to the advent of e-commerce, the new channel actually complements the traditional channel and synergises the entire supply chain. For example, a direct selling company that specialises in manufacturing water purifiers can beef up its on-ground sales staff network in tier II and III cities where internet penetration is low. At the same time, it will be a good idea to target consumers in metros and tier I cities by partnering with leading e-commerce websites. The new channel, in combination with the old one, will help companies deliver their promises to their customers.
E-commerce and direct selling are different channels targeting different segments and even the product categories differ widely. E-commerce also stabilises the power of the different stakeholders in the value chain through information symmetry. Multi-channel retailing is sure to grow and we might witness competition among the channels, cannibalising sales to some extent. In fact, e-commerce has actually increased the reach, the potential and the service levels of the companies, while simultaneously improving the efficiency of the older retail channels. As they say, “Competition improves efficiency, while monopoly makes a player lazy and inward looking.”
Companies are giving more importance and getting involved in e-commerce as it promises cost reduction, wider access to clients, customers and partners. Then there is the issue of competitive pressures and maintaining a certain image for the company.
Every movement, especially a new one, faces some friction from the existing market forces. The single biggest issue with the Indian e-commerce business is that a majority of the ventures are yet to turn in profits. Other challenges unique to e-marketing consist issues of audience control, information proliferation, share of voice, the ‘beta’ factor (incomplete offerings with the assurance that with time things will improve), novelty seeking and succumbing to social pressures. Companies need forward and backward integration for success and e-commerce is a step towards forward integration.
Over the last decade or so, there has been a deluge of information that the consumer has been inundated with.