Direct selling goes for a toss as products move to e-commerce sites

US giant Amway, like many other direct selling companies, is confronted with a serious problem that could hit at the core of their time-tested business model. 

Direct sellers recruited by Amway, the country’s largest direct selling company, are allegedly hawking their products openly on leading e-commerce websites, even though the company admits it is in direct violation of their contractual obligations. 

E-commerce sites including Amazon, Flipkart, Nykaa, and eBayIndia, among others, offer products from direct selling companies, including from Amway, at heavily discounted rates. 

Not only are the direct sellers openly flouting rules, in many cases they also inflate prices of products (from what is the recommended by the companies). One such case was for Amway XS Energy Drink. The original price of a pack of four 250 ml cans was shown on Amazon at Rs 3,360, when the recommended retail price was only Rs 440. This was done in order to woo customers by exaggerating the discounts (in this case 88 per cent). 

An Amway India spokesperson, while not responding to a question on the practice of marking up retail selling prices, said that its contract with direct sellers placed an obligation on them to not engage in unauthorised selling in any form including through e-commerce websites. “This contract is enforced rigorously by Amway. According to direct selling guidelines issued on September 2016 by the government, selling products (of direct selling companies) through the e-commerce channel is prohibited. We have taken legal action in the past when these rules were violated, and will continue to do so to protect our customers and individual entrepreneurs.” 

The Amway spokesperson also added that it had put up a prominent notice on its website, informing the public that their products were sold only through Amway Direct Sellers, and it did not guarantee purchases made from unauthorised sources. Amway also sells through its own website, but customers wanting to buy through it have to put in the membership number of a direct seller or the company earmarks a direct seller. 

The Amway spokesperson said the company had informed all major e-commerce platforms regarding the existence of the direct selling guidelines by way of official letters.

E-commerce companies, however, say the onus lies with the sellers. An Amazon India spokesperson said: “Amazon operates an online marketplace in India. Those selling their products through the marketplace are solely responsible for all necessary product compliance and are required to sell products that are legally allowed to be sold in India. Whenever concerns about listed products get raised, we review the case with the sellers.” Flipkart did not respond to an e-mail regarding this issue.

A prominent seller on e-commerce portals said that most vendors putting direct selling products on sale online are not registered with any of the prominent vendor organisations. “We have tried to get in touch with these sellers, but till now they have not made any contact with us. We want to know how they can sell a product meant for direct selling on an e-commerce website. We now plan to approach the e-commerce companies to blackball such sellers,” said a senior office bearer of a seller organisation. 

The proliferation of product sold in e-commerce sites virtually ranges from their entire portfolio and analysts say that it has an adverse impact on genuine direct sellers who continue to follow the rules.  Experts also point out that direct selling companies have been going soft on this practice as their overall sales are going up, with consumers increasingly finding it easier to buy products from e-commerce sites rather than look for a direct seller of a company. An Amway spokesperson, when asked this question, did not respond to the query. Amway also declined to share the number of direct sellers they have taken action on. They also did not comment on whether they have taken up the issue with e-commerce sites through any legal route apart from sending letters.

According to estimates, Amway commands a 75-80 per cent market share in the direct selling sector in India. In fact, India is one of the 10 big markets for the company.  In Amazon itself, the Amway range up for sales includes its Nutrilite range, liquid concentrate laundry detergent, protein powders, shampoo and conditioner, tooth paste, talcum powder, soap packs, face to car washes, creams and deodorants, just to name a few.

FLOUTING MODEL RULES

• Direct sellers recruited by Amway are allegedly hawking their products openly on leading e-commerce websites
• E-commerce sites including Amazon, Flipkart, Nykaa and eBayIndia offer products from direct selling companies at heavily discounted rates
• Not only are the direct sellers flouting rules, in many cases they also inflate prices of products from what is the recommended by the companies
• E-commerce companies, however, say the onus lies with the sellers
• Experts say direct selling companies have been going soft on this practice as their overall sales are going up, with consumers increasingly finding it easier to buy products from e-commerce sites