Secrets About Multi-Level Selling

Dear Diary,

Clearly, it is time to ponder. It is now more than a year now since I joined the Oriflame distributorship. Had it been worth the effort?

A year back, when Gita, our next door neighbour at Kailash Hills suggested that I join the Oriflame business, I was a bit apprehensive. Both Rahul and Medha had started going to school, so would I have any free time left after the regular household chores, the kids' homework and my regular tailoring business? In the end, it didn't take much persuasion. Frankly, I wasn't averse to the idea of an extra source of income by simply using my free time productively. Of course, without neglecting my family.

 

But when I started off, I wasn't even aware of Oriflame. Nor did I know much about the direct selling concept, let alone the incentive structure that the company was offering. It took about four to five months for the concept to sink in.

The training sessions held at Oriflame's service center helped me to learn more about the attributes and usage patterns. Since I did not have any formal training earlier I knew very litttle about

the products, which is necessary to convince customers to pay the premium.

Now I'm beginning to enjoy the experience!

June 20,'97

Dear Diary,

I'm feeling quite elated today. Completed as many as six successful demo calls. All the calls looked as if they would translate into strong customers for the future.

Initially when I started out, I would go knocking door-to-door among the people I knew. I would tell them about Oriflame's background, and about the portfolio of products the company offered.

But once they have tried the product, the cycle would become relatively smooth, with customers calling in for replenishments. As a result, today I only go out for make up demonstrations.

My primary criterion in identifying a customer is affluence, since the products are decidedly premium. But mind you, I've discovered that it is easier to sell the products to the relatively less sophisticated clientele, since they are more willing to get to know about the brand than the we-know-it-all brigade.

Interestingly, at one of the our recent distributor meets, one of the distributors raised an interesting issue: she had heard customers complaining that they were invariably being pushed into buying the more expensive products. That meant that sooner or later, consumers would wisen up to the fact that they were being duped and repeat purchases would slow down.

As I've realised, there is merit in honest selling. At our distributor training sessions organised by the company, there was considerable emphasis placed on gaining the confidence of the customer. Since most of the products are such that they require consumer education, it was vital to gain the trust of the customer and for her to perceive us as Beauty Advisors. Alas, in some cases, some distributors tend to miss this simple truth!

June 2197

Dear Diary,

Just realised that there are downsides to relationship selling as well.

Day before yesterday, a customer in Mayur Vihar (IFS Colony) ordered 26 shades of lipsticks. So this morning I had them picked up from the service centre and delivered to her house. But apparently she didnt like them and promptly sent them back a while back with her driver. When I called her, it took me three tries to get her on the line. She was very indigant -- kept insisting that the colours werent upto the mark. Finally for the sake of customer relationship, I decided to forget the issue.

June 22,97

Dear Diary,

Pleasant surprise this morning. Got a call from Mrs Khanna at GK II. Had met her through Mrs Dhawan, my business associate at a kitty party about a month back. Guess what, Mrs Khanna offered me a chance to become an

Avon lady!

The offer to work as a Beauty Advisor for the world's leading cosmetics and skin care company was flattering indeed. Need to check with Gita on its feasibility.

June 23,97

Dear Diary,

Gita's advice came as a real surprise. Apparently, soon after its launch in September last year, Avon did very well. But it wasnt long before its sales started dwindling. Very few customers called in for replenishment of stocks.

Gita said her neighbour, who signed up as an Avon distributor keeps complaining about the companys product portfolio. They have apparently misread the Indian market. (Must remember to tell my brother-in-law, Ajay. Maybe he would like to carry a story in his newspaper.)

In general, Indian women prefer lighter shades for nail enamels because of their dark complexion. Avons portfolio offers mainly dark coloured nail enamels. Similarly, Indian women prefer slightly dark lipsticks (colours close to brown), whereas Avons range in India offers colours like violet and magenta, which do not gel with Indian tastes.

Besides, in a tropical climate like India, during most times of the year, it is not suitable to wear other foundations and make-ups like blush-ons. That has certainly affected growth prospects.

In a desperate bid to push up volumes, I was told that Avon distributors had begun undercutting prices. In some areas, they even offer upto 45 per cent discounts on their products. So much so that some distributors are offering lipsticks at Rs 70, whereas the MRP is Rs 125.

The travails of the Avon Lady in India doesnt end there. Although Avons reward stucture is much more transparent and simple it failed to motivate its sales force. Avon offers a 6 per cent peformance discount. (In case of Oriflames the rate varies according to the actual business done). This can go up to 21 per cent of the business volume. But Gita says that in most cases, the performance discount turns out to be higher according to Avon's sytem of calculation.

But that is only half of the story. The performance discount is available on one's sales volume only if any distributor attains a sales volume of Rs 20,000, which was raised in January 97 from Rs 5,000. Failing which the distributor earns additional benefits only on sales volume of her downline expansion (hence there is no incentive to increase her sales but rather keep spreading the network). But in a lean situation, it is a deterrent for Avon ladies to increase sales, as they are unlikely to benefit from the additional effort they put in.

To put it in a different manner, whenever you increase sales the person you recruited benefits unless your personal volume reaches a certain level. And as a result of which a huge number of Avon ladies left the sales force.

Earlier, the person Gita knew apparently had a network of around 100 Avon ladies, which was ended up into a breakaway

of 40-45. Now the lady is left

with only three persons in her breakaway. (Thats very low

given that I have nearly 15 distributors downline in my

Oriflame network).

Not only that, just to keep the membership active (which requires purchase of certain amount of Avon products each month), the lady has been buying Avon products for last three months. Now since there is very little offtake, stocks are merely piling up.

No wonder then, that Avons salesforce in Delhi (the only

city where it is present) has around 2,000 distributors, of which only 1,000 are active Avon ladies. Correspondingly, Oriflame has over 30,000 distributors in India, and in Delhi, the total sales force is over 10,000.

Just too bad!

June 24,97

Dear Diary,

Received an interesting letter from Manju, my sister-in-law in Kamptee, near Nagpur. Harish, my elder brother is a colonel with the Fourth Armed Regiment.

On her last visit to Delhi during the summer vacations, Manju was quite enthused by the idea of taking up a similar distributorship. But till then, none of the companies had expanded their base to western India.

Now Manju writes in to say that she has now taken on the Oriflame distributorship a month back. And was thrilled to say that she had earned Rs 2,000 in the first month itself. As an Army officers wife, Manju says she has plenty of free time and enough contacts to sell to.

But in smaller towns, the problems are considerable. For instance, Manju says she placed her order through her recruiter. It took 15 days, after the order was processed, for the packet to reach Kamptee. No customer was willing to wait that long. Besides, since the products have to be couriered, and the distributors have to pick up the additional cost, there is a tendency among the distributors in smaller towns to club orders, which again increases turnaround time substantially.

Manju adds another distressing issue. Her enquiries suggest that Oriflames repeat purchases have slowed down drastically. The reason? The main reson for that is pricing of the Oriflame products. Within the Army cantonment area, the products available were much cheaper.For instance, Revlon used to cost around Rs 27-45, whereas in the open market, they would

range between Rs 45-60. The other problem in the smaller towns is that the range available is limited. And hence the customer's choice get limited.

Manju strongly feels that if Oriflame can launch newer products priced more competitively and nick its supply problems, the potential is enormous. I tend to agree with her.

Ive heard the small town phenomenon of long turnaround cycles also happens among those who live in the suburbs, far from the service centre. Also, Oriflames system of credit is commendable. (Incidentally, Avon works on a cash-down system, that has further cut into its sales). Yet, there is a tendency among the distributors to bundle the orders before picking it up from the

service centres. This is particularly true for the distributors staying at a far-flung place from the service center. Since the distributor has to clear the earlier invoice before applying for fresh credit, they go to the service center only after they get sufficient order.

That can increase the turnaround time substantially, which is usually 48 hours in other parts of the world. But the company has little control over that.

(The diary is based on actual interviews with Oriflame and Avon distributors and meetings with officials from both companies and also competing companies in the retail business. Names have been deliberately masked to conceal identities.)