Direct Selling: An Overview


By

Uma Das
Asst. Professor
AMC Engineering College
Bangalore
 


Direct selling, as the name suggests is the marketing and selling of products directly to the customer, away from permanent retail outlets. The World Federation of Direct Selling Association (WFDSA) defines Direct Selling, sometimes referred to as network marketing as a dynamic, vibrant, rapidly expanding channel of distribution for the marketing of products and services directly to customers. Typically, modern direct selling involves sales made through marketing plan, one-on-one demonstrations, seminars, other personal contact arrangements and web selling.

There are presently over 60 national DSAs (Direst Selling Associations) accounting for more than $114 Billion through the activities of more than 87 million independent sales force. The WFDSA and its association members have understood the necessity for common code of ethics in the marketplace. Thereby, World Federation has developed the World Codes of Conduct for direct selling to which all national members have approved and implemented in their national codes. In India, the IDSA (Indian Direct Selling Association) is the autonomous and self-regulatory body responsible for the growth of direct selling industry in India. IDSA acts as an interface between the industry and policy making bodies of the Government facilitating the cause of Direct Selling in India.

If one wants to get into entrepreneurship having little or no business experience, don't have a product or service to offer, has limitation on initial investments, looking for a proven system for success, direct selling might be the ideal opportunity. Existing for more than a hundred years, direct selling companies have offered independent representatives the ability to purchase products at wholesale price and make a profit by selling at retail prices. Also many direct selling companies give an additional incentive to the representatives to earn commissions by indirect sales done by new recruits to the business. The business model relies on word of mouth publicity rather than expensive advertisements to spread the company credentials. The approach works for several reasons: customers prefer a personal service, the convenience of shopping from home rather than buying from a retail outlet, the comfort of buying from someone who they can trust.

Jim Cramer, host of CNBC's Mad Money is bullish on direct selling, especially on a slow economy. "Direct selling is a great model…with high gross margins, low capital intensity, lots of free cash flow," he said on a recent show. "It's a fragmented industry with gigantic room for growth. The top 15 players only account for about half the market."

Amy M. Robinson, Direct Selling Association Vice President of Communications and Media Relations, say that, while many people seek additional income during a slowdown, "in all honesty, direct selling is hot because it's a fun, convenient way to shop that people enjoy. So, poor economic times or not, people find direct selling to be appealing. Great products, personal service and income potential are elements of direct selling that make it a strong economic contender at all times."

Direct selling in India is extremely buoyant with global players like Amway, Avon, Tupperware etc having their base here. More than 3 million people in India are involved in Direct Selling (compared to 1.8 million last year) and earn between Rs500-Rs 4 lakh per month depending upon the business they generate.
According to Ernst & Young and ICRIER, the direct selling industry in India, which started in 1990s, is a Rs 4,120-crore business today and estimated to touch Rs7,000 crore by 2012-13.According to E&Y, health and nutrition products are most popular in India followed by personal care and beauty products. So it is no surprising that Amway, which sells around 130 products in four categories-nutrition and wellness, beauty, home care and personal care is the largest direct selling company in India with a business of around Rs 1790 crores.

Of course, direct selling companies have their own roadblocks to growth.  "The lack of clear legislation regulating the sector allows fraudulent players to masquerade as direct selling companies and cheat the public, but overall the industry is doing extremely well in India," says Asha Gupta, Managing Director of Tupperware India. "Dubious companies and fly-by-night operators are not unique to India. They exist all over the world. But countries like the US, UK, Malaysia and Singapore have clearly defined guidelines for direct selling. That has helped curb the rise of fraudulent players," says William S Pinckney, MD & CEO, Amway India.

Unlike pyramid or ponzy schemes, legitimate direct selling companies like Amway and Oriflame are based on tangible products and focus on sales, whereas ponzy schemes rest on intangible promises and  focus on recruiting new members.  Legitimate companies also offer training to familiarize members with their products and impart skills to communicate the same to prospective buyers.

Has the day finally arrived when direct sales and network marketing are addressed in the classrooms of traditional business schools? There is still a long way to go. But there is no doubt that this is a very exciting time for network marketing professionals: the industry is truly coming of age.

References:

1. http://www.wfdsa.org/
2. http://en.wikipedia.org/wiki/Direct_selling
3. http://www.idsa.co.in
4. http://www.successmagazine.com/Direct-Selling-Offers-Flexibility-and-Financial-Freedom/PARAMS/article/ 189/channel/223
5. http://expressbuzz.com/biography/direct-selling-thrives-in-india/314960.html
6. http://articles.economictimes.indiatimes.com/2010-01-12/news/27624862_1_california-perfume-cent-grow th-rate-industry-witnesses
7. http://www.sheffieldnet.com/srn_artice6.html
8. http://articles.economictimes.indiatimes.com/2011-09-19/news/30175646_1_amway-india-idsa-direct-selli ng-firms
 


Uma Das
Asst. Professor
AMC Engineering College
Bangalore
 

Source: E-mail December 26, 2011

          

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