October 01, 2010
Reflections on 40 Years in Direct Selling
by Neil H. Offen
Q. Is direct selling countercyclical—recession proof, or recession resistant?
It’s probably not any of the above, but it may well be a leading indicator within our economy, feeling consumer angst first and coming out of a recession before other distribution channels. For example, U.S. direct sales declined 4.3 percent in 2009 versus 2008, but retailing as a whole declined 7.3 percent over the same period. In addition, recruiting rises as unemployment increases, with a natural drop in productivity and a counterintuitive loss of more productive members of our salesforces. But the increase in our field count will show increased sales and profits as the economy rebounds, as it has over the three previous recessions. Our 2009 versus 2008 salesforce grew incrementally by slightly more than 1 million distributors, from 15.1 million to 16.1 million.
Q. Is multilevel marketing a sales or marketing method?
It is neither. For direct selling purposes, it is merely a compensation system that allows a business builder to earn money not only on his or her personal sales but also on the personal sales of those they have recruited, trained and motivated, and on the sales of those persons brought in by their recruits. More than 90 percent of the industry, in my estimation, uses a multilevel compensation plan, whether through one-to-one selling or group and party plan sales, with Internet sales now in the mix as well. In my opinion, MLM compensation plans that allow for cross-border sponsoring are largely responsible for the global growth of the industry over the past 30 years. Today, there are well over 60 million salespeople globally who are associated each year with our member firms, only 16 million of whom are in the United States. U.S. direct sales at estimated retail (which includes sales to distributors for their personal or family consumption) are only $30 billion of our $120 billion-plus in global sales. Allowing people to be micro-entrepreneurs is certainly the right business model at the right time. Importantly, though, this all depends on the maintenance and protection of the independent contractor status of our salesforces. Without that status, we would die as a distribution method.
Q. Is there risk of financial loss in our business?
Of course, but it should be minor. There is no place for inventory loading and excessive fees (be they for sales kits, training, sales aids, motivational tapes, samples, meetings, mandatory auto-ships, administrative charges, website costs or any other peripheral financial burdens). If you want to charge big fees or exercise greater control, the franchise model may be for you. DSA’s Code of Ethics mandates a 90 percent inventory refund or buy-back policy for products and sales aids purchased by salespeople within one-year prior to their terminating their relationship. This has helped rid the industry of many inventory loaders. Today, education fees, training charges and costs for sales aids need to be more scrutinized and, where appropriate, eliminated or reduced. A company that makes more profit on sales of business materials than on sales of its products or services to the end user should be prosecuted if in violation of the law, or expelled from DSA membership if in violation of our Code of Ethics.
Q. Is my firm one of the few that is truly honest in this business?
Get real! Direct sellers are probably more ethical and concerned about their customers and salesforces than any other business. This question might be resonating with some readers because those inside the industry often fall prey to the same stereotypical thinking of the public, which is a deep-seated negative view that does not reflect personal experience, but reflects rather a perception of what others are experiencing. How can an industry made up of 85 percent women and 92 percent part-time supplemental income seekers, who sell products to their friends, neighbors and families, not want, and for the most part achieve, happy, satisfied customers and fellow sellers? A business that exhibited many of the stereotypically negative traits sometimes associated with our business would not last long. Perhaps a more productive approach within our Association community would be to focus on the commonalities shared amongst our companies instead of the differences. Leave the task of differentiating your company from the pack to your marketing team, and let’s unite at the Association table so we can clean up outdated stereotypes and bring into our fold the millions of entrepreneurial young people who want to work for themselves.
Neil H. Offen is President of the Direct Selling Association.