January 01, 2018
Technology Trends: Are You Ready for the DX Economy?
by Heather Martin
Ambit Energy was a data processor before being a data processor was cool. In 2006, based on their experience in the telecom industry, founders Jere Thompson and Chris Chambless decided that Ambit had to become a data processing company first, to keep up with the anticipated growth from their direct sales in marketing electricity and natural gas.
“The first time we were invited to speak at an industry conference I stood up there and made the comment that Ambit was a data processing company. We heard the snickers and laughter in the crowd,” Thompson said. “They thought we were crazy to build our own software. But we ignored them. We didn’t want to be like them, and we didn’t want returns like theirs. It’s all about returns on invested capital. Technology has enabled rapid scale at a low cost, and direct selling has enabled a very attractive cost of acquisition alongside very rapid growth.”
Eleven years later, Dallas-based Ambit is reaping the rewards of such a novel idea in the direct selling space. The company reached $1 billion in revenue before its seventh birthday and has been growing exponentially (270 percent between 2009 and 2016). It also is keeping a solid foothold, at No. 16, on the Direct Selling News Global 100. Executives’ early belief in using technology to send, collect, process, use, share and store data gave the company a head start in a race that everyone wants to now join: a race in which the advantage goes to those who harness the power of digital transformation (DX), a term coined by Massachusetts-based technology and analytics firm International Data Corporation (IDC).
In the DX Economy, smart companies focus on how to embed transformational technology at every level of their organizations. IDC projects that spending on DX technologies—such as data analytics, cloud-based infrastructure, application development and deployment, and any technology that helps a company redefine its operations—will increase from $1.2 trillion in 2017 to $2 trillion by 2020.
Within this new landscape, technology has now become so embedded in business strategy that the digital transformation of every industry, including direct selling, is now leading to seismic shifts in ways in which global business is conducted. Any company looking to stay competitive in the new DX Economy must think, act and plan like a digital native.
Direct selling executives know a little something about redefinition, as those in the channel adjust to new pressure from policy makers, look for new ways to compete in the omnichannel retail environment and respond to rapidly changing global business rules. Executives at some of the segment’s largest players say that if they focus their technology efforts and investments in such DX categories as social media, data analytics and the cloud—none of which are new, but all of which are necessary for remaining competitive—they will have the agility they need to keep up with and stay ahead of these monumental changes.
Using social media to fuel business growth shouldn’t be considered optional for direct sellers, says Paul Gravette, co-founder and co-CEO of Frisco, Texas-based Le-Vel, a fitness and nutrition products company. It should be an imperative. “Every one of these companies in the direct selling space has to be focused on social media first,” he says, because that’s where people go before they go anywhere else when they want to connect with each other and discover new products. “It’s more powerful than ever in moving the deal.”
Walter Noot agrees.
Social media is the new Google, says Noot, the chief information officer at USANA Health Sciences Inc., a nutrition products company in Salt Lake City. The holy grail for online marketing used to be the top spot on a search engine results page, he says. Now it’s the top spot in social media query results, being a conversation leader in Facebook discussion threads and having a prominent place on Pinterest boards. “At USANA, we’re building technology around social media tools,” Noot says.
As the largest company in direct selling, Amway has no doubt that leveraging DX technologies like social media should be among its top operational priorities. “The way people are interacting on the internet? That’s a huge opportunity for us,” says Todd Woodward, Amway’s vice president of communications. “We want people’s businesses to revolve around their lives; the beauty of direct selling is that we have a great opportunity in social and digital tools to make that promise come true.”
Recent studies of buying habits reflect what these executives are saying about the importance of social media. In a 2016 poll, consumer research firm Crowdtap found that 75 percent of surveyed Facebook users search the social media platform for pre-shopping advice and information. More than half of Crowdtap’s respondents said they search social media for discounts. In a 2016 PricewaterhouseCoopers survey, nearly half of online shoppers said that comments and reviews on social media influence their buying decisions; 16 percent said they purchase products directly on social media.
Savvy sellers are keeping pace with this trend and moving their ad dollars where the buyers are. Business development firm Zenith Media Services has projected that global ad spending on social media will grow by 72 percent from 2016 to 2019, at which point it will make up 20 percent of all digital advertising. And more than 70 percent of sales professionals in a 2016 LinkedIn study said they use social selling tools on a regular basis.
If any channel is poised to reap big rewards from the surge in social media commerce it’s direct selling, Noot says. “Social is the perfect tool for direct selling because direct selling is a referral business, and social media is a referral tool,” he adds.
So how do you reach through the trillions of social media users to find your next loyal retail customer?
Executives at the companies we talked to say one of the best ways is to let your top-performing social media influencers do it for you. These influencers—the company’s consultants—are people who have established credibility and bring authenticity and personalization to your products and your brand, and that’s critical to promotions and sales.
“When I’m buying a product through social media, if it’s done right, I’m not just buying from the company, I’m buying from the person,” Noot says.
When influencers post something about their experiences with a product, people listen and respond. More than 2 million people signed up for free accounts with Le-Vel in 2017, and company officials believe social media drove many of those connections. Not all 2 million new account holders immediately purchased product or have become promoters, but posts from Le-Vel promoters on social platforms inspired many people to share personal information with the company, and that’s how relationships start. “How fast our products are marketed is based on how we’re letting brand promoters market in a social media space,” Gravette says. “You have to embrace these people that have the individual ability to effectively put your product out in the marketplace.”
Dana Harrison and Haya Ajjan say there is scientific evidence that influencers extend a company’s reach. As members of the Direct Selling Education Foundation Fellows Program—a partnership that DSEF established to provide college professors with the tools to offer direct selling education to their students—Harrison and Ajjan consult with direct selling company executives and their sales fields to analyze salesforce, e-commerce and social media data. And they’re seeing that when a top performer shares news and information it spreads exponentially—as the influencer’s followers discuss and share the content because they trust the source. “If it’s a promotion that you want to go far, get it to the right influencer,” says Ajjan, an associate professor of management information systems at Elon University in Elon, North Carolina.
Mind Your Data
Whether it’s studying the “social influencer effect” or quantifying the results of a targeted marketing campaign, analyzing data should be a daily activity for all direct sellers, they say. “Being data driven builds a company toward a higher competitive advantage,” Ajjan says. Data analysis is certainly a booming component of the technology sector: IDC has predicted that global revenue for big data and business analytics will increase from $130 billion in 2016 to more than $203 billion by 2020.
So how do you become data driven? Start by making sure you’re capturing basic transactional data, like customer demographic profiles, geographic locations and purchase histories as well as distributor sales and recruiting volume. Don’t assume one kind of data is more valuable than another. All data have potential to reveal underlying trends and motivations among buyers and sellers—which is what you really want to know—so don’t disregard even seemingly benign information. “Companies usually have more data than they realize they have,” says Harrison, an assistant professor of marketing at East Tennessee State University in Johnson City, Tennessee.
It does take higher-level analytics to tap into that potential, though. Knowing that customers in a certain part of the country tend to buy certain products doesn’t tell you why they buy them. Acting on what you think is the obvious conclusion can lead you astray, says Ambit’s Thompson. “There were intuitive assumptions about some of our best customers that we thought would predict their behavior,” he says. “And we found out we were wrong.”
Ambit has had plenty of data to prove itself wrong because it’s been collecting it for nearly 12 years. Even before big data was a big deal, Ambit executives believed there was value in catching and keeping every figure and fact—especially in the commodity business. “We are in a highly competitive space, selling commodity products that are exactly the same,” Thompson says. “The lights shine equally bright; the heat comes out exactly the same way; there’s no quality differentiator in our electricity or natural gas. It’s how they are packaged and how our customers are treated that make a big difference.” To reach and keep its 1.2 million customers, Ambit has to know exactly who will pay for what kind of package.
Noot and his team at USANA look at their data constantly. From web traffic to connection speeds to the percentage of people who self-enroll versus those who are enrolled by someone else, all data feed USANA’s analytics systems, which dissect customer and distributor behavior and learn from it. This machine learning, or artificial intelligence (AI), is at the center of the DX economy, experts say. It makes otherwise static data dynamic.
The algorithm at a company like personal stylist brand Stitch Fix, for example, combines information on the kind of clothing a customer says she likes with information on what she buys and sends back, and over time it “learns” to anticipate fashion choices that even the customer doesn’t realize she is going to make.
Harrison and Ajjan referred to Stitch Fix and other AI leaders, such as Facebook and education-focused technology company Coursera, in their presentation at the Direct Selling Association Fall Conference in November 2017. These companies have reached a higher level of maturity on the “data analytics infusion” model, the professors say. They’re not just analyzing and predicting consumer and consultant behavior, either. They’re using AI to automate key functions at every level of the business. But they also are using AI to augment key human functions, because you can be king or queen of a world of data and still miss a mark, according to Noot. “Logic goes out the window a lot of times in this business,” he says. “We look at trends and sales and numbers, yet there’s such a thing as emotional momentum. You can’t describe it. You can over-predict and overanalyze.”
This is where human intelligence comes back into play. Companies that are successful with AI—which Forrester Research predicts will be a $100 billion market by 2025—know that the brains that created AI didn’t trigger their own obsolescence. These businesses understand how to make AI and humans complementary. “It’s important to keep humans involved,” Harrison says. “As we think of AI, we often consider the possibilities that it will take over our lives, but humans are still critical for unstructured tasks that require high personal touch.”
The place that social media has in direct sales and the amount of data companies need to benefit from the DX Economy wouldn’t be possible without the cloud, the system of web-based storage, infrastructure and software and one of the biggest segments of the technology market, according to executives. A recent Forbes article predicted that spending on cloud-based data centers, software and IT services is expected to reach $547 billion by the end of 2018.
“In order to play around with your data, you need cheap space,” says Ambit chief information officer John Burke. “The cloud has allowed us to pour our data into inexpensive space, and the tools have become available that allow us to analyze it.”
Le-Vel certainly wouldn’t be the company it is without the cloud—being completely virtual is core to its brand, according to Drew Hoffman, chief operating officer and chief legal officer. “We’ll do more than $500 million in revenue this year, and we have 55 corporate employees and no office,” Hoffman says. “You just can’t operate efficiently and effectively when you’re that lean without having the right technology, like our custom cloud infrastructure.”
For example, the cloud allows Le-Vel to disregard geography when it comes to hiring. “If we need to add anyone new to the staff, we’re not limited to a radius of resumes. We don’t care where they live.” Cloud technology also allows the company to provide front-line customer service via a completely online support system. While its method is different from a chatbot system—which simulates human responses to basic customer questions—Le-Vel does use smart technology to analyze, prioritize and direct tickets to the proper service representative, reducing the number of customer service staff it needs to employ.
Robust virtual technology has been a major factor in Ambit’s success, too—especially in its international wins. Its recent expansion into Japan took time at first because of how careful the Japanese are about forming partnerships with non-native companies. But once the deal was in place, “we were able to spin up our environment in Japan very quickly because of the cloud,” Burke says. Switching Ambit’s data load to local Japanese data centers—to comply with the country’s data management requirements—would have been much more cumbersome if the engineers hadn’t basically been able to flip a virtual switch.
Data feeds. Chatbots. Servers and software in the sky. It all can seem, as Burke says, “kind of out there, kind of ‘Star Trek.’ ” But these direct selling executives say it all helps their companies create the most important thing they can offer their customers: personalized experiences that feel low-maintenance because they’re so high-tech. Experts call it the Amazon effect. “Amazon just really made it stupid simple,” Noot says. “You push one button or two buttons and you’re done.”
We want to be able to buy clothing, housewares and services from our mobile phones while we wait at the curb to pick up the groceries we ordered online. And we want our web-based merchants to remember who we are, know what we like, tell us what we might also like, and remember how we pay. “Direct selling companies that do not to have a website that personalizes experiences will be at a disadvantage,” Ajjan says.
Direct selling companies are investing heavily in technology and expertise to make sure to meet customer expectations and stay competitive within the channel and within the general marketplace. Ambit spends 95 percent of its capital expenditure budget on technology, Thompson says. USANA employs hundreds of IT people, Noot says, and its technology expenditures fall in the “sales general and administrative expenses“ category, which saw an increase of nearly $7 million in the third quarter of 2017, compared with the same quarter in 2016. Overall from 2015 to 2016, USANA’s expenses in that category rose by $25 million.
One thing seems certain—operating successfully within this new landscape of digital transformation requires a high level of awareness and commitment on the part of company executives. Is your company prepared to compete in the DX Economy?