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May 30, 2014

Cover Story

The BIG HISTORY of Direct Selling

by J.M. Emmert

Click here to order the June 2014 issue in which this article appeared or click here to download it to your mobile device.


IN THIS ISSUE:

The BIG HISTORY of Direct Selling10 Things to KnowThe List
Topping the Charts ProfilesCelebration

BRAVO AWARDS:
LeadershipGrowth Based on PercentageGrowth Based on RevenueHumanitarian


DSN Global 100

This past November the History Channel’s sister station H2 aired Big History, a 17-part narrative on the history of Earth. The program culminated with a look at the critical events that shaped life on this planet, from the Big Bang to the social transformations of the modern era. Like the history of the universe, the story of direct selling reveals paradigm-shifting events and thresholds that have fundamentally changed the industry and helped to shape today’s direct seller.

So we wondered: What were those moments? What would be the “Big History” of direct selling? The following are the five thresholds we identified.

Threshold No. 1—The First Direct Selling Companies

There was no Big Bang moment for direct selling, no moment when out of nothing everything began. The industry, the oldest distribution channel in history, began appearing alongside the development of civilizations. As hunter-gatherers settled down to farm and build towns, the first direct sellers began to sell their wares across Europe, Africa and Asia.

The bartering of commodities evolved into a vast network of trade, and by the 18th century the direct-to-consumer channel of distribution had reached the United States in the form of the Yankee peddler, solitary figures who roamed the countryside bringing goods to isolated areas of the population. But it would be another century before the first direct selling company was established. In 1855, Rev. James Robinson Graves developed a business model that had young men going door to door to sell products, forming the basis of the company known today as Southwestern.

Nearly 160 years later, direct selling engages more than 16 million people in the United States and nearly 100 million people around the world, with 22 billion-dollar global markets. Direct selling companies are committed to not only bringing quality products to the global audience, but also a quality of life that can, and does, change lives.

“More than 3 million Independent Beauty Consultants around the world share Mary Kay’s message of hope—‘If you can believe it, you can achieve it!’ ” says Sheryl Adkins-Green, Chief Marketing Officer of Mary Kay. “Through Pink Changing Lives®, Mary Kay has a commitment to changing the lives of women and children around the world, encouraging them to believe in themselves and pursue their dreams to transform, inspire and empower our future.”

The popularity of direct selling continues to grow. In a recent Harris Poll commissioned by Direct Selling News, nearly one-third of U.S. adults have purchased from a direct seller in the past six months, with 42 percent taking advantage of doing so online. That technology has allowed newer companies to reach more customers far quicker than the old days of walking the countryside.

“It Works! is a customer-generating machine,” says Mark Pentecost, CEO of It Works! Global. “We encourage our distributors to gather customers, and we provide a Loyal Customer Program with perks to retain customers. This opportunity forms the foundation for a business that gives everyday people hope that they can change their lives and leave a legacy for their families.”

Threshold No. 2—Women Are Welcomed

In the history of the universe, stars became the building blocks for life. And in the history of direct selling, the points of light that became the building blocks of the industry were women.

David McConnell’s decision to recruit women as sales representatives for his California Perfume Co. might have been a big, bold statement for the times. Yet it just made sense to McConnell when he saw the natural ability of women to network and market to others. Mrs. Persis Foster Eames Albee became the company’s first representative, and today more than 6 million Avon representatives are following in her footsteps, benefiting from McConnell’s belief that women could be the most important component of the direct selling channel.


“[Our Founder David H. McConnell] understood that women were natural salespeople who could easily relate to other women and passionately market beauty products.”
—Sheri McCoy, CEO, Avon Products Inc.


“In 1886, our Founder David H. McConnell recognized that women were rarely offered the opportunity to earn their own income,” says Avon CEO Sheri McCoy. “He also understood that women were natural salespeople who could easily relate to other women and passionately market beauty products. The notion that women deserve the opportunity to support themselves and their families is a cornerstone on which [Avon is] built.”

The role of women in the industry has greatly evolved from the days when the legendary Mrs. Albee traveled the Northeast by horse and buggy. Mary Kay Ash, Brownie Wise, Mary Crowley and Jan Day were strong role models whose business savvy and sincere desire to see their contemporaries succeed empowered 20th-century women and inspired a legion of today’s female leaders.

That group includes Thirty-One Gifts’ Founder and CEO Cindy Monroe, Scentsy’s Co-Founder and President Heidi Thompson, Rodan + Fields President Lori Bush, Isagenix’s Co-Founder Kathy Coover, and The Pampered Chef’s CEO Doris Christopher, who believe that being a woman is an advantage to running a direct selling company.

In fact, if you look at the Global 100 companies, you will find that nine of the 29 U.S. companies in the Top 50—31 percent—are led by women who were either co-founders or who serve as president or CEO. And it is these women who are bringing their opportunities to other women around the globe, especially in developing countries where women are expressing sentiments similar to what Mrs. Albee wrote to David McConnell 130 years ago: “I know of no line of work so lucrative, pleasant and satisfactory as this,” she said.


DSN Global 100 DSN Global 100

Threshold No. 3—The Formation of Direct Selling Associations

In 1910, McConnell’s California Perfume Co. joined with nine other companies from New York, Massachusetts and Michigan to form the Agents Credit Association, which today is known as the U.S. Direct Selling Association. It was the first such association to focus on the needs of direct sellers.

Back then, the Association was charged with collection and credit matters; today, the DSA represents 200 member companies and works to further promote the impact of direct sellers under the guidance of President Joseph Mariano.

“One of the most important accomplishments for DSA has been the mobilization of many different types of companies by recognizing and supporting their mutual interests,” Mariano says. “DSA can act on behalf of companies and individual sellers to ensure a fair and open marketplace. Because we determine our course of action based on the merits instead of special interests, we have a virtually unblemished record of defeating legislation that would be harmful to direct sellers, and have worked constructively with many states in passing anti-pyramid legislation that helps lawmakers identify and prosecute scams while protecting legitimate companies.”


“We will continue to help policymakers, prospective sellers and others gain a fuller understanding and appreciation of direct selling.”
—Joseph Mariano, President, U.S. DSA


According to Mariano, the DSA will continue to work collaboratively with companies to maintain unity of message and purpose in all its activities. “We will continue to enhance the high standards of marketplace behavior the public should expect from direct sellers, and we will continue to help policymakers, prospective sellers and others gain a fuller understanding and appreciation of direct selling,” he says.

Today more than 60 countries have direct selling associations. Seldia—the European Direct Selling Association—represents 27 DSAs, including those from the U.K., Germany, France, Belgium and Italy, which were the first European countries to establish national associations. Since 1968, Seldia has been an authoritative voice for direct selling in European government affairs.

“New laws and regulations are now made with input from Seldia, and a growing number of policymakers have a favorable and supportive view on direct selling,” says Maurits Bruggink, Executive Director of Seldia. “With the increasing appreciation of entrepreneurship in Europe, Seldia wants to grow the importance of direct selling in the coming years and ensure that our sector is known for the opportunities it creates for individuals of every walk of life, the wealth it generates to society, and the high level of ethics in trading.”

A decade after the formation of Seldia, which at the time was known as the Fédération de la Vente et du Service à Domicile (FEVSD), the World Federation of Direct Selling Associations was established. The WFDSA is a non-governmental entity that represents national direct selling associations around the globe and works to promote the highest global standards for responsible and ethical conduct. Alessandro Carlucci, CEO of Brazil-based Natura, is the current Chairman of the WFDSA, and has diligently worked to build the reputation of the industry.

“The WFDSA was born to reinforce ethical standards and to disseminate the positive social impact of the direct selling model,” says Carlucci. “The Federation aims to promote an ethical debate in the sector considering the significant changes happening in an increasingly connected world. In other words, we seek to be every day more in sync with the aspirations of contemporary society—more connected, more active, more social. Since the energy of our people is what moves our business model, we pursue to deeply understand them and to focus on their needs. That is what makes our advocacy efforts relevant to governments and key influencers.”

Threshold No. 4—Compensation Structure

For decades, direct sellers had been compensated on a performance-based model where earnings were tied to personal sales. Then, in the mid-1900s, a revolutionary approach for compensation was developed that would allow representatives to benefit beyond their personal selling efforts. Amway was one of the first companies to adopt the new structure.

According to Amway, many people assume that the Amway business model was introduced in 1959, when Jay Van Andel and Rich DeVos founded the company. However, the company’s roots go deeper than that. Nutrilite Founder Carl Rehnborg is often credited as the father of both plant-based food supplements and the sales plan that served as the model for Amway.

This new compensation plan was actually the invention of William Casselberry, whom Rehnborg had met in a Dale Carnegie course, and Casselberry’s friend Lee Mytinger. In 1949, Jay and Rich became two of the top Nutrilite distributors and were introduced to that compensation plan, which allowed them to earn based on their own efforts and those of others they trained as Nutrilite sales reps. Without Rehnborg, Mytinger and Casselberry, Amway might not have been guided by the business plan that has served it well for 55 years.

Today, nearly 90 percent of the 2013 DSN Global 100 companies utilize this compensation structure.

DSN Global 100

Consumer Goods and Services Offered through Direct Selling

PRODUCTS

  • Arts & Crafts
  • Beauty
  • Fashion & Accessories
  • Cosmetics
  • Educational
  • Food & Beverage
  • Food Storage
  • Home Care
  • Home Décor & Fragrances
  • Jewelry
  • Kitchenware & Cookware
  • Nutritional Supplements
  • Personal Care
  • Relationship Enhancements
  • Travel
  • Weight Management
  • Wellness

SERVICES

  • Energy
  • Financial Planning & Investing
  • Health Insurance
  • Home Security
  • Legal Representation
  • Life Insurance
  • Natural Gas
  • Telecommunications

 

Threshold No. 5—Evolution of the Sales Method

The direct selling model has evolved because the world has evolved. The industry has adapted to changes because it can, as life itself can, store information, reproduce itself, pass information along and multiply.

One of the greatest changes in the industry was the party plan model, believed to have been created by Brownie Wise when she was with Tupperware. But perhaps no event in the history of direct selling has caused more of a paradigm shift than the emergence of technology. And here’s why. As Big History explained, during the era of the steam engine, it took 150 years for man’s collective knowledge to double. Today, it takes two years. By 2020, it will take 72 hours.

“We not only embrace, but innovate with the tools and technology now so abundantly available,” says Rick Stambaugh, Chief Information Officer of USANA. “The world is shifting. Mobility will prove to be the game changer, especially when it comes to prospecting. Everyone has a smartphone, which gives us a much broader reach. Apps will become a preferred means of engagement, and we are actively updating and developing several to stay ahead of the curve. In fact, for over 20 years, our focus has been on personalization. Some may say technology is contradictory to that, but it’s not. Being able to profile yourself and get answers specific to you is not only cool, but is the wave of the future.”

Stambaugh adds that as for transaction technology, the method of spending is rapidly shifting from a storefront platform to a greater web-based structure, as e-commerce becomes widely accepted and trusted. “It has certainly moved the needle on our ROI,” he says. “Then there is social media, which is less than 10 years old, but look what it has done already in the realm of awareness. These days you can’t run a successful business without being social media savvy. Even social commerce is catching on, although still in its infancy. And though the direct sales industry is becoming more high-tech, it’s still important to remain ‘high-touch’ in keeping customers satisfied and the salesforce motivated. You have to stay connected to those you serve and develop an interpersonal presence in a high-tech world.”


“Though the direct sales industry is becoming more high-tech, it’s still important to remain ‘high-touch’ in keeping customers satisfied and the salesforce motivated.”
—Rick Stambaugh, Chief Information Officer, USANA


Avon’s McCoy agrees to a certain degree. “While the biggest game changer is technology and how we use it, the backbone of our business hasn’t changed,” she says. “Our representatives continue to build relationships and have a passion for products, and our business is still high-touch, even though it’s now high-tech too. Customers can connect with their representatives in person, over the phone, via email or through social media. While the world is a different place today than when Avon started, it is the personal touch that connects our customers to our representatives.”

Adds Douglas Franco, General Manager for Belcorp USA, “I believe technology just changes the way our relationships work, but does not change their nature. It’s a trust-based purchase, which only becomes more transparent and democratic with technology.”


“I believe technology just changes the way our relationships work, but does not change their nature. It’s a trust-based purchase, which only becomes more transparent and democratic with technology.”
—Douglas Franco, General Manager, Belcorp USA


The Future

History teaches us that we have the ability to seize our evolution, and that the triumph of our collective learning is the ability to adapt. We learn to survive in the most challenging conditions. We seize the opportunities to continually move forward.

What will be the next threshold for direct selling? That remains to be seen. In the next century this industry may not even be known as “direct selling.” As new technologies and forms of communication are developed, a new term may come to apply to what it is direct sellers do, just as the term “social selling” is gaining traction today.

This year, the DSN Global 100 list revealed that 18 companies increased their 2013 revenue by more than $100 million, clear evidence that the business model can thrive in a time of economic uncertainty.

Additionally, new companies such as Origami Owl, Nerium International, Plexus Worldwide and Solavei, along with a host of others, continue to bring fresh ideas and methodologies to the marketplace. These new ideas, combined with advanced technology, placed alongside a highly successful and long-standing business model, will open up possibilities that we can only guess at today. The future is promising!