October 01, 2015
The Customer of Tomorrow
by DSN Staff
Direct selling as a channel of distribution has a rich history, one that some consider to track back thousands of years to the earliest days of human trading. Whether you subscribe to that long view or to a more modern starting point, direct selling has always offered an opportunity for customers to make purchases from individual sales people who provide personal and hospitable services. Selling quality products and providing good customer service have always been the foundation to successful direct selling.
As we now look to define and predict the future of direct selling, we find ourselves wondering how the customer might change along with evolving expectations, habits and preferences. In fact, the very definition of “the customer” within the confines of the direct selling model has evolved over time. Companies have previously emphasized the consultant as their “primary” customer, with the ultimate customer being the responsibility of the consultant. Strictly speaking—and apart from any wrongdoing by bad actors or regulatory scrutiny—this definition worked fairly well, since many companies sold products directly and only to the consultant, who then sold them to their customers, and the price differential represented their profit.
The World Federation of Direct Selling Associations (WFDSA) estimates that worldwide approximately 100 million independent direct sellers account for $182.8 billion in revenue. The industry has experienced more and more success and continues to outpace retail sales in its growth rate. Though the exact number may be unknown, some suggest there are well over 1,000 companies using a direct selling model of distribution in the U.S. alone. Of these, it has been estimated that 96 percent of them now utilize a multi-level compensation plan, which is also associated with over 95 percent of all of the sales revenue. Historically, it has been sometimes difficult to distinguish what the general public calls “actual customers” from those individuals who have signed up for a direct selling opportunity in order to take advantage of reduced pricing for themselves.
Within the industry, it has always been understood that some individuals desire to sign up as a consultant, not with intent to start a business but as a way to acquire products or services at a discount. Outside the industry, however, this practice has become problematic due to the general public’s lack of understanding of how the model works. Discussions about this issue, including the most recent very public ones, have spurred many companies to develop preferred customer programs instead of encouraging sign ups into the compensation plan. In order to ensure compliance with regulatory expectations, many companies are now drawing a greater distinction between business builders—those with intent to start a business—and customers who simply desire a greater discount.
Technology and the Customer
The Internet’s ability to reach the customer on the consultant’s behalf has allowed more and more companies to connect with customers without alienating the consultant. These companies now can throw a wider net to include the “final” customer as an additional part of their strategies, tracking purchase history and other preferences in order to aid the consultant to take a more targeted approach down to the per customer level.
Technology also gives companies an opportunity to understand their customers more than at any time in direct selling history. While the model remains focused on personal interaction between an independent consultant and his or her customer, an increasing number of the transactions are handled digitally. This opens up the door for rich data analysis of customer preferences and behavior, while also maintaining and protecting the independent contractor’s personal connection to their customers.
The customer of tomorrow also is likely to be more familiar with the distribution channel than ever before, as direct selling continues to gain ground in the U.S. The U.S. Direct Selling Association (U.S. DSA) estimates that the number of people involved in direct selling reached 18.2 million in 2014, up from 16.8 million in 2013. Retail sales reached $34.5 billion, a 5.5 percent increase from 2013.
While the fundamentals of the business model remain the same, direct selling continues to evolve along with the habits and preferences of the customer base. This shift is evident in the U.S. DSA’s Growth & Outlook Report, which tracks a steady decline in purchases of home and family care products, clothing, and accessories from 2012 to 2014, while purchases of wellness products and services increased.
We also can take clues from those companies in the U.S. that grew over $100 million in 2014. As published in DSN’s June 2015 issue, there were a total of 16 global companies that achieved this milestone. The 11 U.S. companies on the list included the following categories: cosmetics and personal care, energy, health and wellness, telecommunications, and leisure travel.
- Mary Kay $400 million
- Ambit Energy $300 million
- Isagenix $277 million
- Herbalife $200 million
- Team Beachbody $190 million
- Nerium $184 million
- Jeunesse $162 million
- WorldVentures $157 million
- Plexus $150 million
- Rodan + Fields $134 million
- ACN $127 million
U.S. COMPANIES THAT GREW OVER $100 MILLION IN 2014
Globally, the WFDSA states in their 2015 Global Sales by Product Category Report that cosmetics and personal care account for 34 percent of the global $150 billion in sales. Health and wellness account for 29 percent, putting these two categories far out in front of everything else at a combined 63 percent, representing $94.5 billion.
It remains clear that individuals enjoy purchasing products and services from people they know and trust—people involved in direct selling as independent contractors. According to the 2014 DSN Harris Poll surveying customers, of those who made a purchase in the previous six months 87 percent experienced some level of enjoyment from the buying experience and over 69 percent were very or extremely satisfied with their consultant. The customers surveyed also fell in line with the global percentages of product categories, with the largest two categories being in cosmetics and personal care and health and wellness, which, combined, total 28 percent of purchases.
We see a bright future for direct selling for many reasons. The conversations about the Shared Economy and New Economy, which some predict will see independent contractor status rise to as high as 40 percent, will serve the future of direct selling well. With such opportunity will come, we believe, a need for more transparency relative to objectives and behaviors. Direct selling companies will be expected to demonstrate through behavior and data that their companies are good stewards of a strong industry code of ethics, whether they’re a DSA member company or not.