One of the things that I love the most about my work is that I’m continually exposed to new ideas, new people, new places, and new industries.
Last week I gave the opening keynote at the Direct Selling Association of Australia annual conference. The theme of the event was “Defining our Future,” so they wanted to kick off with big picture perspectives on the future of business from a leading futurist. My presentation at the conference is here.
I had never been exposed to the industry before, however in preparing for my keynote, and at the event itself where I came in for the cocktail reception the night before and stayed on for the CEO panel following my keynote, I gained a number of insights into the industry and where it stands today.
The Direct Selling industry is comprised of three major segments: personal or door-to-door sales, such as the classic Avon model; party plan, for example Tupperware; and multi-level marketing (MLM), exemplified by Amway. All of the models rely on face-to-face interaction and relationships.
The industry definitely has image issues. My general observation is that there are undoubtedly some in the industry who contribute to that perception, however any who are successful in the long-term are absolutely ethical and genuine. Distribution based on face-to-face relationships is absolutely a valid business model and economic sector.
Here are some of the things I learned or observed about direct selling:
1. Economic downturns can be great for direct selling.
What drives the industry more than anything else is the availability of talented people becoming distributors. When unemployment rises, people seek new ways to make money. The increase in motivated distributors can outweigh lower sales per individuals to create higher revenue.
2. This is a critical time for the industry.
Direct selling has had a long and healthy industry. Unquestionably the disintermediation provided by Internet products sales has already changed business models, so that face-to-face relationships are complemented by the convenience of online shopping. Now the added shift of personal relationships to the online space necessitates big changes in how companies work, especially in getting younger people involved. The CEO of Amway Australia noted that the key issue in recruiting young people is making it fun and focusing on short-term rewards.
3. Direct selling must shift to developing face-to-face AND online relationships.
This was a central message in my keynote. What differentiates the industry is the face-to-face relationship. However almost everyone’s relationships are partly online, even if it’s just exchanging emails with family members. Online only is a tough game. Face-to-face only has a limited future. Companies that are great at face-to-face selling that can also integrate online aspects to their distributors’ relationships could do very well.
4. A key issue is how to effectively manage highly distributed organizations.
Distributors are self-employed and have relatively little direct contact with the companies whose products they distribute. One challenge is that training is difficult and often the messages from the field distributors are poorly aligned with what the company is saying. Another problem is that it is difficult to keep people energized. I didn’t realize it when I started looking at the industry, but direct selling in fact has many of the same issues as large corporations, which are now increasingly grappling with having highly distributed workforces. In fact the issues of Implementing Enterprise 2.0 are extremely relevant to direct selling, not least in building staff engagement, though the tools need to be applied a little differently.
5. Successful direct selling taps existing strong social networks, often religious or ethnic.
Direct sales distributors usually rely on their existing social networks, which can provide a rich customer base. Often these are religious or ethnic. Many of the major MLM companies in the US are based in Utah, where Mormons are great at spreading products as well as their faith. Other US companies are closely tied to the evangelical tradition. The head of Asia for a major direct sales company told me that their success has been tied to groups such as Muslim communities in Malaysia and Indonesia, Catholic groups in the Philippines, and regional Chinese groups across South-East Asia.
6. The future of direct selling COULD be very bright.
In one scenario, direct selling could be at least twice the size it is today. In a world of commoditization prices are driven down, people buy at hypermarts, product exclusivity is worth far less, and everything becomes impersonal. Yet relationships are central to all our lives. I can absolutely envisage a world in which a fairly significant component of retail sales have an element of personal or face-to-face relationship involved. A highly distributed, networked world based in which relationship regularly trumps price. I don’t know how it work, or quite what it would look like, but it is possible. Alternatively the industry could stick to what it’s done for decades and gradually fade away. I’ll be very interested to see what new models emerge.