Posts Tagged ‘direct sales’

A Much Maligned Business Model

Monday, May 6th, 2013

What is the direct sales business model?  The ‘dirty word’ of business? Multi-Level Marketing (MLM)? A pyramid?

Think Mary Kay or Tupperware or Amway.   These are companies where the products and services are sold in person by entrepreneurial sales reps, who make a commission on those sales, but also get paid for sales made by people they bring into the business.  The incentive then is to sell the product and build a team – helping others to sell and build their own teams.

What’s the attraction?

For the business that creates the products, there are many:  no expenses for brick and mortar stores; wide scale distribution; the potential for viral growth; a sales force that invests in marketing; a sales force that is paid on performance not salary and who’s training is done at their own level.

 

For the sales reps, there are also many advantages: start your own business; flexible hours; the potential for serious income; back end infrastructure already in place; intellectual property and products already in place without having to create your own; national/international data on sales; marketing materials and tools available; training; mentoring and support.

 

Direct marketing companies will have one or more regularly scheduled conferences per year where everyone gathers in a large convention space for business in a party atmosphere.  Reps learn about new products, get new selling and marketing tips, listen to inspiring “if I can, you can” stories from their peers worldwide, and see the new tools the company is unveiling to take advantage of leverage and Internet Marketing.

 

In his book, “The Warren Buffet Way,” Warren himself extolled his enthusiasm for direct sales companies stating that his best investment ever, dollar for dollar, was in the Pampered Chef, a direct sales kitchen equipment company.  Not,  as one might guess, Geico, Amex or Coca-Cola.  Warren Buffet and his company Berkshire Hathaway, now own several direct sales companies under a management group called Scott Fetzer Companies, going all the way back to Kirby Vacuums.

 

Direct sales model negatives: Companies often end up promoting low end products, forcing reps to seek out high volume opportunities to make any money. Mainly the emphasis falls on recruiting, recruiting, recruiting. This can lead to churn and high turn over with salespeople often ending up with a closet full of unsold goods that had to be purchased up front.

 

Direct sales model positives:  Low capital expenditures because of no brick and mortar;  customer acquisition happens at the time of sale, not up front with expensive ad campaigns.  Reps can be in business with low investment because all the infrastructure is in place.  They can spend more time finding new customers and less time working on systems.  There is a high touch component that can help, especially in luxury or high ticket categories.  Reps know their customer’s needs and desires, profiles, budgets, etc. Annual conventions are as much of a motivational seminar as a professional conference. You get the big earners sharing their stories, encouraging everyone and building belief that it can be done.

 

Some of the same dynamics as franchising, only in direct sales, it’s franchising on steroids.  Direct sales also builds strong brand identity, has efficient front and back end systems and offers training and support.  By selling directly to the consumer, you can cut out the middleman of wholesale and retail and have margin left for commissions. By training and nurturing sales reps, a company can be sure that the brand is preserved and inspire trust in the customer base.

 

But, you can’t treat it as just a numbers business.  Technology is crucial and you have to embrace all media: email, social, video, custom Apps. But you have to remember that if you don’t build the relationships with people at all levels, the business won’t happen.  It is high touch.

Want to find out about selling direct to consumers?  Want to make money online?  Click here for more information.