The vast majority of losers in the direct selling business drop out within a year. FILE PHOTO | NMG
In a bid to reach their target consumers directly, companies
such as Herbalife are recruiting a sale force that comprises of its own
consumers who sell to close contacts.
However, this
strategy does not work for all companies, the product being sold should
be one that consumers use frequently, thus leading to a repeat purchase.
Herbalife — which sells nutrition supplements, weight
management, sports nutrition and personal-care products including body
lotions and deodorants — has gained popularity in Kenya.
It
operates in more than 90 countries and has over three million
distributors. They earn from their sales and the sales of people they
recruit for the company.
“Long term products are
mostly bought once in five years and for some it can be longer,
therefore for a seller to engage in direct to consumer marketing it
needs to be a commodity in which consumers use on a monthly basis such
as toothpaste,” said Kevin Munyao, an entrepreneur. An example of a
company that failed in this strategy by selling a product that was not a
repeat purchase was BurnLouge.
The company was an
online music website through which members sold their music to customers
who downloaded it for about $30 (Sh3,100) to $430 (Sh44,300) per year.
The
company hit 30,000 members in two years, however as consumers needed to
download the music only once and share it with other consumers, those
selling music on the site were not making money hence the store was
eventually closed down.
Beyond selling repeat products,
companies involved in this strategy also need to retain their sales
people for it to be successful.
“Majority of the people
that get involved in this model of selling do it part-time, but the
fact that they made an investment by buying the product they are
counting on realising a profit from them. If the product does not sell
there is a chance that they will abandon the venture all together and
count their losses,” said Munyao.
Indeed,
according to research by Robert Fitzpatrick in his book False Profits,
distributors involved in direct to consumer selling have a 70 per cent
chance of quitting if they do not realise profit within a year. “The
economic score card of direct to consumer selling is characterised by
massive failure rates and financial losses for millions of consumers.
“Its
structure in which positions on an endless sales chain are purchased by
selling or buying goods is mathematically unsustainable and its system
of allowing unlimited numbers of distributors in any market area is
inherently unstable, thus 50-70 per cent of all distributors quit within
a year if they do not see any gain,” reported Fitzpatrick.
“The
vast majority of the losers in the direct selling business drop out
within a year. In a 1999 court case brought against Melaleuca, an online
wellness club and one of the largest companies involved in direct to
consumer marketing, the company claimed it had the highest retention
rate among distributors in the entire industry.
“Melaleuca
boasted a drop-out rate of 5.5 per cent per month. This equates to
about 60 per cent per year, if the dropouts are replaced each month.”
-African Laughter
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