Growth in US Direct Selling industry has been anemic, averaging less than 1% over the last three years. We expect that over the next five years, the Industry could shrink between 5% – 10% and most likely a few companies could cease to exist. This has been driven by three major factors:
1.The rise of the Gig economy presents the labor force with more opportunities to generate an income and thereby creating competition in recruiting and retaining the Direct Selling salesforce
2.Big e-commerce companies have continued to make significant investment in enhancing the shopping experience. Introduction of same day and next day shipments by all major companies has materially altered the expectations of the consumers. Current product positioning, distribution and fulfillment processes at Direct Selling companies are inadequate to meet customer needs.
3.Compensation models in Direct Selling are outdated. The ‘reward to effort’ mix is skewed towards the higher ranks i.e. higher ranks do less work but get paid more. In addition, the compensation rules are too complex for entry level members to digest and the rules focus more on recruiting other sales members rather than the end consumers. This in turn has led to increased scrutiny by regulatory agencies. True growth in business can be sustained only if the end consumer continues to be the main focus of all acquisition and retention strategies.
In addition to the above mentioned reasons, Covid-19 has materially altered customer expectations and behavior.
What Should Direct Selling Companis Do?
Best in class practices
Branding – Identify drivers of sentiment pertaining to company’s Brand & Products and highlight the areas of risks and opportunities. Analyze effectiveness of corporate and field communications, especially the use of social media and digital platforms for communicating product benefits to consumers and earnings opportunities to current and prospective consultants. Help answer the core question – Why should customers buy from the company ? Why should a consultant join the company ?
Customer Acquisition and Servicing – Develop a process to enhance customer and consultants acquisition. Implement a leads management system that allows for optimal routing, follow up and closure of leads. Leverage Lifetime value and Segmentation models and optimize interactions with new customers and consultants to increase sales and retention. Note: the current Covid-19 crisis has created very high levels of unemployment and underemployment creating a huge opportunity for Direct Selling companies to recruit new customers and consultants.
Salesforce compensation – Simplify the compensation model – focus on the development of Brand Ambassadors who lead a “sustained” effort to acquire, service and retain customers. Ensure clear delineation in the compensation model between the attributes of the “end consumer” versus the consultants. Optimize the number of Levels / Ranks and ensure that reward is commensurate with effort. Remove time lag between goals achieved and compensation payments.
Field Fundamentals – Develop a clearly defined and prioritized Call To Action steps directing consultants to take specific actions that will help grow their business. Call to Actions should be dynamic, real time and customized for each consultant. Ensure that all field training and communication processes are aligned with corporate and consultants goals.