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Published 09 May 2013 00:47, Updated 04 February 2014 00:15
Avon’s president and managing director Stephen Ford at its headquarters at Brookvale in Sydney. Photo: Rob Homer
Nature Direct co-owner Jeanette Anderson describes the 300 company representatives that sell her business’s chemical-free, natural cleaning products as “evangelists”. She is not exaggerating.
Like Christian evangelists, her distributors spend their waking hours “spreading the word” about Nature Direct’s healthy, anti-chemical message, meaning the company doesn’t need to spend a cent on traditional advertising.
“I mean it when I say my ladies are fanatical. They’re unbelievably passionate about our message. It’s not even so much about the products themselves – it’s about the message we’re selling,” she says. “There’s no match for their brand loyalty and passion. Traditional retailers just don’t offer that.”
It’s the kind of loyalty that brick-and-mortar retailers can only dream of capturing, Anderson says. She and her business partner, Neil Reid, who together have had decades of experience in both the front line and executive level of direct selling, say for that reason traditional retail was never an option when they started their growing business in 2007.
While retail has experienced consistent falls in sales over the past three years, international cult brands have maintained their sales while they continued to expand their distribution networks. Last year there were approximately 390,000 distributors of direct selling brands in Australia, contributing to an annual revenue of $1.45 billion, according to the Direct Selling Association of Australia (DSAA). Globally the industry provides work for 90 million people and generates an estimated $147 billion in turnover annually.
The question remains what are these cult brands doing differently to their traditional retail competitors? Direct selling is not a new concept. It has been almost seven decades since Earl Tupper developed the range of household plastic goods known as Tupperware, and 126 years since Avon founder David McConnell, then an encyclopedia salesman, considered direct selling distribution strategies.
Today a Tupperware party is held somewhere around the world every 2.3 seconds and it is a brand that has engendered an almost cult-like status among consumers in the Western world. The brand, thanks to some smart marketing and technological advancements, is worth an estimated $2.7 billion and is booming throughout Asia, along with other major international cult brands such as Amway, Avon and Herbalife.
Major players in the direct selling business say the key to their success is two-fold. Firstly, without their reputation for quality products, their brand is meaningless. Secondly, they excel when it comes to providing good customer service and rewarding their staff – something traditional retail has often failed to achieve.
“In essence, in direct selling you earn only what you put in. There is a good earning opportunity, however you can’t succeed in this business without a good product,” Tupperware Australia and New Zealand managing director Charles Henry says.
In a challenging retail environment where rents are rising and sales are falling, direct selling provides a legitimate business strategy, Direct Selling Association Australia executive director John Holloway says. Sixty per cent of DSAA’s members are small to medium enterprises, with direct selling offering lower barriers to entries for cash-strapped SMEs and start-ups.
“It suits many small businesses that might not have the marketing dollars to invest in a large bricks and mortar presence.
“However, if they have no connection with a product, you will not keep the customer. It’s as simple as that,” Holloway says.
Nature Direct’s Anderson says the key to managing her sales team of about 300 representatives is rewarding them well (they receive 30 per cent commission on sales, are paid weekly and are eligible for product discounts and other incentives such as holidays) and offering concise, easy-to-access training.
“I’m passionate about helping our ladies grow their businesses and become successful businesswomen,” she says. “This model lends itself to that and I want to promote and help women in business.”
The Australian direct-selling industry: Key numbers
While the market is growing, measuring the number of people involved in the direct selling industry is not an exact science, according to Holloway. The estimated 390,000 employed by its member customers range from area managers and distributors to casual distributors who sign up with the company to purchase products for themselves at a wholesale rate. Eighty-eight per cent of the sales force are women and the majority work part time.
The two largest sales categories in direct selling, according to the DSAA, are cosmetics and personal care (30 per cent of turnover) followed by wellness (27 per cent).
While industry bodies such as the DSAA suggest that direct sellers fared well during the global financial crisis, it acknowledges that growth has been “marginal” over the past two years. As the economy continues to improve and direct sellers continue to enhance their offer to potential Generation Y distributors, that growth will improve, Holloway says.
“Generation Ys are a perfect fit [for direct selling] in many respects. In terms of social media, it comes as second nature to them. They like being their own boss and direct selling companies usually have low entry and exit costs, so it works well.
Generation Ys are a perfect fit [for direct selling] in many respects. In terms of social media, it comes as second nature to them.
“As a selling model, it is perfectly positioned for the future. The emergence of the internet has dramatically reduced supply chains – where previously if you placed an order at a party it could take weeks before you have it delivered, it’s now a matter of a few days,” Holloway says.
The key to having a successful direct selling business is having a quality product as well as clearly communicating the earning potential for demonstrators and managers, according to Tupperware’s Henry. The multi-national, New York Stock Exchange-listed company’s almost cult following has been built up over its 52-year history in Australia by its 6500-person sales force, and most households claim to have at least one of the company’s long-lasting plastic products in their kitchen. It’s estimated that Tupperware representatives will host 800,000 parties in homes in Australia and New Zealand in 2013.
Like other leading cult brands, the loyalty Tupperware has engendered among its representatives, managers and customers is a large part of what makes the company unique.
Henry, like many of Tupperware’s executives, didn’t believe he would stay working for the company for more than a couple of years when he started as a finance manager 33 years ago. However, the career opportunities presented to him in Australia and overseas encouraged him to stay with the company. Henry’s story is not uncommon at Tupperware, not only among the managers and executives, but also with the sales force. An ongoing joke within the company is once a person has been “Tuppered”, they are usually loyal to the company in the long term.
All of the company’s 26 Australian and New Zealand directors – who own a stake in the business and manage regions – started in the business as demonstrators. Many of its internal senior executives and all of its area managers have also started in the sales force or in junior head office roles and have been encouraged to extend their careers.
“Some of these people have only been with the business for a few years. Many of our managers have aspirations to become a director, although obviously not all of them have the right skills to progress to that level,” Henry says. “We identify these individuals amongst our top managers and focus on developing their skills and training them up. We focus on leading and developing, rather than just managing.”
It’s that training, product development and the lucrative rewards that the company passes onto its demonstrators that enforces their love of the brand, which in turn is passed on to customers at Tupperware parties, Henry says. “It’s a simple model, but it takes a lot of time and effort to ensure that we’re doing it right . . . even if the brand is already well known,” he says.
The $2.6 billion company, which has an international sales team of 2.7 million people, has substantially invested in product development over the past decade. When Henry began working for Tupperware in the early 1980s, the company released an average of six new products a year. Today it releases more than triple that amount, thanks to its expansion into new countries and changing consumer tastes. “Product development varies according to the needs of customers in that country. For example in Korea we sell a lot of kimchi [fermented cabbage] products and in Asia in general we sell more rice storage products. Whereas pasta cookers and storage are more popular in Australia and Europe,” he says.
Other brands that are relatively new to Australia but quickly establishing a cult brand status include German-designed mini kitchen appliance Thermomix. The appliance, which costs close to $2000 and is only available through party-plan consultants, is quickly becoming the must-have appliance in Australian kitchens, despite its hefty price tag.
But potential Thermomix customers won’t face the hard sell that some direct sellers have become known for. Thermomix Australia managing director Grace Mazur says that technique “turns off” women, many of whom prefer to go home from a cooking demonstration and consider the purchase before signing on the dotted line.
Thermomix’s Grace Mazur says consultants driven only by money don’t do well.
“They’re trained to say right from the start how much it is. It’s then a matter of proving its value,” Mazur says. “For instance, hummus from the store costs $3 or $4 a tub. We show how you can make it yourself for $1.50.”
Top Thermomix consultants can earn $80,000 a year, but Mazur insists that those driven solely by money are not the right fit for her organisation and won’t do well.
“Our consultants are passionate about what the machine can do. They want to teach people about going back to basics and improving their lives,” she says.
It’s a marketing message that’s reached women, evidenced by the fact that out of Thermomix’s 1600 consultants around Australia, 98 per cent are female.
The country’s biggest direct sellers are grappling with how to adapt to a new online environment without alienating their key distribution channel: their representatives.
Companies such as Amway, Avon and Tupperware have incorporated web strategies into their business strategy in different ways, however some remain cautious about the implementation of e-commerce solutions.
Some companies have limited online shops that allow customers to reorder items they have previously used, with most requiring customers to enter the details of their distributor. Others have recognised that customers often see a product at a demonstration or party, spend some time considering the purchase, then buy it online in the days or weeks after the party.
“It’s about creating an ongoing relationship in a way that suits the consumer.”
Holloway says cosmetics and health continue to be the fastest growth segments of the market because of the nature of those products and their popularity.
“These products are often based on relationships and experiential selling, where people can see and touch and feel the items,” he says. “While the primary method of selling is direct [through party plans or face to face], companies are now embracing online as a way to build relationships with their customers. Some even have a presence in shopping centres, not to take away from their direct selling model but to showcase what they’re offering.”
The growth of wellness as a retail category is not limited to direct selling. The ageing baby-boomer demographic and increasingly health-conscious Generations X and Y are driving growth in both the cosmetics and health industries, particularly in the supplements and vitamins categories, Holloway says.
Tupperware’s local operations have invested heavily in online technology and although it has made the decision not to sell products through its website, Henry won’t rule out an e-commerce solution in the future. The website is currently used to direct customers to sales representatives, show new products, promote brand visibility, recruit new demonstrators and provide training for its sales team.
“The most substantial thing we have found the web does for us is it supplements face-to-face training of our demonstrators with e-learning modules that can be completed over the internet. Generation Y like doing things over the web, and it is an effective way of supplementing our face-to-face training.”
Tupperware customers are not driven by price – they can easily buy a cheaper alternative at a traditional retailer, Henry says. Instead it’s about the quality and ease of use of the products, he says.
“It’s all about the demonstration and learning how to make the most out of the products,” he says. “Customers will never come to us if they’re driven by price alone . . . while that can be a factor for online shoppers.”
Tupperware has a retail presence at some trade shows and shopping centres, where a limited range of products are available for purchase, but the strategy is primarily used to promote brand awareness. “It’s about reaching more customers,” he says.
Over the next decade Henry wants to triple the size of Tupperware’s sales force. To do that, he says the company needs to do a better job at emphasising the earning potential of demonstrators and managers through online channels such as social media.
Like Tupperware, health and beauty mega-brand Amway has a long history in Australia. The company, which began selling door-to-door throughout Australia in 1971, is listed as the second largest direct selling company in the world behind Avon by the American Direct Selling Association, with sales of $10.9 billion in 2011 and 6 million representatives.
Amway Australia’s general manager Michial Coldwell says while direct selling is crucial to Amway’s success in becoming a worldwide household name, the business would not have survived the past decade without adapting to changes in technology and product demand. A decade ago the company made the decision to move away from its core business in selling home care products to focus on the health and beauty product segment.
“Any business needs to respond to marketplace changes and we’re no different. You need to be where the growth is,” he says.
Amway managing director Michial Coldwell says his business would not have survived the past decade without adapting to changes in technology.Photo: Michele Mossop
Focusing on a different product category expanded Amway’s reach to younger Generation X and Generation Y customers, both from a distributor and consumer perspective. Like Tupperware’s Henry, Coldwell says as Generation Ys mature, have families and seek different job opportunities, Amway needs to continue to improve the way it communicates with them.
“About 50 per cent of our representatives are now under 30,” Coldwell says. “That [factor], combined with other factors, has seen us shift to become a digital company. We give our people access to mobile applications, magazines and training and we’ve had about 41,000 downloads of our applications.”
As opposed to some of its competitors, e-commerce is a sales channel that Amway has chosen to embrace rather than ignore. It allows distributors to order goods online – repeat customers can also re-order through the website using their customer identification code. Distributors, however, remain its key distribution channel. Over the past two years it has opened bricks and mortar outlets in Western Australia, Queensland, Victoria and NSW. Amway uses the shop fronts as a showroom to display products to its distributors and plans to open more throughout Australia in a bid to boost its brand recognition.
“Keeping the customer informed has never been so important. They have never been so educated and aware of what’s available. Our products are state of the art . . . we’re not the cheapest but we don’t want to be.”
Attracting new people continues to be a focus for Amway. Application numbers for new distributors has consistently grown for the past five years despite the economic downturn, Coldwell says, with new markets across Asia (particularly India and south-east Asia) and the rise of the middle class continuing to create demand for part-time work opportunities.
“China is Amway’s biggest growth market and we continue to invest in that market,” he says.
In 2011, Amway flew 11,000 of its most successful distributors in China to the NSW’s Hunter Valley for an all-expense-paid trip as a brand-building exercise. As a result, a number saw the potential growth opportunities and have since established operations in Australia, he says.
Even the world’s largest and oldest direct seller, Avon, has had to rethink its use of technology in order to continue to boost its sales. Three years ago it appointed Stephen Ford, a Brit who had previously headed up the company’s European expansion plans, as president and managing director of its Australian and New Zealand operations to modernise the business.
“When I arrived here [in Sydney] two and a half years ago I was surprised by the lack of development in technology [in direct selling in general] compared to Europe and the UK. I would say it was about four to five years behind,” he says.
At the heart of the changes needed was product innovation, says Ford. Online platforms make it easier for customers and representatives to communicate with the company, which is a crucial part of brand building, he says.
Today more than 80 per cent of Avon representatives place their orders online, but the company still allows for postage and phone orders.
“We have representatives aged from 18 to 90, so we need to make sure that we meet the needs of everyone. We need to remember that the representatives are also our customers,” Ford says. Brand loyalty among its customers and representatives continues to be critical to Avon’s success. A key “product” the company sells, he says, is the earning potential of its representatives. “We’re also a recruitment engine,” he says.
Online training and providing information on how representatives can grow their business has also been an important part of recruitment. Over the past two years Avon Australia has invested in developing a specialised online team, however Ford says he could easily triple the size of the company’s technology department.
“The use of social media and allowing customers to order online [through their representative] and enabling them to share their purchases on social media is a big part of the strategy.
“Soon customers will be able to upload a photo of themselves and virtually try on make-up and different looks. It all adds to building the brand and the marketing potential,” Ford says.
Direct selling: Where the money is
Managing the needs of customers and their desire to access products and services online without clashing with the interests of representatives – which remains the key differentiator in direct selling and continues to control the sales and distribution of products – is crucial. Avon is currently in discussions to offer sales directly to customers, removing the need to send deliveries to its representatives. While the representative would still earn their commission, removing the need to deliver products twice would reduce delivery times for customers, Ford says.
“We want to better understand who our customers are because at the moment our representatives own all of that information. That said we would be crazy to work against the interest of our representatives . . . it’s a very touchy area.
“We would be nothing without our representatives. We need to remember that as we move forward as a brand.”
Thirty-four-year-old single mother Shara Allen initially joined cosmetics company Nutrimetics as a distributor in August 2012 as a way of boosting her income and meeting new people.
Since moving to the regional Victorian town of Shepparton three years ago, Allen was keen to find a new way of expanding her social network while maintaining her full-time job at supermarket chain Coles and spending time with her two children.
“I’ve been buying their products for 15 years and have always believed in the company and the quality of its products,” she says.
Allen had previously sold Avon products, however she found the cheaper products increasingly difficult to sell. After volunteering for a friend as a model for Nutrimetics at its Shepparton-based meetings twice a month, she decided to switch to the brand.
The quality of the products, its no animal testing policy and its incentives for distributors were what eventually drew Allen to become a representative of the brand.
“It’s about value for money. Some of the other brands are about being cheaper and in line with trends, which is fine, but I found in this environment people wanted value for money,” she says. “I find the bottles of product last for months – it makes sense.”
Allen’s business, however, has so far not done as well as she had hoped. That is mainly due to her own choices, she admits. Sales in direct selling are driven by a demonstrator’s own commitment and time invested in building their network, she says. Since joining the company eight months ago, Allen has held only two parties (she has another booked for later this month), but she often sells up to $500 per month in product without holding a party. About 20 per cent of her overall sales figure is returned to her in commissions or product.
“I’ve started having a table at markets where people can come up and get some samples and a business card. There has also been a lot of word of mouth.”
Nutrimetic’s generosity, in terms of commission and product incentives, and the causes the company supports, are the main reasons Allen picked the company, she says. “We can do parties for charity events, such as breast cancer research, and donate any money we make directly to the cause.”
Nutrimetic’s training twice a month in her region has encouraged Allen to think about how large she would like to grow her business and provided her with a new network of friends. Currently the commissions she receives go directly towards new products for herself and her demonstrator kit, but Allen believes it is not uncommon for Nutrimetics distributors to earn between $50,000 and $80,000 a year.
“I eventually want to climb up the ladder and have sponsors [other distributors] under me,” she says. “That’s the goal.”