A Primer to the Direct Selling Industry

With COVID-19 devastating many sectors and occupations, you may be searching for a better way ahead. Many options easily come to mind: real estate, day trading, Amazon FBA, etc., but which is for you? To assist in your exploration, we introduce direct selling as an alternative of choice. Taking business principles into account, we will help you understand why the industry is economically effective, how it began, and how it is relevant today in light of current market trends.

Marketing Channels in Business

From the theoretical standpoint, different business models exist in economics to maximise efficiency in production and exchange. [i] However, not all models work in practice. During and even before the pandemic, we have seen how novel situations and technologies have disrupted entire economies to replace conventional jobs and companies.

Business is about bringing a product and/or service to a marketplace in exchange for money. It is done through marketing, which refers to activities that a company undertakes to promote the buying or selling of a product or service. This includes advertising, selling, and delivering products to consumers or other businesses. [ii]  Traditionally, companies distribute their products via a multi-step supply chain, where they pass through different parties to reach consumers. This process is known as an indirect marketing or distribution channel. [iii] In contrast, direct marketing strategies eliminate the middlemen and relies on distribution to individual consumers. [iv]
Direct marketing channels are effective as it eliminates or reduces inefficiencies in business, such as credit, wastage, pilferage, rental increases, and increases in cost of goods produced. As the cost of doing business goes up, profitability becomes a challenge, causing many companies to phase out eventually. To save cost and increase revenue, companies started to explore other business models. Some discovered that they could save cost in marketing, advertising and distribution through individuals that would otherwise be incurred via indirect channels. These businesses are now going directly to consumers to reap the rewards of a simplified supply chain, such as the reduced need to give credit to companies in between for distributing the products.

Development of Direct Selling

Direct selling, as the term implies, simply means selling directly to the end-users. A direct marketing channel, it is recognised as a dynamic approach in the distribution of products and services straight to consumers in their homes or workplaces away from a fixed retail location. [iii, v]

As an organised, coordinated activity, direct selling began in America around the turn of the 20th century during the rise of the department store model because some manufacturers did not want to compete with others in big emporiums. Instead of mass marketing, they preferred to go through personal selling by salespeople whose income depended entirely on selling only their products. Such manufacturers established “home office” or “branch office” operations where salespeople reported to either a single company office or local offices in different localities. These were the first direct selling organisations (DSO). The conglomerate Avon Products is one such company that directly traces its origins to that era.

Ensuing decades saw a period of legislation that established the identity of distributors as “independent contractors” rather than employed salespeople. The first network DSO, which allowed people to earn a royalty on the sales of others they sponsor into the organisation, was started in 1941 by psychologist William Casselberry and distributor Lee Mytinger, who came up with a marketing plan for Nutrilite products. Several other renowned network DSOs were founded in the 1950s and early 1960s, including Mary Kay Cosmetics and Tupperware. This model formed the basis of direct selling that continues even till today. [vi]

Current Trends in Marketing

Years ago, businesses were predominantly owned by people with resources such as money and an established network which the rest had no access to. By and large, common folks could only run small businesses servicing their immediate community, such as provision shops. In today’s world, however, advancements in technology have ushered in the gig economy [vii], enabling enterprising individuals to work on their own terms from the comfort of their homes (or anywhere else) while reaching a wide audience. Personal presentation and sale of products and services to consumers can be done directly with greater ease. 

Individuals as businesses are advantageous as they can quickly extend to the local community while connecting with the global population online. So long as there is internet access, one can reach people in any part of the world by employing appropriate digital marketing strategies. It is thus possible to operate on an individual basis or scale up internationally through others. The famous “six degrees of separation” theory, proposed in 1929 by writer Frigyes Karinthy and first tested in 1967 by sociologist Stanley Milgram, asserts that anyone can be connected to any other person on the planet through a chain of acquaintances with no more than five intermediaries. The advent of social media and internet marketing has made this not only a sociological but also an economic reality. [viii]

At the same time, the widespread prevalence of the internet has increasingly led consumers to get products directly from manufacturers — just think Alibaba, Amazon and eBay. Worldwide shipping that used to be much costlier is made relatively affordable by modern technology and supply lines. Goods that used to take months to deliver now reaches in mere days. Yet these e-commerce giants still rely extensively on conventional small and medium size enterprises for support. Today, direct selling corporations have taken their operations online as well. With marketing through individuals directly now a global trend, the industry is well-poised to bring its products and services to consumers quicker than others can via the indirect marketing channel. Furthermore, these companies can better accommodate the demands of consumers with the help of individual distributors — a traditional advantage of the direct selling industry.

The way business is done has evolved over the years in place of inefficient methods and is changing even faster than before due to technology. Current developments in the market have rendered direct selling more relevant than ever as a viable business model for the average individual with potential for scalability beyond personal sales. Stay tuned for our upcoming article to better understand the growth and continued potential for growth of the industry as supported by empirical market data and research.

Images:

Lumen Learning. (2016). Marketing channels for consumer products [Diagram]. https://courses.lumenlearning.com/marketing-spring2016/chapter/putting-it-together-place-distribution-channels/

New-York Historical Society. (n.d.). The two merchants: I sold on credit! I sold for cash only! [Image] https://www.pinterest.com/pin/139259813450077196/

References:

[i] Chappelow, J. (2019, June 29). Economics: Overview, types, and economic indicators. Investopedia. Retrieved May 14, 2020, from https://www.investopedia.com/terms/e/economics.asp

[ii] Twin, A. (2020, February 3). Marketing. Investopedia. Retrieved May 14, 2020, from https://www.investopedia.com/terms/m/marketing.asp

[iii] Lumen Learning. (n.d.). Marketing channels in the supply chain. Boundless marketing. https://courses.lumenlearning.com/boundless-marketing/chapter/marketing-channels-in-the-supply-chain/

[iv] Kenton, W. (2019, April 18). Direct marketing. Investopedia. Retrieved May 14, 2020, from https://www.investopedia.com/terms/d/direct-marketing.asp

[v] Direct Selling Association of Singapore. (n.d.). Overview. https://dsas.org.sg/about-us/overview/

[vi] Biggart, N. W. (1990). Charismatic capitalism: Direct selling organizations in America. Chicago, IL; London, UK: University of Chicago Press.

[vii] Istrate, E., & Harris, J. (2017, November). The future of work: The rise of the gig economy. National Association of Counties. https://www.naco.org/featured-resources/future-work-rise-gig-economy

[viii] Rouse, M. (2017, February). Six degrees of separation. TechTarget. Retrieved May 14, 2020, from https://whatis.techtarget.com/definition/six-degrees-of-separation

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