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Business Today Features Story

Getting more direct

N. Madhavan

September 18, 2009

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India's Economic Growth

India looks to be taking a hit in growth this year. Why? Free report
Mone m /India n_growth

Direct selling means the marketing of consumer products/services directly to the

consumers generally in their homes or homes of others, at their workplace and BSE/NSE WORLD INDICES FOREX

other places away from permanent retail locations, usually through explanation or
demonstration of the products by a direct seller. BSE 16754.12 (-89.42)
Indian Direct Selling Association
Top Gainers Oct 09, 2009 12:49
This definition may well need a tweak if the recent measures of William S. Pinckney, Com pany Price Change (%)
Managing Director and CEO, Amway India and some of his colleagues in the Indian ORACLE FIN 2103.00 7.03
direct selling industry are any indication. Estimated at Rs 3,300 crore (2008-09) EXIDE INDS 100.60 6.06
SPICE TELECO 70.50 5.70
and employing about 1.6 million distributors, the Indian direct selling industry is
abandoning the traditionally unique elements of direct selling— not having a fixed Search Quote
retail location and publicity through word of mouth—in favour of retail BSE NSE

infrastructure and a steady increase in advertisements both in print and electronic

TATA STEEL 537.25 (2.15) | TATAPOWERCOM 1,302.00 (-5.10) |
Amway, the largest direct seller in India with Rs NEW CHANNELS
1,128 crore revenues (2008), is leading the change.
Direct m arketing firm s are opening
It has already set up five experience centres—one
retail outlets (experience centres),
each in Bangalore, Pune, Kolkata, Delhi and
adv ertising in a big w ay .
Chennai. It will add 10 more in the next 12 months
and over time upgrade all its 50 full-service centres The purpose is to add credibility and
across the country into experience centres. Swedish v isibility to the existing direct selling
cosmetics seller Oriflame’s flagship experience channel.
centre is located at Connaught Place in New Delhi Adv ertisem ents supplem ent w ord-of-
and it plans to set up similar facilities across all its 12 m outh publicity , enlarging the custom er
branches in the country. The premium food storage reach.
major Tupperware prefers makeshift access points in
traditional malls and market places across the Direct sales, if any , from the retail stores

country. are being routed through a distributor.

Brick and Mortar

“The experience centres enable people to touch and feel our products. Dieticians are
at hand, for instance, to check the body mass index, metabolism rate and suggest
lifestyle changes. We can also do skin elasticity and wrinkle tests and suggest
Wipro eyeing acquisitions
remedies, if need be. In a way, these centres help us to connect a lot better with our
customers,” explains Pinckney. M ore P hotos

Customers visiting these experience centres can buy the products as in any retail
store but the significant difference is that the sale will be routed through a
distributor in line with the principles of direct selling. “Ours is very much a people-
to-people business. It is our distributors who sell to the customers. If we compete
with them, it will go against the very grain of direct selling,’’ says Fredrik Widell, MD,
Oriflame India, and Chairman, Indian Direct Selling Association (IDSA).
According to Asha Gupta, MD, Tupperware India, this is a recent shift. "For many
years we practised direct selling in its purest form. Distributors were the only point
of contact with our end customers both for promoting the products and executing
the sales. There was very little focus on brand building outside of the direct selling… 1/3
9/10/2009 Business Today - India's leading busine…
route. Today there is a clear need to reinforce the word of mouth publicity through
independent efforts by the companies," she says. In fact, no sale happens at
Tupperware’s access points. They help people touch and feel the products, know
where they are available and who the nearest distributor is. They are more like lead
generation points.
Brand Cover
Traditionally, direct selling companies do not
advertise as their products are sold personally by
the distributors. Brand recall, they always
maintained, was for those products that have to be
pulled off the shelves in department stores. But the
recent spurt in advertisements—be it Amway’s TV
commercial, Tupperware’s contests on FM radio or
Oriflame’s product promotion in fashion magazines
—has turned their earlier stand on its head.
“The advertising we do is not a replacement but is
in addition to word-of-mouth publicity. Also, its
purpose is not to generate demand but to create
awareness and interest. Earlier, our product
promotions were limited to the number of people
our distributors could talk to. We now want to reach more people. Advertising will
help distributors expand their business and service more customers,” says Pinckney.
He adds that direct selling companies will never spend the kind of money that main
line FMCG players spend on advertisements and word of mouth will be the main
form of advertising. Amway, which spent almost nothing on advertising five years
ago, has budgeted Rs 15 crore this year.
Says Gupta, “Advertising helps us to keep the brand resonating with people. Thanks
to technology, innovative low-cost solutions are today available to communicate
with customers constantly in multiple languages and in different cities.”
Professor Mithileshwar Jha of
The Past The Present
IIMBangalore who also co-
authored Marketing Direct selling cos > Distributors +
Direct selling cos >
Management—A South Asian Adv ertising + Experience centers
Distributors > Custom ers
Perspective with Philip Kotler, > Custom ers
attributes this change to the Direct selling com panies had Direct selling com panies reach out
eagerness of direct selling no brick-and-m ortar presence. to custom ers through brick-and-
companies to reach customers Distributors were the sole m ortar experience centres,
through multiple channels. “Any point of contact w ith tem porary kiosks in m alls, the
company should help its custom ers and adv ertising Internet and adv ertisem ents,
customers do business with it in w as through w ord of m outh. apart from the distributors.
the simplest and easiest manner.
If multiple channels of marketing are available to manage cost, tackle credibility and
grow, why focus on just one? Getting wedded to a particular model could be fatal.”
He cites the case of Ceasefire Industries - a direct selling company that captured the
imagination of the people with its domestic fire extinguisher product ‘Ceasefire’ in
the early ’90s. It lost a lot of opportunity when people did not know where to buy the
Adds T.N. Swaminathan, Associate Professor-Marketing, Great Lakes Institute of
Management: “With growth in product line and also increased geographic
penetration, you need to effectively supplement direct selling efforts by creating
awareness, conveying information and imagery through selected use of traditional
communication methods, especially when you sell premium products.”
Credible Growth
Need for greater credibility and a faster pace of growth seem to be the underlying
reason for this change. The direct selling model in India has been repeatedly
misunderstood as a pyramid scheme—so much so that IDSA has chosen “to make
direct selling the most respected in India” as its vision. “The experience centres give
people a sense of comfort. They get a feeling of the company having a serious
presence. Distributors feel reassured. The advertisements and resulting brand recall
help people recognise direct selling as a legitimate channel,” explains Pinckney.
Adds Jha: “If you are visible and if your visibility is authentic, that gives credibility.”
Though the impact of these changes on the credibility of direct selling model is… 2/3
9/10/2009 Business Today - India's leading busine…
unclear, its effect on sales has been positive. “We have witnessed at least a 5 to 10
per cent growth on account of these changes in the last six months,’’ says a beaming
Direct selling companies have been posting a scorching pace of growth. Amway grew
by over 25 per cent in 2008 and hopes to maintain the pace over the next few years.
Oriflame tripled its revenues in the last four years and hopes to do so again in the
next four. For Tupperware, 2008 saw a 40 per cent jump in sales and it foresees
2009 as its best year yet.
Nevertheless, the industry, at $690 million (Rs 3,300 crore), is a fraction of the
global pie estimated at $114 billion (2008). Also, Thailand and Taiwan, with just two
per cent of India’s population, have sales of over $1.6 billion through direct selling.
The industry has set Rs 5,000 crore sales and 2.7 million distributors by 2012 as its
Are these changes the beginning of a radical shift in the model? Will the direct
selling companies start selling directly? Responds Gupta: “We will do potentially
everything to avoid channel conflict. It is hara kiri.’’

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