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Selling a chain reaction
Smita Tripathi |
July 05, 2003
She's a housewife who heads a 2,000-strong sales army. Anjum Sharda hasn't looked back since the day she changed her life by signing on as a salesperson for Tupperware, the American direct selling company.
Today, she's one of Tupperware's top salespersons and her 2,000 member team is constantly on the move selling around Rs 3.5 crore (Rs 35 million) worth of plastic containers made by Tupperware.
She's been so successful that today, even her businessman husband is helping out unofficially in the business.
Direct selling is a deadly serious affair for former retailer turned direct salesman Siddharth Singh.
Back in 1998, Singh discovered his true vocation when he began distributing products made by Indian direct selling company Modicare.
So, he shut down his shop selling audiotapes, and moved into the direct selling business full-time.
Today, his wife Chanchal has also hopped on to the direct selling bandwagon and is reaching out to an ever-increasing circle of people.
Together, the couple have recruited about 80 people to become direct selling agents. They earn about Rs 24 lakh (Rs 2.4 million) a year.
How times have changed. Ten years ago direct selling was a micro-minuscule industry in India.
Today, it's a multi-crore industry with an association of its own that's fighting to counter its not strictly kosher image.
More importantly, hundreds of thousands of people have tried their hand at it at one time or another. Many drop out after testing the waters but many others do stay on.
Take a look at Tupperware, the company that has turned direct selling into an art form around the world. At first glance, it's tough to understand how Tupperware has carved out a niche for itself.
It makes premium plastic containers used for storing or serving food and it has to compete against thousands of unbranded competitors that are sold at dirt cheap prices.
But Tupperware has been a hit even in India and that's partly because it has a direct selling army that's excellently trained and motivated.
Says Kanwar S Bhutani of Tupperware: "Our products are much more expensive than the plastic products available in the market. But then they have their benefits, which need to be explained. This cannot be done in an off-the-shelf approach."
One reason why direct selling has boomed during recent years is because companies like Tupperware and Amway International have imported selling techniques that have been perfected in different corners of the world.
That's enabled them to take off vertically as the Indian market grew. Look at Amway which came to India in 1998 with six personal care and home care products.
Since then, it has steadily added between eight and 10 products to its portfolio each year. Today, it has 40 products in four segments -- personal care, home care, nutrition and cosmetics. It's planning to introduce another 12 products by May 2004.
Indian companies have also realised the benefits of direct selling. Modicare started direct selling in 1996 with nine home care products.
Today, it sells an extraordinary range of products ranging from cosmetics to water-purifiers and agricultural products. Also, it sells home care and personal care products.
Says Samir Modi, president and managing director, Modicare Ltd: "The retail environment in India is very poor. The customer does not always enjoy the shopping experience. Direct selling overcomes that." Modicare posted a turnover of Rs 150 crore (rs 1.5 billion) in 2002-03.
How much is the entire industry worth today? The truth is that only ballpark figures are available because these companies aren't listed and aren't therefore, obliged to release their figures.
But the Indian Direct Selling Association established in 1996 says that the industry has a turnover of Rs 2,000 crore and it's growing at an average of 30 per cent every year.
What's more, it says that nearly 1.2 million Indians are a part of this industry -- though it must be said that many don't stay in it for very long.
Even if the figures are slightly inflated, that's an extraordinary growth since 1995 when direct selling was first recognised as an established industry.
Today, there are about 15 to 20 companies that have a national presence. Besides that, there are around 30 small companies that started operations only last year and another 100 companies that are city specific.
That's still peanuts when you consider that globally, direct selling is an $ 85 billion industry with US far out in front, followed by Japan.
It's important to understand the mechanics of direct selling and not to get too mesmerised by the mind-boggling growth figures.
People who want to become distributors buy a starter kit from the company which costs between Rs 1,000 and Rs 5,000 depending on the company and its products.
The kit contains literature on the company and five or six of its top products. The distributor then tries to sell these products.
When Amway started in 1998, 35 per cent of its turnover came from recruiting distributors into the business.
Today, Amway chief William S Pinckney says that only 10 per cent of its turnover comes from recruitment. Amway's turnover is Rs 626 crore (Rs 6.29 billion).
Similarly, Modicare says that between 15 per cent and 20 per cent of its turnover comes from recruitment and the rest from its products. When it first started about 50 per cent was from recruitment.
Most people pay for the starter kit and then drop out of the business almost immediately when they discover how tough selling can be.
But for those who hang in there, there are rewards. The distributor earns a generous margin of between 20 per cent and 25 per cent on all sales.
More importantly, he or she must also recruit more people to become distributors. The recruiter gets a percentage on sales made by people he has recruited.
So, a person like Siddharth Singh earns almost a 30 per cent commission from sales made by his recruits.
Direct selling companies say that they employ huge numbers of people. Amway says that it has 350,000 active distributors. And Tupperware has around 36,000 active consultants and sells 91 products in India.
Interestingly, Amway says that 50 per cent of its salesforce is made up of women with time on their hands. And Tupperware's sales army is composed entirely of women.
Says Modi: "Financial independence and flexible timing attract a lot of women to this field." Adds Koyalgeet of IDSA, "Since no professional qualification is required to become a direct selling agent, people from all walks of life are attracted to it."
But why do companies go the direct selling route? The general wisdom is that any product that needs an explanation or a demonstration is best sold through direct selling.
Moreover, the product must have a distinguishing factor and should be different from the products available in the market.
Says Srinivas Krishnan, managing director, Lotus Learning, a company specialising in educational products, "Since our products are in the premium pricing range, we feel that the kind of persuasion necessary to sell our products only comes from face to face interaction with the customer."
What categories of products are sold by the direct selling armies? In 1995, 60 per cent of the market was educational products and cosmetics accounted for 15 per cent. The remaining 25 per cent was accounted for by a clutch of other products.
By 2001, this trend changed completely. Twenty-nine per cent of the industry's revenues came from home care and 25 per cent from cosmetics.
Educational products had slipped and formed 13 per cent of the industry and weight management products had taken a 9 per cent chunk of the market.
But food supplements and weight management products have suddenly become a bulge sector. Herbalife India, which is a wholly-owned subsidiary of the nutritional food and dietary supplement company, Herbalife International, set up shop in India in 1999 and has sold products worth Rs 330 crore (Rs 3.3 billion) since then.
"Nearly 15 per cent of the urban population in India is overweight. However, people are now becoming more health conscious and managing your weight is becoming a fad," says Manoj Shirodkar, country director, Herbalife International India Pvt Ltd.
Even Amway India, is now concentrating on the nutritional products category. It already has six nutritional products out of a total of 40 and they contribute to 35 per cent of the sales.
Says Pinckney: "Nutrition is the fastest growing category. By the end of this year we intend to launch six more products in this category."
Multinational direct selling companies often customise products for Indian needs. For instance, Tupperware has introduced a special 'masala storage box' which can store up to seven different spices.
Similarly, Amway introduced new fragrances for talcum powder and soaps in India. Also, India is the only market where it introduced products in different sizes.
For instance, its car wash is available in one-wash sachets and also in 500 ml and 1 litre bottles. World over, car wash is available only in 1 litre bottles.
Says Pinckney, "The Indian consumer is more price conscious. He wouldn't mind spending Rs 5 on a sachet to try it out but will be apprehensive of spending Rs 400 on a 1 litre bottle."
Usually, direct selling companies don't spend on advertising but promotions are common. "There is no point in advertising heavily for a product which is not available off the shelf at your neighbourhood retailer," says Shirodkar of Herbalife.
However, promotions such as "buy two get one free" are frequently on offer. Companies such as Tupperware spend nearly a fifth of their sales on promotions.
Training is an essential element of direct selling and most such companies spend between 10 per cent and 15 per cent of turnover on training.
Distributors are trained in everything from the benefits of the product to company policy to selling skills.
Amway conducted 46,606 training sessions across India in 2002. Modicare, on the other hand, conducts almost 3,000 training sessions every month.
Most of the direct selling companies in India now have manufacturing facilities here. Amway makes 85 per cent of its products in India while Tupperware manufactures its entire range here.
Tupperware Corporation, the parent of Tupperware India has invested between $8 million to $10 million on a factory in Hyderabad.
On the other hand, Modicare has R&D facilities in Greece, Italy, Malaysia and US, besides two in India. Its products are all manufactured in India except certain colour cosmetics.
What does the future hold for these companies? Most are extremely bullish and expect growth of around 25 per cent to 30 per cent next year. What's more, nearly all are launching new products and hope to have more distributors on board.
Looks like soon the Indian consumer will be shopping for everything sitting at home.
Trapped in a pyramid
It was a company called Skybiz and it claimed to be selling web space at $125 a shot. The company's distributors had to buy a certain amount of web space to join the scheme and they couldn't sell that to anyone else.
The only way they earned their commission was by introducing new people to the scheme. Skybiz was shut down after the police decided that it was an illegal pyramid scheme.
What is a pyramid scheme and how is it different from direct selling? India's direct selling companies are eager to point out the differences between pyramid schemes and direct selling.
Says IDSA's Koyalgeet, "A closer inspection of a pyramid scheme's so called 'products' typically reveals that they have no real market value. On the other hand, legitimate direct selling companies offer a genuine business opportunity based on the sales of quality products to consumers."
IDSA says that the differences between direct selling and pyramid-style schemes are extremely clear. In pyramid selling, distributors must keep large stocks of non-refundable inventory.
Also, in most pyramid schemes the entry fee is high and non-refundable. That's in contrast to direct selling where entry fees are usually low and refundable.
That's a description that is followed around the world. Various legislatures the world over have proscribed pyramid selling.
As per US law, a pyramid scheme is defined as a scheme in which recruits pays a high entry fee for the opportunity to receive future benefits, which are primarily derived from the recruit's introduction of additional participants in the scheme, rather than from bonafide sales of products by the recruits to the consumers.
"IDSA is trying to cut down the number of pyramid schemes in the country," says Koyalgeet. The IDSA estimates that the pyramid scheme companies in India are worth Rs 700 crore (Rs 7 billion).
IDSA is spearheading the campaign against pyramid schemes. In fact, it runs stringent checks on anyone who applies to be a member.
That includes checking the products, the business model and manufacturing facilities of the company. The complete due diligence check takes about six months.
Additional reporting: Arti Sharma