Direct selling is a not a new way of doing business, but it is perhaps somewhat misunderstood. US executive Kevin Guest reveals some of the pros and cons of scaling a business using this method.
Mr Guest (pictured) helped to get billion-dollar American supplements giant USANA off the ground some 27 years ago, and now serves as its CEO.
He is also a member of the CEO Council for the World Federation of Direct Selling Association (WFDSA) and a board member of the US-based Direct Selling Association.
So, he is arguably a leading authority on this particular business model, one which he said is used around the world.
“I believe that the United States is the largest direct selling market in the world, but it is utilised in multiple markets including China. There are very few countries in the world that are considered ‘mainstream’ or ‘large’ that do not have the direct selling model as part of their economy,” Mr Guest told My Business.
What is direct selling?
Direct selling, as the WFDSA explains, is “a retail channel used by top global brands and smaller, entrepreneurial companies to market products and services to consumers”.
“The direct selling channel differs from broader retail in an important way. It isn’t only about getting great products and services into consumers’ hands. It’s also an avenue where entrepreneurial-minded people can work independently to build a business with low start-up and overhead costs,” it states on its website.
It is also sometimes referred to as direct marketing.
Amway is perhaps one of the most recognisable brands employing this method in Australia. Tupperware is another.
Sales consultants work as small business operators and sell directly into their own networks, but are affiliated with the company supplying the products they sell.
Why he and others support direct selling
The main advantage of this business model, according to Mr Guest, is low overheads.
“The primary benefit is that there are hardly any up-front costs,” he said.
“Whereas a franchise will normally require large up-front costs — e.g. purchasing a large amount of inventory, machinery — so it precludes a large demographic that are able to participate in this business model.”
Mr Guest said that while direct selling is similar to franchising — given that the company makes the product and delivers branding, marketing and so forth to its consultants — it does not pass on these costs typically paid by franchisees.
The model also tends to cater more towards home-based businesses that do not require the overheads of a retail premise and associated expenses.
The challenges of direct selling
Understandably, any business that relies on independent consultants to sell its products will face a challenge about how to control its brand and messaging.
“It’s always a challenge controlling brand messaging when you have independent business owners who are talking about the company publicly. It is a similar issue for franchises,” Mr Guest said.
USANA’s approach, Mr Guest said, is to formally document processes and procedures as a means of outlining common standards.
“We not only systematically govern what is said, but we monitor social media and the internet to ensure our messaging remains consistent. We also have an internal compliance program in accordance with the wishes of the company and regulatory bodies,” he said.
But the biggest challenge any business should address, according to the American executive, comes down to perception of the model itself.
“The greatest challenge from a direct sales perspective is the perception of a few people,” he said.
“The first is the perception of governments and regulatory bodies to understand the legitimacy of this business model and that we are truly finding customers that want to consume our products and distributors are distributing products to end consumers.
“The second obstacle we face is the perception with consumers, that when they are involved in a direct selling model, it’s a great way to have an independent business with very little expense up front and a great return on investment.”
Advice for other businesses
For any business looking to expand its sales footprint through a direct sales approach, Mr Guest suggests doing your homework first and taking a lead from others already using the approach.
“There are many opportunities out there, so you should check the stability of the company as best you can. For USANA, we’re a publicly traded company so our financials are available to the public,” he said.
“As it’s your reputation on the line, you want to ensure that you’re affiliated with a company that keeps it promises, is long-lasting, stable and will be there for generations to come.”
Mr Guest concluded by stating that the value proposition will also be a make or break factor to consider.
“You must ensure that the products that are being offered have a value proposition that is very strong, doesn’t overpromise and underdeliver and what is being said is really reality,” he said.
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