A New Frontier for Direct Selling

Nov 23, 2021
By DSJ Staff

At the recent DSA ENGAGE 2021 held October 31–November 2 in New Orleans, hundreds of direct selling leaders joined to share ideas on creating a better future for the industry. During the Opening General Session, Kevin Guest, Chairman and CEO of USANA Health Sciences and Chairman of the Board of the US Direct Selling Association (DSA), set the focus forward—a new frontier for direct selling that allows companies to build on the momentum gained during 2020 and 2021 while preparing for any future challenges.

“Calling this moment a new frontier seems very appropriate,” Guest said. “The ‘new frontier’ was a phrase coined by John F. Kennedy in 1960 to describe the challenges facing United States. He said the American people must be prepared to sacrifice in order to cross a frontier of unknown opportunities and perils. To me, that says it's all about where we are today in business and as curators of direct selling.”

Guest noted that during the last two years, many direct selling companies have been able to generate momentum because of increased interest in the industry. That interest was due in large part to the pandemic, which, according to Guest, greatly accelerated the rise of the remote workforce and corporate America’s acceptance of the channel. Now, as businesses return to normal, Guest sees the landscape about to shift again.

“It's important to anticipate these challenges, prepare for their impact, and determine what we must do strategically and tactically to protect our businesses,” said Guest. “We must consider how we, as DSA members, can collectively move the channel forward.”

To address the challenges and opportunities, the Opening General Session featured two keynotes: “Foresight and Agility,” presented by Solvasa Co-Founder and Executive Chairman Lori Bush, and “Safeguarding Your Business” with Joseph N. Mariano, President and CEO of DSA.

Foresight and Agility            

Lori Bush believes the challenges facing established market leaders are likely to be more difficult to navigate than those facing startups. She says that’s because established companies must navigate two fronts: the external threats of what's happening in the world  and the internal threats that Warren Buffet calls the ABCs of business decay—arrogance, bureaucracy, and complacency.

“In today's environment, arrogance must make way for vulnerability, bureaucracy needs to be uprooted with agility, and complacency needs to give way to foresight and perhaps even a touch of productive paranoia,” says Bush.

She points out, however, that in these volatile times, it doesn't matter whether your company is a startup or established market leader. You need precision alignment of product, opportunity and the interests of all the various stakeholders throughout the value chain, she explains.

The dilemma Bush says  many direct selling companies are facing today is misalignment. What do you do when your business platform and product strategy are not well aligned or no longer working? Do you:

  • Change your product strategy to fit your business model and your sales organization, or
  • Change your business model and sales organization to fit your product strategy?

The question is especially challenging for established companies experiencing a downturn in seller acquisition but still beholding to legacy sellers resistant to change.

“When it comes to mobilizing your sales organization, you’re operating at the intersection of motivational psychology, behavioral economics, and game theory—not to be confused with gamification,” Bush says. “And today, we're seeing a general shift in motivation and expectations as ‘famous influencer’ has apparently become a vocational goal for younger millennials and Gen Z.”

Can a direct selling company motivate and cultivate an army of online sellers who are capable of or willing to do live video stream that will build and sustain a company? Bush believes some companies are making this happen; however, her experience tells her that influencing such activity is difficult.

“An aspect of direct selling we're all grappling with now is that much of what has kept our sales organizations going through the years is the social dynamics of being part of a team or a community; being part of something bigger than oneself,” says Bush.

Social engagement was the bedrock of direct selling prior to 2020, but Bush notes the new normal associated with the pandemic and the general dynamics impacted by digital technology and social media make it hard to understand what social engagement and direct selling will look like into the future. “The companies that can figure this out will be the beneficiaries of this new order and those that don’t, well, they’ll be the victims of it,” she says.

Bush also touched on the impact of social media and e-commerce on party plan dynamics. Her firsthand experience with party plan started when she became a director and investor in a shapewear company. Shortly after she joined the Board, the company upgraded its commerce platform to enable attributed e-commerce transactions.

“With e-commerce and social media, representatives could host a virtual party featuring only the company's hero product because customers could simply go to the website to see the full portfolio and purchase from there,” Bush says.

However, some sample capsules stopped selling and distressed inventory piled up. In addition, since the trunk shows became virtual, the representatives self-hosted their parties and collected all the hostess rewards for themselves. And, because compensation percentage scaled with productivity of the party, representatives were keeping their parties open for an extended period of time to hit the milestones for the higher payouts without actually any increased productivity.

Because the company did not get ahead of these changing dynamics of their sales organization, it came close to putting itself out of business. “Fortunately, with the intervention of the Board and management change, the company was able to make the adjustments to align their products, their business platform, and their programs to restore profitability,” says Bush. “And today the company is growing profitably and achieving new record sales.”

Safeguarding Your Business
DSA President and CEO Joseph N. Mariano opened his session by sharing data from DSA’s most recent Growth and Outlook Survey:

  • Participation in direct selling grew by 13.2% in 2020. That translates to 7.7 million entrepreneurs participating in direct selling on a part-time or a full-time basis.
  • The direct selling channel generated $40.1 billion in retail sales in 2020 in the United States alone. That was up 13.9% from 2019.
  • Demand for products made by direct selling brands grew in 2020. There were 41.6 million preferred customers and discount buyers purchasing through the direct sales channel in 2020, with notable growth coming from preferred customers.

Additionally, Mariano shared that DSA’s Industry Research Committee is predicting 4 to 7 percent growth in 2021 for direct selling in the United States. Yet, while 2020 was a record-breaking year and 2021 is shaping up to be another successful year for US direct selling, there is concern among industry leaders.

Despite the successes in 2020 and 2021, the channel has received more attention in the media than ever before; however, much of it is negative or skeptical. Mariano and other industry leaders know that direct selling community needs to do a better job of telling its stories and dispelling the myths that currently exists. But how do they do it?

“We can do it by creating greater awareness about our brands among mainstream consumers and ensuring that our cultures align with and reflect the company values we know so well,” says Mariano. “And, of course, working together to protect the channel from unwarranted attacks.”

Mariano shared five actions he believes will help companies, and the direct selling channel overall, going forward.

1. Focus on Product Sales. It is true that the key to growth and sustainability is ensuring that products can compete effectively in the marketplace and get into the homes of ultimate users. Demonstration of and commitment to that focus will better the understanding of the model by the press, investors, and skeptical regulators.

2. Focus on the End Consumer. As the retail economy has transformed, it has become clear that businesses, including direct selling companies, must have a better understanding of, and fuller relationship with, their ultimate consumer. Many direct selling organizations have begun the tricky transition of developing that relationship without doing any disservice to the core of the model—the independent seller.

3. Simplify Direct Selling Nomenclature. The nomenclature of direct selling—a byproduct of years of history as a unique business niche—has been a significant contributor to the myths and misunderstandings surrounding direct selling. The solution seems straightforward: avoid the confusing language and simplify terms so they can be more easily understood by every audience.

4. Simplify Compensation Plans. Direct selling comp plans can be complex and difficult. Like the language which describes them, these plans can be daunting. Complex compensation plans have also invited regulatory scrutiny and calls for increased regulation to protect potential recruits. Plan simplification will eliminate these concerns.

5. Pay Scrupulous Attention to Income and Product Claims. The most successful direct selling companies have proven time and again that realistic product and income claims are key to customer and salesperson confidence, as well as business success. Recent government actions, industry and Association guidance, social media comments, and press and media coverage make clear that inaccurate and misleading claims will be dealt with harshly.

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