The World Federation of Direct Selling Associations reports that they represent 1,000 companies in 140 countries with 35 million independent business representatives. In the US, it represents $30 billion in annual sales. Sounds big doesn’t it, until you compare it with retail and all the other channels whose sales are $1.3 trillion, or 50 times the size of the direct selling profession? Considering that all these sales channels started around the same time, 135 years ago, why has direct selling stayed so small in relation to non-direct-selling channels?
The answer is value.
To understand the value equation, let’s consider two examples, one from the nutritional products industry, and one from the personal care products industry.
Example #1: Nutritional Supplements
Many companies compete for consumers’ daily vitamin business. Off the shelf in retail stores, the offering is basic and, many would argue, adequate. Through direct selling of MLM products, where the product story can be told and unique features highlighted, the offerings become unique and interesting, maybe even compelling. But is the offering worth the vast difference in price? Maybe yes, or maybe no. You decide, but here’s what the numbers show us:
• The average price of vitamin and mineral dietary supplements among the three largest distribution channels (grocery stores, mass market, and pharmacies— we’ll call these the “Big Three”) is $6.75
• The average price of herbal supplements among the Big Three distribution channels is $7.72
• The average price of vitamin and mineral dietary supplements sold through the direct selling channel is $19.12, or 283% times the average price of the Big Three
• The average price of herbal dietary supplements sold through the direct selling channel is $24.16, or 313% times the average price of the Big Three
One conclusion is that the direct selling channel in general does not provide value to the market. Another conclusion is that the direct selling channel in general provides MLM products that have superior ingredients and manufacturing techniques, and the story needs to be told and the real value needs to be conveyed. Which conclusion applies to your company? If a story needs to be told, are your employees and business builders telling that story, consistently, accurately and passionately?
Example #2: Personal Care Products
Across the nation, demonstrations, presentations and workshops employ the direct selling approach to selling personal care products. In the personal care products markets, direct selling accounts for $13.3 billion of the $52.7 billion in total personal care MLM products sales – roughly 25%. Why is direct selling so strong in this market segment?
The product demonstration and education experiences are conducted in homes and similarly comfortable settings where consultants offer convenience, personalized service and attention, helpful information, gift ideas, special offers, and the spice of variety in a social setting. The result is strong value in a direct selling channel.
The key for companies that are building long-term business—and this is the salient point—is to offer real value. And value must be conveyed; an old sales adage accurately maintains, “no tell, no sell.”
The most basic value equation has three components: Price, Quality and Service.
Various mixes of these components will define value in any offering. Consumers will accept sub-standard quality if pricing and service compensate; higher prices can be commanded where the quality and service mix are in a balance that supports price; if service is absent from the equation, quality is more sensitive to price; and so on.
If these value components exist and if they are in balance within your offerings, then what remains is to help your teams (corporate and field) to convey that value. Without value, any attempt to convey an artificial value proposition is empty hype, and it will not last. On the other hand, true value in the MLM products might exist but not be known if it is not effectively conveyed.
Mark Peterson says
You make great points in this article. However, I’m confused why your analyses of nutritionals and cosmetics have different bases.
Why didn’t you compare the price of direct sales cosmetics to retail cosmetics like you did with nutritionals?
Likewise, why didn’t you compare the proportion of the direct sales nutritionals market to that of retail like you did with cosmetics?
Terrel Transtrum says
Great questions! The goal of the article is to develop the question whether value is created in MLM products vis-a-vis formulations, unique ingredients, proprietary methods, etc., and then to challenge the reader to consider whether these can be successful offerings in markets with dramatic gaps in pricing. Ultimately, the test is whether there is true value to the consumer. We’ll continue with our research and then present findings with cosmetics and personal care products. Thanks for challenging us to keep on with our story! In the meantime, if you send along any credible research that will help, you’ll get top spot on this year’s Christmas card list! Thanks for weighing in on this.