Essay- Understanding Direct Selling in India

Building a socio-economic edifice

Over time, the human race and more so in India, the larger population has engaged in three basic traditional occupations agriculture, manufacturing and trading. Infact of the three, agriculture and trading have always been around growing crops and trading or bartering them for goods or produce that the other did not have. With the introduction of monetization and currency, trading over time evolved to form selling and buying mostly peer to peer before it became more structured to form channels sales. Unique as it might seem, the most common or conventional form of sales and purchase has been direct sales, while structured channel sales came about only with the advent of modern day manufacturing and finished goods where economics of demand-supply ruled the quantum of produce, inventory, sales channel modulation and eventual returns. India and Indians are known as much for their spirit of entrepreneurship catalyzed by trading as they have been known for their inclination and dependence on the agrarian economy. As a population we have always been quite dependent on trading or selling produce in return for necessities and money to build wealth and well-being for self, family and the community at large. As a trader, you earn as much as you can sell, with the price being decided at an open market, trading area or exchange or by the trading fraternity focusing on specific commodities, goods or products. The concept for Direct Selling is not dissimilar to that of channel based sales. The first element of similarity is that as in trading, the model of sales is based on peer-to-peer engagement and transaction. Secondly, the income generated by an individual in direct sales is directly dependent or proportional to the goods or products he/she sells viz. to say you earn only as much as you sell (and therefore if you do not sell or transact, you earn nothing). The modern day format of direct selling is not entirely new as mentioned earlier. The concept of peer to peer linkup to create a chain selling tree or structure has always been around, where goods are handed down through a chain and the profits or commissions or incentives being shared proportionately in terms of effort. In fact it is this very same structure that modern day channel or structured sales has adopted As in direct sales, so also in channel driven sales, there is a peer to peer or group to group link-up

(C&F Agent to Distributor, Stockists, Large Format Retailer or Wholesaler and finally unit/small vendor /retailer). So the model of chain or multi-level marketing is neither new nor does it have any nuance of complexity as purported. There are several questions of doubt and a general air of misconception and myths that surround the world of direct selling. Some of these misconceptions emanate from stories revolving around the fact that direct selling is based on a structure where the organization apex rewards down the line constituents for signing up memberships, where products are exorbitantly priced to accommodate high value commissions or incentives or there may be selling structures where the products are not of high quality and are just a faade to procure money from innocent customers and reward members from the spoils. Infact, nothing could be further away from the truth than these statements. Firstly most direct selling organizations, and atleast the well-known ones do no charge any joining or initial subscription fee, and neither do they pay constituents any rewards for sign up. Credible and well known direct selling organizations only pay commissions or incentives for actual goods and products sold, not for membership sign ups (two logical reasons additional memberships mean nothing they do not guarantee any revenue generation and the direct selling company which already spends a lot in terms of training and development will not dish out more money to attract new distributors it just does not make business sense). Secondly, as far as product pricing is concerned it is important to understand two things (a) that these products are high priced because the cost of manufacturing them is high. This high cost comes from the fact that the products are assembled, manufactured or put together in high-tech state of the art manufacturing units and further caused to high cost of raw ingredient material of the highest quality (most of which are source imported from international markets at high prices). (b) that every company has to maintain the best standards in terms of other operational resources as well Training & Development facilities, R&D, Quality Control, Human Resources, Software and Technology backbones, Logistics etc and everything comes at a cost a high cost at that (isnt it logical to accept that the best resources will cost the most?).

Resultantly to incentivize all operational resources and the Sales-Distribution resources to perform well in terms of sales volume build in margins. To contend with and counter the argument that margins in direct selling are more than that of conventional channel sales one must draw clear and linear analogies. Firstly, The incentivization structure in both models of sales are nearly the same and in many cases without any difference. As a traditional manufacturing and services company pay its C&F agents, distributors, vendors and retailers with sales margins and commissions as well as its sales workforce (on direct payrolls) so also does it reward these same associates and resources magnanimously with substantial rewards for meeting or exceeding sales targets and this has been the practiced convention everywhere from Insurance to Banking, Airlines & Hotels, Automobiles, Software, consumer durables, FMCG etc So why the insinuation that Direct Selling companies retain steep margins to reward associates and employees when the converse is possibly true? Infact companies with traditional sales models have greater or better margins hence the high profits, great salaries, great commissions to sales agents and distributors. It is a fact that direct selling companies do share their profits as incentives or commissions as reward for achieving certain sales levels, but it is also true that the cost of maintaining a direct selling structure is lower than that of a conventional channel sales structure. Look at this analogy Under the conventional channel sales structure, the company goes through atleast 4-5 levels to reach the last mile retailing point whereas in Direct Sales the company makes the transaction directly with the last mile retailing point, while sometimes the last mile retailer or the distributor may in essence only serve as the order taker and the ordered goods can be delivered directly to the consumer saving on time and money. Whats more definitive in terms of impact, is that some of the best known Direct Selling companies in the world and in India have the best products for a particular category or segment e.g. Tupperware makes one of the best food-grade plastic products which albeit premium priced has virtually no competition in terms of quality or for that matter an Oriflame, Mary Kay, Artistry or Avon beauty care or the wonderful home cleaning products of Amway. What is important is that the consumer must benefit at the end of the day if the product or service purchased brings good value to the customer. Secondly one must also evaluate the Direct Selling Industry must also be

seen through the prism of pure social economics that of direct and indirect employment or livelihood generation. In India, The Direct Selling Industry (constituting member companies of the Direct Selling Association) currently has a distributor/sales agents base of more than 2 million, a direct employment base of nearly 5000 employees and several thousands more in terms of indirect employment (employees of companies or contracted consultants associated directly for business with the Direct Selling Industry ranging from transportation, infrastructure, IT, Manufacturing and Material Supplies). To top it up it also generates several hundred or thousand crores of Taxation revenue for governments One cannot ignore the new wave of micro-entrepreneurism that Direct Selling has been able to generate and bring to the people of India, and will continue to do so; and in doing so has generate a new way of life of independence, self-belief and monetary success.