The direct selling industry has been a source of entrepreneurs, job creation and a way for companies to access consumers for decades via person-to-person recommendations. However, while some companies plan for growth, others plan for leadership, recognition and expansion, there is one basic question that all the direct selling companies should ask themselves once in a while:
Are we selling our products or are our products selling our compensation plan?
This could seem like a simple question. But the solution can frequently be the secret behind a company's success.
Understanding the Purpose of Direct Selling
The basic idea behind direct selling is to address a distribution problem.
Companies gave the power to individuals to introduce products directly to consumers, bypassing the need for retail stores, distributors, dealers or traditional advertising. The distributor was now in between the product and the customer.
The fundamental objective was simple:
- Provide product information to consumers.
- Educate consumers about their benefits.
- Create repeat consumption.
- Establish and maintain long-term customer relationships.
The distributor network has been created to increase the product reach and market penetration.
The network was designed, in other words, to make consumers.
The Evolution of the Industry
The compensation plans became more complex as the industry changed. Leadership development, team building, mentoring and recognition systems were put in place to incentivize distributors to grow their businesses.
All of these innovations helped to foster the industry's expansion.
But an important question does remain:
When does team building start to compete with market building?
In many companies these days, distributors dedicate lots of time to acquiring skills in how to:
- Sponsor new distributors.
- Build teams.
- Achieve ranks.
- Qualify for incentives.
- Attend leadership programs.
However, the following are done less:
- Retail selling.
- Consumer education.
- Product demonstrations.
- Customer acquisition.
- Customer retention.
This change might not be purposeful, but it can't be ignored.
The Difference Between Building a Network and Building a Market
Networks are not markets.
Distributors are the elements of a network.
Consumers are the people who make up a market.
A company might have thousands of distributors, but if the demand of the consumers is low, then the survival of the company can be questioned in the long term.
In the same way, a company can have a relatively small force of distributors and a large loyal base of consumers, providing a firm base for future growth.
Businesses that can construct both of these are the most resilience.
Sadly, lots of conversations in the industry tend to be very much about the size of the network, and less so regarding the size of the consumer base.
The Missing Consumer
Take into account the queries that businesses typically pose:
- How many distributors did you sign up for this month?
- How many people were there at the opportunity meeting?
- How many new leaders qualified?
These are key indicators.
But also critical questions are:
- How many were new customers for our products this month?
- How many consumers reordered?
- How many consumers purchased without any interest in the business opportunity?
- What percentage of the volume of our sales is due to ‘real' demand for the product?
The answers to these questions can be more representative of the strength of a business.
This is why there are two roles of a distributor. Each distributor usually plays one or two of the following roles:
Market Builder
A market builder:
- Promotes products to consumers.
- Creates product awareness.
- Solves customer problems.
- Generates repeat purchases.
- Expands product usage.
Team Builder
A team builder:
- Introduces new distributors.
- Trains others.
- Develops leaders.
- Increases the number of sales people.
Both roles are important.
There's no doubt that distributors need to build teams.
The question is, is the same amount of attention given to market building as to team building?
There needs to be some equilibrium between the two if you wish to have a healthy direct selling business.
The goal is for every promoter to ask this question.
Suppose that the growth of distributors weakens for a brief amount of time.
Would the company be able to sustain a profitable business due to customers' real interest and subsequent reordering of products?
Or would growth be significantly impeded as most business activity is reliant on a permanent expansion of the distribution network?
The response to this query can give beneficial insights in the market position of a business.
Why Consumer Demand Matters
Stability is created by consumer demand.
Consumers who buy products that have some value to them:
- Generate repeat revenue.
- Strengthen brand reputation.
- Minimize reliance on ongoing growth.
- Create long-term sustainability.
Consumer demand provides the basis for sustainable growth and distributor growth can further fuel this expansion.
Building a good distributor chain has its roots in a good consumer market, but if one is lacking, the chain can be susceptible.
Resilience from a strong consumer market and effective distributor network.
Shifting the Conversation
Maybe it's time that the industry broadened its definition of growth.
Growth should not be measured solely by:
- Distributor enrollments.
- Rank advancements.
- Team size.
Growth should also be based on:
- Consumer acquisition.
- Consumer retention.
- Product usage.
- Product satisfaction.
- Repeat purchases.
After all, the goal of a distribution network isn't just to make more distributors, is it?
Its purpose is to create more consumers.
Final Thoughts
The problem is not recruitment, it's retention.
Team building & Leadership development is not the problem.
But the question is, are these activities contributing to the development of a bigger, stronger consumer market?
All direct selling companies need to ask themselves from time to time:
Is the network of distributors growing quicker than the market of consumers?
In the long run, in the end of the day, its consumers who are creating the markets, and it are the markets who are creating sustainable businesses.
After all, the big question is:
Do we incentivize sales of products or do we incentivize sales of the compensation plan?