9/10/2009

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Getting more direct
N. Madhavan

September 18, 2009 Comment Print Email Normal page view AAA Share

India's Economic Growth India looks to be taking a hit in growth this year. Why? Free report
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Direct selling means the marketing of consumer products/services directly to the consumers generally in their homes or homes of others, at their workplace and other places away from permanent retail locations, usually through explanation or demonstration of the products by a direct seller. Indian Direct Selling Association

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This definition may well need a tweak if the recent measures of William S. Pinckney, Com pany Price Change (%) Managing Director and CEO, Amway India and some of his colleagues in the Indian ORACLE FIN 2103.00 7.03 EXIDE INDS 100.60 6.06 direct selling industry are any indication. Estimated at Rs 3,300 crore (2008-09) SPICE TELECO 70.50 5.70 and employing about 1.6 million distributors, the Indian direct selling industry is abandoning the traditionally unique elements of direct selling— not having a fixed Search Quote BSE NSE retail location and publicity through word of mouth—in favour of retail infrastructure and a steady increase in advertisements both in print and electronic STEEL 537.25 (2.15) | TATAPOWERCOM 1,302.00 (-5.10) TATA media. Amway, the largest direct seller in India with Rs 1,128 crore revenues (2008), is leading the change. It has already set up five experience centres—one each in Bangalore, Pune, Kolkata, Delhi and Chennai. It will add 10 more in the next 12 months and over time upgrade all its 50 full-service centres across the country into experience centres. Swedish cosmetics seller Oriflame’s flagship experience centre is located at Connaught Place in New Delhi and it plans to set up similar facilities across all its 12 branches in the country. The premium food storage major Tupperware prefers makeshift access points in traditional malls and market places across the country.
NEW CHANNELS Direct m arketing firm s are opening retail outlets (experience centres), adv ertising in a big w ay . The purpose is to add credibility and v isibility to the existing direct selling channel.
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Adv ertisem ents supplem ent w ord-ofm outh publicity , enlarging the custom er reach. Direct sales, if any , from the retail stores are being routed through a distributor.

Brick and Mortar “The experience centres enable people to touch and feel our products. Dieticians are at hand, for instance, to check the body mass index, metabolism rate and suggest lifestyle changes. We can also do skin elasticity and wrinkle tests and suggest remedies, if need be. In a way, these centres help us to connect a lot better with our customers,” explains Pinckney. Customers visiting these experience centres can buy the products as in any retail store but the significant difference is that the sale will be routed through a distributor in line with the principles of direct selling. “Ours is very much a peopleto-people business. It is our distributors who sell to the customers. If we compete with them, it will go against the very grain of direct selling,’’ says Fredrik Widell, MD, Oriflame India, and Chairman, Indian Direct Selling Association (IDSA). According to Asha Gupta, MD, Tupperware India, this is a recent shift. "For many years we practised direct selling in its purest form. Distributors were the only point of contact with our end customers both for promoting the products and executing the sales. There was very little focus on brand building outside of the direct selling
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Wipro eyeing acquisitions
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9/10/2009 Business Today - India's leading busine… route. Today there is a clear need to reinforce the word of mouth publicity through independent efforts by the companies," she says. In fact, no sale happens at Tupperware’s access points. They help people touch and feel the products, know where they are available and who the nearest distributor is. They are more like lead generation points.

Brand Cover Traditionally, direct selling companies do not advertise as their products are sold personally by the distributors. Brand recall, they always maintained, was for those products that have to be pulled off the shelves in department stores. But the recent spurt in advertisements—be it Amway’s TV commercial, Tupperware’s contests on FM radio or Oriflame’s product promotion in fashion magazines —has turned their earlier stand on its head. “The advertising we do is not a replacement but is in addition to word-of-mouth publicity. Also, its purpose is not to generate demand but to create awareness and interest. Earlier, our product promotions were limited to the number of people our distributors could talk to. We now want to reach more people. Advertising will help distributors expand their business and service more customers,” says Pinckney. He adds that direct selling companies will never spend the kind of money that main line FMCG players spend on advertisements and word of mouth will be the main form of advertising. Amway, which spent almost nothing on advertising five years ago, has budgeted Rs 15 crore this year. Says Gupta, “Advertising helps us to keep the brand resonating with people. Thanks to technology, innovative low-cost solutions are today available to communicate with customers constantly in multiple languages and in different cities.” Change Agent MULTI-CHANNEL MARKETING Professor Mithileshwar Jha of The Past The Present IIMBangalore who also coauthored Marketing Direct selling cos > Distributors + Direct selling cos > Adv ertising + Experience centers Management—A South Asian Distributors > Custom ers > Custom ers Perspective with Philip Kotler, attributes this change to the Direct selling com panies had Direct selling com panies reach out eagerness of direct selling no brick-and-m ortar presence. to custom ers through brick-andcompanies to reach customers Distributors were the sole m ortar experience centres, through multiple channels. “Any point of contact w ith tem porary kiosks in m alls, the company should help its custom ers and adv ertising Internet and adv ertisem ents, customers do business with it in w as through w ord of m outh. apart from the distributors. the simplest and easiest manner. If multiple channels of marketing are available to manage cost, tackle credibility and grow, why focus on just one? Getting wedded to a particular model could be fatal.” He cites the case of Ceasefire Industries - a direct selling company that captured the imagination of the people with its domestic fire extinguisher product ‘Ceasefire’ in the early ’90s. It lost a lot of opportunity when people did not know where to buy the product. Adds T.N. Swaminathan, Associate Professor-Marketing, Great Lakes Institute of Management: “With growth in product line and also increased geographic penetration, you need to effectively supplement direct selling efforts by creating awareness, conveying information and imagery through selected use of traditional communication methods, especially when you sell premium products.” Credible Growth Need for greater credibility and a faster pace of growth seem to be the underlying reason for this change. The direct selling model in India has been repeatedly misunderstood as a pyramid scheme—so much so that IDSA has chosen “to make direct selling the most respected in India” as its vision. “The experience centres give people a sense of comfort. They get a feeling of the company having a serious presence. Distributors feel reassured. The advertisements and resulting brand recall help people recognise direct selling as a legitimate channel,” explains Pinckney. Adds Jha: “If you are visible and if your visibility is authentic, that gives credibility.” Though the impact of these changes on the credibility of direct selling model is
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9/10/2009 Business Today - India's leading busine… unclear, its effect on sales has been positive. “We have witnessed at least a 5 to 10 per cent growth on account of these changes in the last six months,’’ says a beaming Pinckney.

Direct selling companies have been posting a scorching pace of growth. Amway grew by over 25 per cent in 2008 and hopes to maintain the pace over the next few years. Oriflame tripled its revenues in the last four years and hopes to do so again in the next four. For Tupperware, 2008 saw a 40 per cent jump in sales and it foresees 2009 as its best year yet. Nevertheless, the industry, at $690 million (Rs 3,300 crore), is a fraction of the global pie estimated at $114 billion (2008). Also, Thailand and Taiwan, with just two per cent of India’s population, have sales of over $1.6 billion through direct selling. The industry has set Rs 5,000 crore sales and 2.7 million distributors by 2012 as its target. Are these changes the beginning of a radical shift in the model? Will the direct selling companies start selling directly? Responds Gupta: “We will do potentially everything to avoid channel conflict. It is hara kiri.’’

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