Direct Selling in the Age of Online Retail

By Michelle Larter

According to the Direct Selling Association, only six percent of women in the United States make more than $100,000 per year and, of those six percent, 80 percent work in direct sales. Clearly, a career in the direct selling industry has the potential to be lucrative, but how sustainable is the direct selling model in an age where consumers are increasingly shopping online?

While nearly all direct selling companies such as Avon or Pampered Chef have online stores, are consumers still attending and hosting parties and purchasing products from consultants? Or, is the home party business model that direct selling was built on becoming the equivalent of an in-car cassette player—near extinction? Here are three reasons why direct selling organizations will continue to thrive even in the face of online shopping:

Relationships Can’t Be Formed with Websites

While online shopping is becoming more and more popular, relationships—both with the friends and family they attend a party with and with the consultant—continue to be a driver of consumers holding at-home parties. Seventy-four percent of US adults have purchased products from a direct seller, according to Direct Selling 411. Having a party is an experience. It can be a great excuse to spend time with people you care about, in addition to shopping from the comfort of your (or a friend’s) home.

There’s also the perk of persona attention. If it’s a Pampered Chef party, for example, the consultant can recommend specific cooking tools to use to create a specific recipe; if it’s an Origami Owl party, the designer will show you several different ways to wear a single piece of jewelry.  While the consumer can buy these products online, in person they can receive education, a demonstration and a personal recommendation.

Trust: A Key Component of the Direct Selling Model 

Some types of products, such as nutritional products, are a prime example of a purchase that consumers are far more likely to move forward with when the recommendation comes from someone they can trust.

According to Nielsen, 92% of consumers trust recommendations from people they know. McKinsey adds that word of mouth recommendations are the primary factor behind 20 to 50% of all purchasing decisions. It stands to reason then, that even if a consumer has not heard about a particular product, if a person they trust invites them to a party to learn more, they will likely attend with an open mind to be a part of the food and the fun and to see what this brand is all about.

In addition to trusting the product recommendations of friends and family, the majority of consultants already use the products that they demonstrate and love them. Consultants know that they will be more successful if they have a passion for the product.  Many look at parties as a chance to channel that passion to new and existing customers to build long-term relationships versus making quick sales.  For the hosts of the parties (many of whom are already product advocates), holding parties affords the opportunity to get rewards—read: free products.

For some brands, the party model will continue strong even amidst consumer affinity for making online purchases. For others, staying competitive in the direct selling industry requires a shake up in the direct sales business model.

New Direct Selling Business Models Emerge to Stay Relevant

For Beachbody, the parent company of the popular P90X and Insanity workouts, infomercials are used to sell DVDs but also as a lead capture/sourcing point. Customers who purchase the DVDs and meet certain criteria are being fed back to consultants (known as “coaches”) who then motivate and support the customer’s success on their program and can also receive commission on the sales of additional home fitness programs and supplements such as Shakeology, a meal replacement drink, to these customers. The coaches earn commission for sales of supplements and additional home fitness programs.

So, to answer the original question, the direct selling industry is not dead or dying. The foundation for the party model will support it into the foreseeable future, but it does need to keep a keen eye on marketplace trends which dictate how people like to consume product information and buy products so that direct sales models can evolve to keep pace. New tools will continue to be leveraged, like UStream for parties that are held as a broadcast versus in person and LeapFactor, a tool used to make party catalogs available on mobile devices. It will be interesting to re-visit this argument again as the next generation, who grew up on iPads, texting and Facebook evolves the direct sales model. And so the story continues.

Michelle Larter is worldwide director, direct selling, IMN.