Guest author Mike Jones is COO of Integrated Distribution Services (IDS) that focuses on developing and integrating logistics solutions for its clients. Prior to transitioning to the logistics industry in 1998, Mike’s career was in the transportation products manufacturing field. He left that industry as the Executive Vice President/Sales and Marketing of one of its largest companies. Mike was graduated from the University of Notre Dame with a BA in Economics and resides with his three children in Indianapolis.
Guest Post by Mike Jones
Direct Selling vs. E-commerce Revisited
As a regular reader of The World of Direct Selling, I appreciate its insights and news. A recent article by Hakki caught my attention and compelled a response.
Hakki’s initial position is that for all its benefits, conventional e-commerce has a future that is “not that bright”. While Hakki later turns the table and encourages Direct Selling (DS) companies to incorporate some features of e-commerce retailers, the gist of the article is that e-retailers don’t generally do the things that distinguish Direct Selling companies. While we agree that DS companies do many unique and valuable things, the essential fact is that from a growth perspective e-tailing consistently has been showing double-digit growth on an already significant base: DS and conventional retailing are not even close to that level of growth.
From my perspective at IDS, we definitely believe in the power of Direct Selling. We support e-commerce companies as well as MLM and Party Plan Direct Sellers but we have a disproportionately large sales base in DS. We have been DSA members since 2003 and have a large part of our success tied directly to Direct Selling. We want it to succeed. But we can’t ignore the signs in front of us: traditional e-commerce growing fast and it is e-commerce that is defining a very large part of the consumers’ expectations. It is cannibalizing traditional retail. Depending upon your approach, generally speaking it is either competing all too successfully with Direct Selling, or is being used by some DS companies to enhance the customer’s value proposition. Let’s review each of Hakki’s points regarding the disadvantages of e-commerce vis-à-vis direct selling:
Word of Mouth (WOM) – this gets heavily into social media which can be leveraged by both e-com and DS. While DS may have more inherent traditional WOM capabilities, social media methods often eclipse these traditional capabilities in importance. Social Media substantially levels the playing field so this then becomes a company specific advantage (or not), not a channel specific factor.
Person Sales Consultancy – This is the core of Direct Selling and DS does this well. However, once the consumer is sold the first time, the value of consultancy declines. She probably wants less Personal Consultancy once she is familiar with the product or program. She has also been trained to and generally enjoys the on-line experience. We believe that, generally speaking, successful Direct Selling companies will be those that leverage their advantage in educating and acquiring a new customer with the built in advantages or e-commerce for re-orders and follow-ups to the relationship.
Distribution problems – Hakki has one example but it’s a rare and unlikely one. From the viewpoint of someone who makes a living in distribution, distribution is only a problem if you make it one. Distribution for either channel should generally be viewed as no worse than a necessary expense to be minimized and at best as a competitive advantage and touch point to the client.
Loyalty Maintenance – This is a problem, or opportunity, for both channels. E-com generally has a disadvantage in personal touch while most DS companies have some premium in the price that leave them susceptible to losing clients to lower price knock-offs if they don’t have compelling product advantages. But in today’s world, your consumer generally doesn’t want a lot of personal attention after the initial sale (she would rather get a text than a call) and you can often provide your consultants better leverage through use of e-commerce post-customer-acquisition techniques to drive repeat sales.
Promoters – E-commerce does provide an avenue for “promoters” to make an income and often a living. Successful bloggers leverage their following for significant incomes. The key here is that e-commerce is flattening the sales environment for everyone. E-commerce married to your MLM or Party Plan program gives your consultants the tools to spread their personal sales nets wider. It can give them the leverage to sell more at lower cost. The result may be less “downline” but with expectations of increased overall sales. Less downline may create opportunities do provide discounts to repeat clients (loyalty programs) which will be familiar to your end customers shopping online.
In fairness to Hakki, he concludes his article largely encouraging Direct Selling companies to incorporate the best of on-line sales into their programs and we could not agree more. We see many Direct Selling start-ups pioneering exciting uses of web technology and blends of Direct Selling and e-commerce. We also see e-commerce companies finding new ways to leverage technology to create a more unique experience and enable other entrepreneurs to sell through their site, i.e. they are creating opportunities for others as well. So our conclusion follows Hakki’s: those MLM and Party Plan organizations that best succeed in converging e-commerce and direct selling will surely outpace others.