Hurdles in way of direct marketing to consumers

In a bid to reach their target consumers directly, companies such as Herbalife are recruiting a sale force that comprises of its own consumers who sell to close contacts.

However, this strategy does not work for all companies, the product being sold should be one that consumers use frequently, thus leading to a repeat purchase.

Herbalife — which sells nutrition supplements, weight management, sports nutrition and personal-care products including body lotions and deodorants — has gained popularity in Kenya.

It operates in more than 90 countries and has over three million distributors. They earn from their sales and the sales of people they recruit for the company.

“Long term products are mostly bought once in five years and for some it can be longer, therefore for a seller to engage in direct to consumer marketing it needs to be a commodity in which consumers use on a monthly basis such as toothpaste,” said Kevin Munyao, an entrepreneur. An example of a company that failed in this strategy by selling a product that was not a repeat purchase was BurnLouge.

The company was an online music website through which members sold their music to customers who downloaded it for about $30 (Sh3,100) to $430 (Sh44,300) per year.

The company hit 30,000 members in two years, however as consumers needed to download the music only once and share it with other consumers, those selling music on the site were not making money hence the store was eventually closed down.

Beyond selling repeat products, companies involved in this strategy also need to retain their sales people for it to be successful.

“Majority of the people that get involved in this model of selling do it part-time, but the fact that they made an investment by buying the product they are counting on realising a profit from them. If the product does not sell there is a chance that they will abandon the venture all together and count their losses,” said Munyao.

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Indeed, according to research by Robert Fitzpatrick in his book False Profits, distributors involved in direct to consumer selling have a 70 per cent chance of quitting if they do not realise profit within a year. “The economic score card of direct to consumer selling is characterised by massive failure rates and financial losses for millions of consumers.

“Its structure in which positions on an endless sales chain are purchased by selling or buying goods is mathematically unsustainable and its system of allowing unlimited numbers of distributors in any market area is inherently unstable, thus 50-70 per cent of all distributors quit within a year if they do not see any gain,” reported Fitzpatrick.

“The vast majority of the losers in the direct selling business drop out within a year. In a 1999 court case brought against Melaleuca, an online wellness club and one of the largest companies involved in direct to consumer marketing, the company claimed it had the highest retention rate among distributors in the entire industry.

“Melaleuca boasted a drop-out rate of 5.5 per cent per month. This equates to about 60 per cent per year, if the dropouts are replaced each month.”

-African Laughter