As the channel regroups post-pandemic, DSN offers five strategies to maximize growth
Letting go of what was and doubling down on what’s next.
We’re experiencing a return to normal. Does this phrase sound familiar?
The pandemic brought an unexpected boom to the direct selling industry. Many companies saw revenue increases and incredible growth. As the pandemic has eased, so too has that explosive growth. Only 18 companies made our 2023 list of companies who experienced three consecutive years of revenue growth. And overall, the industry saw the beginning of a decline in total retail sales at the end of 2022.
It would be easy to assume that these numbers reflect a natural market correction—one that doesn’t signify a decline in progress or relevancy, but rather a return to pre-pandemic levels. After all, U.S. direct selling revenues reached $40.5 billion in 2022, which is a decline from 2021, but still a sizeable increase from $35.2 billion in 2019.
The problem with this theory is that consumer spending hasn’t followed this trajectory. In July, Deloitte released its State of the U.S. Consumer report, revealing that retail sales were up 31.6 percent from pre-pandemic levels and non-store sales were up 69 percent. Consumers are buying—particularly in discretionary categories—so why aren’t direct selling revenues reflecting that boost?
As the research shows in The Future of Work: Insights into the Gig Economy Workforce, the gig economy is growing four times faster than the traditional economy. However, the number of gig workers representing direct selling has decreased from 5.2 percent to 2.3 percent. The DSEF Growth and Outlook Study shows an eight percent decline in the number of direct sellers in 2022.
At Direct Selling News, we believe the direct selling industry is in, perhaps, one of the most important Inflection Points in its entire 100+ year history. The term inflection point originated as a mathematical description depicting that moment when the curve of a graph changes direction moving up or down. A point when business leaders must proactively address the future of their brands and the relevancy they bring to market.
What we are experiencing is not a return to normal; it’s a critical moment to address the channel’s strengths and opportunities to evolve forward. A time to determine if next year’s P&L sheets will reflect a positive shift in momentum or another year of steady decline?
DSN worked closely with channel advisors, executives and analysts, compiling five strategies to help companies understand the current state of their business so they can more effectively position themselves for growth.
We must be candid and honest about where the channel has been and is. The so-called normal of 2019 doesn’t exist anymore. This is a critical moment in time where companies have two choices. Stay in a state of comfort and complacency and expect similar results. Or, let go of what was and move forward with open, innovative minds and embrace evolution to build for the future.
Ultimately, the choice is yours. But the time has come to make that choice.
1 / Dig into the Data
It’s time to take a brutally honest look at the statistics surrounding the last few years. The drastic bump that most of the industry enjoyed during 2020 and 2021 was not typical, nor does it appear to be continuing. Allowing this data set to incorrectly inform future projections and strategies prevents companies from reaching their full potential.
It is imperative that companies dig into their historical information to genuinely understand the impact the pandemic had on their most important statistics. The priority must be to look for trends that indicate future habits; identify key patterns; and discover exactly what behaviors your fields are engaging with today—successfully and perhaps not-so successfully.
2 / Avoid Being a Regulatory and Compliance Target
The channel has to work together. Clean, simple and transparent are the obvious antidotes to a tough regulatory environment, but no one company or brand can turn the tide in the industry’s favor to heal decades of reputational damage.
“We have got to make ourselves unimpeachable,” said Heather Chastain, Founder and CEO of Bridgehead Collective, a consulting firm for the direct selling industry. “You don’t have to be a bad actor in the channel to gain a bad reputation. Take a look at the transparency of your programs, incentives and compensation plans and eliminate any loopholes or obfuscation. We have to be on a mission for transparency.”
Larry Steinberg, chair of the Buchalter Law Firm’s MLM Practice Group agreed, “Now is as good a time as ever to refocus your business plan on retail sales, a robust preferred customer program and communications with your field about the importance of compliance. There is ongoing rulemaking activity in the business opportunity, earnings claim and restrictive covenant areas. Staying under the radar is becoming increasingly more difficult, and the stakes are higher than ever.”
Eliminate hidden fees. Make it simple to opt out of an auto-ship agreement. Communicate with the field about the importance of compliance. Use dollar amounts instead of points to pay commissions and achieve bonuses. Do whatever it takes to communicate that your product and opportunity can withstand a critical eye. When in doubt, choose transparency.
3 / Understand Changes in the Marketplace
Today, customers want a seamless shopping experience that is transparent from end-to-end. They want to engage with companies who deliver on their promises with little-to-no barrier to entry, frictionless experiences, minimal clicks, streamlined shopping cart processes and reward incentives that are attainable and delightful. If there are 17 hoops to jump through to get the prize, you’ve missed the point—and you’ve likely lost a loyal customer.
Zooming out a bit, digital fluency is crucial. Consumers, particularly younger generations, expect everything from first impressions to shopping, purchasing and delivery, to have a simple, yet impressive, responsive digital component. The way people buy is now staggeringly influenced by a brand’s digital footprint, even if they ultimately buy in person or in a retail environment.
Shoppers are still spending, but only where and how they want to shop. The direct selling product and customer proposition must be on point and at the same level or greater than massive online platforms like eBay and Amazon.
The growth of ecommerce is proof of the concept that people are shopping differently. The growth and use of the digital platform provides an opportunity to compete with any brand, at any time, through people who love what they are experiencing and desire to share with others what was shared with them.
Make sure your products and platform serve today’s customer in meaningful, memorable ways that will make them want to come back time and time again—and bring their friends along with them.
4 / Challenge Old Mindsets
For decades, the direct selling industry has positioned itself as a massive, team-building opportunity. Marketing messages traditionally lauded the six-figure earner, the luxury car bonus and a certain lifestyle to spark interest. Not so much today.
“Gen Z and Millennials don’t respond to that like generations before them did,” Chastain said. “They are more interested in making an extra $250 or $500 a month to supplement additional income streams and rarely have an interest in building a downline, much less lead a team.”
Chastain and her company Bridgehead Collective recently released a first-ever research study conducted with Jason Dorsey on the impact of Gen Z and Millennials on the marketplace including specific implications for direct selling.
Businesses and brands are more than their compensation plans, but it’s imperative to analyze whether the incentive and payout structures in place are truly meeting consumer and distributor demands. Take a deeper look at the touchpoints that could move customers from casual purchasers to loyal repeat buyers.
Direct selling companies should be thinking of themselves as brands first. If you still think your compensation plan is the most important way you can attract new customers and prospective independent contractors to your company, it may be time to change your mindset and the language you use to position yourself in the marketplace.
5 / Be Mindful of Chasing Trends
Identify what needle you’re trying to move and then put straightforward, clear strategies in place to deliver those results.
“Be really thoughtful about the buzzwords you use to describe your strategic decisions,” Chastain said. “Some companies are saying they are jumping on the affiliate trend, but are they really? Or are they just simplifying the front end of their compensation plans?”
Consider how your culture supports ordinary people who want to participate in your company’s unique niche and mission. Grow your customer base to boost revenue, rather than investing in a few top team-building leaders. And—above all else—cultivate a brand identity, shopping experience and product story that sparks love, loyalty and longevity in the hearts of shoppers.
Straightforward Strategies Win
There appears to be a clear direction that industry analysts and experts agree will move the channel in the right direction: streamlined, transparent operations focused on selling quality, high-value products and services.
A focus on the fundamentals of brand building means a focus on everything—not just commissions or compensation plans, but incentives, recognition, gifts—everything. If that sounds like it might dig into the bottom line, that’s because it likely will. But the payoff, Chastain says, is well worth it.
“Find profitability elsewhere,” she said. “The dated approach to compensation plan design may be costing the company too much as it attempts to be relevant in a very different marketplace. Refocus your energy on delivering quality content. Be ruthless with the products that earn a spot in your lineup. When you focus that kind of efficiency within your company, it will free up the few margin points you need to support a simple, generous combination of commissions, incentives, recognition and community for affiliates, distributors and customers.”
A lot has changed since early 2020. Smart and strategic companies aren’t focusing on what they see in the rear-view mirror. They are focused on the road ahead—what’s working today and how to build for the future.
Believing that the industry’s recent dip in overall numbers is simply a “return to normal” means buying into a strategy of a pandemic era when nothing was truly normal—not the economic landscape, not shopping habits, not everyday life.
We can all agree that there will be geopolitical challenges domestically and globally as we move forward. But in spite of those uncertainties, direct selling decision makers must look to the future based solely on current market conditions and best practices, free from outdated models, ideals and traditions.
As company leaders prepare to make strategic plans for 2024, they will have to decide if this will be the year the direct selling industry participates in an evolution that will make it more relevant and accessible for the months, years and decades to come.
From the September 2023 issue of Direct Selling News magazine.