Direct selling has had a record year. In spite of all the challenges 2020 dealt, approximately 80 percent of direct selling companies grew their revenue as compared to 2019, with 30 growing by more than $100 million and at least ten more than doubling their annual revenue.
Three private companies, including MONAT and Scentsy, grew by more than $400 million, and two public companies, eXp World Holdings and Herbalife appear to be on the same track. It’s a pattern that continues, as the category shows consistent, month-over-month growth during the ongoing pandemic.
Relationship marketing obviously has staying power, and even companies who shy away from using the “direct selling” label know it. This year, big-name brands are turning to the social selling template to fashion upgrades to their business models, like L’Oréal, who in the last month of 2020 purchased a minority stake in Replika Software, a platform that empowers brands to “activate at scale social sellers to inspire their networks and generate e-commerce sales.” E-commerce already represents a quarter of L’Oréal’s sales revenues, and this next step will leverage what the company’s Chief Digital Officer Lubomira Rochet describes as an “ecosystem of social sellers for the beauty category” in an attempt to “crack this new channel” of social commerce.
For brands like L’Oréal and others, “social commerce” means allowing customers to shop on social platforms with the guidance of middle men and women who are experts, influencers and brand representatives—or, rather, a leaner take on the commission-based social selling model direct selling is known for.
A Landmark Ban
Imitation may be the sincerest form of flattery, but it’s not all good news. There’s a reason why brands are lifting the healthiest layers from the business model while downplaying its ties to the actual industry.
In December of 2020, TikTok became the first major social platform to ban multi-level marketing, lumping it in with Ponzi schemes and fraudulent activity under their community guidelines. In pop culture now, the terms “mlm” and “pyramid scheme” are officially synonymous. TikTok will certainly not be the last, as anti-mlm movements build traction. The Subreddit r/antiMLM, which now has 675,000 followers, is a landing page for posts from people who receive spammy emails from friends they haven’t spoken to in decades, spouting fraudulent claims about income potential and unrealistic product results.
On the legal side of the issue, the Federal Trade Commission is ramping up efforts to crack down on network marketing companies participating in fraudulent activities. Its Operation Income Illusion, announced in December of 2020, is focused on work-from-home scams, pyramid schemes and companies who make promises about income opportunities that in actuality cost consumers more than they earn.
The distrust of the multi-level marketing label is pervasive, particularly with the youngest generations, as evidenced by their favorite social platform’s landmark ban. And yet the model is performing at peak levels, with external industries urgently innovating their digital approach in order to copy the social selling playbook. So how does the direct selling industry redefine its mission, approach or methods to keep its most valuable puzzle pieces while eschewing the elements it knows cannot fit into a credible and successful future?
Disruption from the Inside Out
“For companies to succeed in this new economy, we must continue to be disruptors while we evolve ourselves to be even better stewards of the empowerment opportunity we represent,” Nu Skin President and Chairman of the Advocacy Committee for the World Federation of Direct Selling Associations Ryan Napierski told participants at the SUCCESS Partners University (SPU) 2020 event. “In this world where rumor travels at light speed, who we are and what we do matters. How the broader world sees us matters.”
In his presentation, Napierski did not refute the existence of bad apples within the model, saying, “In my 25 years in this industry, I’ve had the privilege of knowing some of the most amazing and reputable business leaders on the planet. I’ve also had the unfortunate experience of associating with some individuals who saw themselves as far less than the potential that they and their businesses hold. If they would think more about building a sustainable enterprise over time, not a flash in the pan, they would, in fact, contribute to building a better industry, economy and world.”
Being healthy requires recognizing illness and addressing symptoms and root causes. Negative experiences are the ones that gain publicity from onlookers. Still, if industry leaders would acknowledge the damage inflicted by toxic companies as unacceptable, it would provide more credibility to the category’s heritage of ethical, legal opportunities. Napierski’s refusal to sweep under the rug the flaws of the industry to which he’s devoted his life serves only to strengthen the opportunity. The world is telling the industry—through bans and sanctions—that trust has been broken. Leaders who are willing to follow Napierski’s example will help mend it.
Changing the Language
How industry insiders talk about their companies, compensation plans and representatives affects how the world views the opportunities they represent. Language changes over time, and so has the direct selling industry. Amway, for instance, originally referred to its representatives as distributors—because they did, in fact, purchase products, sell and distribute them to customers. Today, they refer to their organization leaders as Independent Business Owners, which the company believes is a better reflection of the role of its entrepreneurial representatives, who manage sales, customer satisfaction and team support. In contrast, the company handles distribution and delivery.
This connection between the words used to describe the industry and its real-world impact is inextricably linked. However, the words themselves have less influence than the behaviors they derive from.
“The distinction and understanding that the words represent about how our business truly operates, that is really important,” says John Parker, Amway Chief Sales Officer and Regional President West. “In the end, what matters more than the words we put on top of our business are the experiences we’re providing customers. Whether we describe ourselves as being in direct selling or social commerce or network marketing, I think that’s much less important than the experience customers are having, and the experience what we call Independent Business Owners are having.”
Building Customers, Not Teams
Franchise owners, food delivery workers, and even the #sponsored content from influencers have become natural bridges between customers and products. Overall, society doesn’t begrudge the association these people have to a brand, even though they profit off of the relationship and resulting purchases. In the same vein, today’s direct seller is a connector between consumers and products. Like a franchisee, they make an investment in owning their own business and then reap the profits of building it.
There is a difference, however, in that direct sellers are also building organizations through recruitment. At SPU 2020, a number of executives highlighted the importance of building customers rather than teams as a key element of not only compliance but future growth. Direct Selling News has also announced a Customer-Centric Recognition (CCR) Program that celebrates companies creating a sustainable, customer-centric future for the industry and that boast high customer-to-distributor ratios. Team-building is still a central ingredient in the direct selling model, but the shift away from recruitment is undeniable and timely.
This switch, while a momentary upheaval for some companies, is another in a long line of changes the industry has adjusted to, especially in the wake of a pandemic. Pure Romance Chief Executive Officer and President Chris Cicchinelli describes what it was like to shepherd his company through the drastic transformation from being an in-person “party-based” company to an all-virtual company basically overnight.
“At Pure Romance, our motto is: Change is inevitable; growth is an option,” Cicchinelli says. “We need to change, and we’re going to grow from this. We’re going to come out of this a stronger organization, but we have to get uncomfortable for just a little amount of time.”
The pandemic has proven to direct selling leaders that they know how to change direction on a dime and successfully bring their organizations along with them. A course correction as significant as reexamining the recruitment model and the ways it is implemented would be well outside of the industry’s comfort zone, but, as the sudden and unexpected all-virtual approach to direct selling has shown, that’s often where the most powerful innovation resides.
Joining the Gig Economy
Category giants like L’Oréal are just the beginning in what will surely be a full bandwagon of brands arriving on the social commerce scene in a disruptive rush. As opinions skew negative in the marketplace concerning direct selling, relationship marketers would be wise to embrace their natural fit within the gig economy rather than insist on the #bossbabe and #buildingmyempire mentality that has attracted scorn. By embracing the “gig” title and leaving behind non-compliant promises, companies can disrupt themselves before the world around them does it for them.
“We are all really more conscious about disruption now,” Cicchinelli says. “As a 2021 project, I’m starting the conversation inside of our organization, asking how we would put ourselves out of business. If an innovative startup wants to put us out of business, we want to think like them.”
Redefining the Industry
In 2021, leaders can expect to see a continued adoption of “social selling,” “social retail” or “social commerce” as key replacements for the labels that have garnered the industry distrust. Still, it will be critical to remember that the reputation of the industry is not dependent on finding just the right campaign or words that will change consumers’ minds. Instead, acknowledging that a lack of compliance by others has caused harm, and then committing to behaviors the industry is already skilled at, like philanthropy and life-improving (rather than life-changing) income, is the way forward in stomping out the reputation-tarnishing pyramid schemes and succeeding for generations to come. Ethics matter, reining in hyperbole matters and, yes, reputation matters. Redefining direct selling through behaviors that organically inspire positive language from those on the outside looking in should be priority number one.
“I don’t think it’s about picking words and then trying to build a business to support that,” Parker says. “I think it’s innovating our businesses and then the language and the words we use to describe it will become very apparent.”
Based upon the research conducted for this article, the future will be about building brands that serve their customers efficiently and personally by the independent contractors who facilitate the relationship.