Week march 23

March 23, 1997

THE WEEK

Selling a future
Amway, the big daddy of multilevel marketing, will soon be arriving at your doorstep

SNOWFLAKES bedeck the bone-chilling cold outside but Dave Shulz is all warned up for the show. As the audience inches forward in the comfortable hall, he takes off his coat, rolls up his sleeves and vigorously starts discolouring a piece of white fabric. He pauses, takes a look at the rag, and resumes darkening it with delight.
Satisfied by his effort, he waves it at the curious congregation, then dips it into a beaker full of water into which he has tapped a few drops of a liquid. The audience waits. A few minutes later Shulz pulls out the cloth from the beaker, unfolds it and holds it aloft. It's milky white again!
Shulz is no magician but a manager at Amway Corporation, the American consumer goods conglomerate headquarters in Ada, Michigan. He has just finished demonstration one of his company's hot-selling products-- the Liquid Organic Cleaner, a super concentrate which has wowed housewives from Nebraska to Nagoya.
Indian moms need not feel left out of the action, though: Amway will be coming home soon. The company, which has 42 affiliates worldwide, has set up a subsidiary in India and hopes to enter the market in a few months. Agreements have been signed with manufacturers in Maharashtra Gujarat and Andhra Pradesh to launch some of Amway's 400-odd products that range from household cleaners to nutrition supplements, cosmetics and cookware.
"We will launch with a small number of our homecare and personal care products." says Stephen A. Robbins, managing director of Amway India Enterprises. The entry into the Indian market is carefully planned. The company hired research agency Pathfinders of Mumbai for market survey. Amway's new markets division sought help from the Indian Diaspora."We asked NRIs in the US, Britain and the far east to help select products for the Indian market, " says senior manager Tracy Gonzalez.
The company, which plans to invest $15 million in the first year, will provide technical know-how free of cost to Indian franchisees with whom it has a 100 per cent buy-back agreement. "Our team in India will work with the manufacturing companies," says Amway president Dick Devos at his company's headquarters in Ada. "That will lead to products made in India with American quality."
He should know. Amway, short for American Way, is the big daddy of direct selling in which products are sold not through shops but by vast networks of distributors. These distributors recruit friends and relatives into endlessly expanding circles of salespersons, helping Amway build a global army of 2.5 million distributors.
Founded in 1959 by Dick's father Richard DeVos and his partner Jay Van Andel from the basement of their homes, the company's retail sales have soared from $500,000 in 1960 to $6.8 billion in 1996. It opens three to four markets abroad every year. Growth abroad--especially in countries like Japan and China--has been spectacular and helped triple the company's sales in the early years of the 90s. Amway is now eyeing the huge Indian market which it believes will be among the top 10 markets in the world in the next decade.
Direct selling involves two methods -- the Eureka Forbes style of going door to door and the multilevel marketing which Amway will be introducing in India. Multilevel marketing does away with costly distribution and retail networks; individuals do all the selling. The independent distributors, who are not company employees, are sponsored into the business by active distributors and sell the company's products using the Amway Sales and Marketing Plan.
Multilevel companies like Amway sell their products to distributors who in turn sell them to consumers and earn the difference between the distributor cost and the resale price--typically 30 per cent. Distributors can increase their earnings by qualifying for performance bonuses by exceeding monthly sales targets. Bonuses are based on the amount of products sold.
Distributors can also sponsor new distributors to build their own downline networks. Distributors get a bonus for what their recruits sell plus a profit from whatever they sell.
Amway distributors are awarded titles such as 'Ruby, 'Emrald' and 'Diamond' according to the number of recruits they manage. Top achievers are rewarded with vacations to Peter island Resort and Yacht Harbour, a secluded resort on the British Virgin Islands.
To become an Amway distributor one would have to buy a starter kit which costs $130. "Amway does not establish prerequisites or standard distributor profiles." says Robbins. "Anyone old enough to enter into a contract and with the desire to succeed can become a distributor."
The scheme is certainly enticing. The fact that distributors do not have to be highly educated to sell the products of multilevel companies like Amway sure means something in a nation of 930 million people with high unemployment levels. The company says that its style of selling will encourage self-employment and help thousands of youth set up business with no investment, stocks or inventory. "Direct selling is an excellent career opportunity." says Chitra Narayan of Lotus Learning, a leading direct selling firm in India and the exclusive distributor in the country of the Chicago-based World Books International.
Direct Selling is only just taking off in India. American direct-selling firms such as Avon, Tupperware and Oriflame are recent entrants into the Indian market which boasts a handful of successful home companies like Eureka Forbes (Vacuum Cleaners), LB Publishers and Distributors (seller of Time life boods) and Lotus Learning (World Book encyclopaedias).
Lotus, for instance, has been doing very well; it plans to be a Rs 40-crore company by year end and hit the Rs 100-crore mark in three years. Last year it sold 22,000 sets of World Books each priced Rs 20,000. "This year our goal is 30,000 sets and we are very confident of achieving it." says Chitra.
The high-priced World Books seem to be having enough takers. But that has not always been the case in India. One major problem Amway would most certainly encounter in India will be on the pricing of its products. "Prices of Amway products will be higher than those of competitors but we offer a better product," says DeVos. Adds Jim O' Rourke of the company's new markets division; "In India our consumers will be upper-middle class and above."
Ambitious targeting may prove a hurdle for market penetration. Indians may love big western brands but most of them are coy about shelling out big bucks. The failure of a good number of MNCs who rushed into the market in the early 90s expecting to rake in the moolah was a sobering experience. "Pricing is a sensitive issue in India," admits DeVos.
The higher price, says Robbins, will be more than compensated by the superior product. "Amway's products provide value for money. The liquid homecare products, for instance, are highly concentrated and are economical. Amway also offers added value in that products are demonstrated in the customer's home and enjoy 100 per cent satisfaction guarantee."
Most Indians are used to picking up products from the shopshelves. Buying vacuum cleaners and World Books after home demos may sound fine, but detergents and deodorizers have always been purchased from the store. "It will not be an easy market place," agrees DeVos. "India is a complex society. But we are long-term players."
He hopes that the global trends for direct selling will seep into India sooner than later. Retail sales in the US direct selling business, for instance, are a whopping $ 17.94 billion. Direct sellers there vend 25 per cent of cosmetics, 40 per cent of vacuum cleaners and half the number of encyclopaedias sold. In Japan, 80 per cent of the Toyotas and 70 per cent of the condoms are sold at home.
In direct selling, products and services are marketed directly to customers through personal explanation and demos. The attractions of this method of selling are difficult to ignore: to those who take it up full time it offers flexible work hours, the chance of being their own boss and, of course, they would no longer have to worry about getting fired. There's no in commuting to the workplace are saved, and consequently more time can be spent with the family.
These factors, along with the increasing job insecurity in the organised sector, have made many in countries like the US switch to direct selling. Moreover, people there no longer consider shopping a leisure activity and are getting attracted to home service. That suits distributors just fine.
To many distributors the lure of financial independence is strong too. "I have enjoyed the benefits of direct selling for the past four decades, " says the elegant and successful Bernice Hansen, who has been with Amway Corp. for nearly 40 years. "As a married woman and now as a widow, the lifestyle and financial independence have been tremendous."
Amway's business philosophy--that most people would want to improve their lifestyle--has struck a chord among people, especially with those who are looking to supplement their income.
Women, who constitute 80 per cent of direct sellers in the US, have increasingly taken to it because they find it more satisfying. Says Mary Esau, a former medical office receptionist: "When I joined Tupperware, I was single and looking for a nice boss who would be fair. Guess what? I found one, ME! Twenty years later, Tupperware has changed my life. My two daughters and husband are my top priorities. Tupperware continues to adjust to my needs and wants. I love it!"
"Direct selling is proving successful because it is providing opportunities, " says Neil Offen, president of the trade group Direct selling Association in Washington. "It provides a chance to even those who do not have a degree."
How much do the distributors earn? "Those who devote full time to Amway generally earn more than those (the majority) who treat Amway as a part-time opportunity to make extra money." says Robbins cautiously. The average monthly gross income for 'active' distributors-- one who made a retail sale or received bonus that month--is about $90. At Lotus Learning, says Chitra Narayan,
Distributors like Bernice Hansen flaunt a prosperous lifestyle thanks to their long association with Amway. Others put in just enough effort to make some extra bucks, probably to buy an air-conditioner. For most Amway distributors, whether in Shanghai or Seattle, this brand of chummy capitalism attracts them as much as the chance to make big bucks. They love being part of one big happy family--the money is a bonus.
"We believe that Amway's multilevel marketing will receive an enthusiastic response here, " says Robbins. "Direct selling is still too new to India but the next few years will witness an explosion of direct selling activities-- probably led by Amway's growth." Guess where the big boom will start from? Right at home.

STANLEY THOMAS