Can direct selling or network marketing give my business a sustainable competitive edge?  If so, where do I start? --  Anna, Paranaque City
Lately I have met with clients who want to explore direct selling or network marketing either as an alternative business, as an add on business or as a competitive response to an aggressive new player in their field of business.

Some clients are experiencing increasing costs brought about by the retailers demanding more and more and wonder whether direct selling can improve their profitability and control over their business.  Other clients have suddenly woken up to a formerly “under the radar” direct selling or direct marketing organization eating into their market share. Yet other clients have a unique product or service and want to explore direct selling as a vehicle for a quick start up.

So what is the competitive advantage of direct selling?

In my opinion, one of the greatest advantages of the direct selling system is that you have control over your business.  You control how many agents you sell through. You control where you will sell.  You control which geographic locations you will expand into.

When you sell via retailers, you are dependent on the retailers’ expansion plans.  The retailers determine how many more doors they will open.  The retailers determine whether they will build more malls.  The retailers determine where they will build.  The retailers determine where they will whittle down and close outlets.  These plans may or may not be in line with your own business needs.

If on the other hand, you choose to build and open your own outlets, you will find that this is a capital intensive exercise. Opening outlets requires capital upfront and is a fixed and sunk cost.

Direct selling on the other hand, is not as capital intensive.  Moreover, the costs of direct selling have a great variable component.  You spend more when a dealer, agent or representative produces more sales. In direct selling, variable costs are significantly greater than fixed.

Even if you do have an extensive retail outlet distribution system, you will still wait for customers to visit your store. There are days when foot traffic is low.  And there are days when sales in some outlets are zero.  In fact, often, sales are only strong on weekends, but fixed costs occur every day. 

In direct selling, the store goes to the customer.  The customer has less opportunity to canvass prices, less opportunity to compare benefits vs. competition and most importantly, payment schemes can be tailored to each customer.
What is the down side to direct selling?  In my opinion, there are two major areas. 

The first is having a viable value chain.  It is not easy to find a product that can be marked up at least four times and still be competitively priced.  But many products such as cosmetics, health products, houseware, appliances and insurance are successfully sold via direct selling.  There are ways to structure your business model so that almost any product or service can be sold via direct selling and still offer the consumer value for money. 

The second is complexity.  It is difficult enough to sell through 100 stores.  Imagine the complexity if you have a sales force of 20,000 or 250,000 as was the case of Avon during my time.

So can direct selling provide a business a sustainable competitive advantage?  Yes it can. Can direct selling be grafted onto an existing business? Yes it can. And can direct selling be a vehicle for promoting a new product or service quickly?  Most definitely.
Just don’t try to reinvent the wheel by yourself if you have no experience in this business model.  Hire the expertise.  Learn from those who do have the experience.
 

Malu Dy Buncio is the Chief Business Development Strategist of Mansmith and Fielders, Inc., (www.mansmith.net), the leading marketing and sales training company in the Philippines. She was the former country head of Avon Philippines and Avon Indonesia. For inquiries, please email info@mansmith.net, call (+63-2) 584-5858/412-0034 or text (63) 918-81-168-88.  Send your marketing, sales and strategy questions to mentors@mansmith.net.