Direct sellers rewarded with growth as they quickly adapt to the times
By: Dave Rauf
“The coronavirus has changed the industry, and those are changes we are going to see stick around even after the vaccine. Companies that have embraced these digital solutions will be better off for it.”
—McKinley Oswald, president of global sales, Verb Technologies
If you had asked direct selling consultant Andi Sherwood last spring whether direct sellers would truly flourish in a pandemic-induced, pure e-commerce environment, she would have had some doubts. This assumption proved to be a common one among execs in the channel, especially as COVID-19 spread across the globe and lockdowns forced people to shop online in record numbers.
“In early March and April I would have said ‘I’m not sure how we’re going to do.’ People had to get over the shock factor of everything that was happening,” says Sherwood, who has spent 16 years in direct selling and is the director of plan design and strategy at Dan Jensen Consulting.
“We were always well positioned, but people were out of work, and you didn’t know if they would have money to spend to buy products. That was the issue: Are people going to be trying to save money and not be spending as much with direct sellers?”
Fast-forward roughly 10 months, and the results have been mostly positive for direct sellers who decided to pivot away from face-to-face sales and recruiting. Some big companies such as Herbalife have posted record revenue for 2020.
According to January 2021 polling figures from the Direct Selling Association (DSA), 60 percent of surveyed direct selling companies said that the coronavirus has had a positive impact on U.S.-based revenue. Only 28 percent said the ongoing crisis has had a negative impact on revenue, while 13 percent responded it has neither helped nor hurt. The numbers are similar for global sales, according to the DSA.
Meanwhile, about 41 percent of respondents to the DSA survey in early January said they believe it will be 5 to 6 months before business returns to normal domestically—another sign that direct sellers will be operating in a digital-first mode for at least the foreseeable future.
If anything, the COVID era has left a lasting impression for direct sellers; having a strong e-commerce game and an array of digital offerings for training and recruiting are no longer optional. The coronavirus has permanently disrupted the business landscape, and the overall acceleration of e-commerce could be one of the biggest effects it has had on business.
E-commerce has been flourishing during the coronavirus pandemic. In 2020, e-commerce sales for all industries reached nearly $795 billion, surpassing a previous projection by about $100 billion, according to market research firm eMarketer. That figure is expected to grow to $850 billion this year and to more than $1 trillion by 2023, eMarketer projects.
In particular, health, beauty and personal-care products—a mainstay of many direct sellers—benefitted from “dramatically upshifted” sales figures in 2020, reaching more than $73 billion, according to eMarketer.
“Companies are recognizing that they have to be solid in the e-commerce space because consumers are continuing to go in that direction. COVID just further supported that trend,” says Sherwood. “E-commerce is not new. We’ve been battling Amazon Prime for a long while in the industry, and companies are catching up. They have known they need to have a good opportunity for online sales and ways for the field to reach out to people. A lot of companies were already moving to do online parties.”
The shift has opened up new opportunities for direct selling companies. So far, they’ve proven adept at leveraging tech to push new innovations for distributors and customers.
McKinley Oswald, president of global sales at Verb Technology, says direct sellers have used the pandemic to fortify their digital strategies.
Verb produces apps used by companies to communicate with their field, along with training materials, CRM, videos and content that distributors can use to build their businesses. More than 100 direct sellers use the platform.
Oswald says the company has experienced a “massive increase” in direct sellers using the platform since the pandemic shifted all business online.
“Overall we’ve seen a huge jump with both new clients and existing clients,” he says. “The coronavirus has changed the industry. And those are changes we are going to see stick around even after the vaccine. Companies that have embraced these digital solutions will be better off for it.”
As part of the learning curve toward refining the e-commerce process, companies are realizing that the online shopping experience has to be “frictionless,” from start to finish, Oswald says, emphasizing the need for a simple check-out process.
In the past, he says, direct sellers put up hurdles for customers by requiring them to sign up as distributors. Now, they are creating separate websites for customers—with no mention of recruiting or the business opportunity.
“You’re seeing more people pay attention to the customer journey,” Oswald says.
Sherwood says she’s also seen direct selling companies focus on making it easier for customers to buy products online.
“Today, more than ever, people don’t want to feel like they’re being taken advantage of. They want to buy your products without having to be a rep,” she says. “It’s the attitude of ‘I have money, I want to give it to you, but don’t make me go through all those hoops to give it to you.’ Companies need to simplify the experience. Some are doing that. Some are behind.”
Sherwood adds that having a customer-facing website has other potential benefits, too.
“When the company knows who those customers are, that becomes documented customer sales, and that’s great from a regulatory standpoint,” she says. “But it’s also great from every point, from brand recognition and for the field to see those sales coming in.”
While the COVID era has changed how companies sell products, it hasn’t had a dramatic effect on their compensation plans, says Sherwood, who is a comp plan specialist.
“We haven’t really seen anyone changing their plans due to this e-commerce explosion,” she adds.
However, as comp plan structure evolves, more companies have been turning to providing a model for daily or weekly payouts, says Sherwood.
Oswald adds that he has seen this shift too, and some of the recent training sessions he hosts with the channel have focused on asking what they’re doing around compensation plan issues during the pandemic. He says companies have started to offer more customer acquisitions rewards, along with “front-end money for involvement”.
E-commerce Boom Ignites Growth of Large Retail Platforms
Small businesses start trend toward 3rd-party, e-commerce providers
Riding the wave of the recent e-commerce boom, large-scale, commerce-platform providers have seen massive growth over the past decade. Multinational enterprises such as Shopify and WooCommerce are competing for the B2B, B2C, and C2C markets at all levels, including the growing direct selling channel.
Offering SaaS (software-as-a-service) and PaaS (platform-as-a-service) options, the e-commerce giants are enticing businesses of all sizes to forego their in-house platforms in exchange for full-service, cloud and hardware-based transaction and management systems.
According to Forbes, WooCommerce is used by 30 percent of the top 1 million global e-commerce websites. Likewise, the publication reports on Shopify’s rapid rise with over 1 million users and stock values increasing by more than 10 times since 2017.
Connor Hester, co-founder and CEO of Shapetech Solutions, says that small businesses are leading this early migration toward large, third-party commerce platforms, and that mid-market companies are beginning to make the move but not yet trending.
“We are seeing two segments of direct selling companies making this move,” Hester says. “The first one is smaller companies—from startups to those bringing in $10 million a year. They are usually product-focused or come from e-commerce backgrounds. Many would describe themselves as a hybrid between network marketing and a normal e-commerce business. Therefore, the move to Shopify doesn’t alter significantly how they run their business and is, in many cases, what they are used to using for e-commerce.”
Offering app add-on options numbering in the thousands, plus a complete CMS tool kit, Hester suggests that services similar to Shopify can offer small businesses access to the innovation curve.
“With millions of merchants, tens of thousands of developers in their ecosystem, and a multibillion-dollar market cap, these commerce companies are set to innovate and build on their platform at a greater rate than any single company or network-marketing-specific vendor could hope to keep pace with.”
However, upgrading to these sophisticated commerce platforms requires significant expenditures of company resources that can become prohibitive for medium- to large-sized businesses.
“I think from the more mid-market perspective, we are likely one to two years out from seeing any major adoption, as most businesses in this segment are hesitant at the current time,” Hester says. “This hesitancy seems to appear for two reasons. One is the profit-sharing model of the commerce platforms, which can cost medium-sized businesses over $100,000 per year, along with the expenses of customizing the service. The second reason is that these larger companies require major changes in certain business processes before integrating a new platform.
“When you combine the pains of a system overhaul with the costs/limitations, most mid-market companies are unwilling to make the jump at the current time,” Hester concludes.