Companies embrace shift in structure, comp plans to meet market demands
By: David Rauf
“Direct selling is no different than any other form of distribution of goods today. All consumer sectors of business have been evolving dramatically over the last 5 years, and most of it is driven by technology. We looked at this as a good time to enter the market.”
—Robert D’Loren, CEO, Xcel Brands
One of the core tenets of this new world is accessibility.
—Terrence Moorehead, CEO, Nature’s Sunshine
The direct selling channel has been pressed and pressured by a variety of factors over the past two to three years—largely unrelated to each other but all significant in bringing change to the channel.
Increased scrutiny and action by the Federal Trade Commission (FTC) along with changing consumer shopping behaviors and attitudes began the shift in 2018, but no one could have predicted the events of 2020.
Now nearing its end, this year has accelerated transitions and forced change, welcome or not.
Direct sellers are shifting budgets to make bigger investments in digital transformation, social commerce and big data analytics. They’re also doing it in an era of heightened competition from retail giants like Amazon with more sales shifting online. In terms of recruiting, they’re up against startups in the gig economy offering flexible independent earning opportunities. Many companies are also adopting simpler compensation plans to avoid regulatory scrutiny and appeal to gig economy workers who won’t engage with complicated plans.
And then there’s the ongoing pandemic, which has altered the global business landscape and forced direct sellers to adapt on the spot to the new reality of the nearly all virtual business environment, from sales to training to backend office management.
Perhaps at its most basic level, 2020 has offered opportunity to companies seeking an expanded horizon in which to operate. One such company is a familiar iconic brand that is creating a do-over.
Years ago, as a member of the board at the iconic basket brand The Longaberger Company, Robert D’Loren says he remembers being in meetings where executives were presented with what amounted at the time to a futuristic vision for the business: using digital to take the company to new heights.
“We all knew it was coming, but the technology didn’t exist,” says D’Loren, who served on Longaberger’s board of directors from 2006 to 2008.
Fast-forward roughly 15 years—and the well-known direct seller has reemerged with a digital-first mindset. At one time a billion-dollar company, Longaberger filed for bankruptcy and shut down in 2018.
Now, the brand is back, but with a digital focus and an expanded lineup of products including furniture, lotions, candles, home decor, bath products and fragrances. D’Loren, CEO of Xcel Brands, which acquired Longaberger last year, says the company currently has more than 800 SKUs on its website and plans to increase that to about 2,000 by the first-quarter of 2021. “As a brand person, I know that icons live forever. It’s just a matter of taking the icon and delivering products that are current and made well,” D’Loren says. “The timing is just perfect for us to bring Longaberger back to the community that was so fond of the brand, but this time powered by technology and video and live streaming.”
Longaberger’s re-entrance into direct selling comes as the channel as a whole is experiencing a digital renaissance in its own way, along with other major changes, ranging from increased regulatory scrutiny to finding new ways to adapt fundamentals of their business model.
Longaberger relaunched in August. And in the past, the company employed a salesforce of thousands who took their inventory of baskets to home shows.
But now, instead of face-to-face parties, Longaberger stylists are selling their products primarily through digital storefronts—their own websites linked to the company’s main site.
“Direct selling is no different than any other form of distribution of goods today. All consumer sectors of business have been evolving dramatically over the last five years, and most of it is driven by technology,” says D’Loren. “We looked at this as a good time to enter the market.”
In the months since the company’s launch, Longaberger has recruited about 3,600 members, and has onboarded about 1,000 as trained salespeople. The company also implemented a simple compensation plan structure, a common factor in companies coming into the channel. Longaberger does sell products through an independent salesforce, which the company calls “stylists,” who pay $49 a year. In turn, they receive a 20 percent commission on all sales, a 20 percent discount on their own purchases and 5 percent of all sales from team members that they recruited, a far simpler approach than the company’s previous plan.
“I have always felt that when it becomes so incredibly complex, in terms of calculating any kind of pay-out, it creates a level of uncertainty for anyone involved, and maybe even a lack of transparency,” says D’Loren. “We didn’t want to approach the business that way.”
He adds: “We’re not asking any of our stylists to buy products. There’s no requirement for them to stock up on products to resell.”
Starting soon, D’Loren says the company will be offering its stylists a live-streaming platform they can access to pitch products just “like a personal QVC show.” And while all sales are happening online now, D’Loren says after the pandemic the company won’t discourage its stylists from hosting in-person gatherings.
“During the pandemic that’s not going to be happening. When you think about the traditional direct selling format, that’s a selling strategy that has borders,” he says. “We took this forward and asked what we can do to give our stylists all the power of Shopify with the high touch of a company like Stitch Fix, but for home products.”
The landscape for some has been tumultuous over the last year as many companies have embraced the previously frowned upon world of affiliate marketing as a viable option to include in its offerings. Tori Belle Cosmetics, Perfectly Posh, Nature’s Sunshine, and many other companies have developed traditional affiliate programs with small earnings opportunities for sharing a link.
No company in the channel changed its model so completely as AdvoCare did last year. The company went from a multi-level to a single-level distribution model, paying compensation based only on sales to direct customers.
The decision to do so was made after reaching a settlement with the FTC that also included a $150 million penalty. The switch in business model effectively trimmed thousands of distributors from the company’s ranks. CEO Patrick Wright says the company has taken the approach of trying new things and keeping what works and ditching what doesn’t. He says AdvoCare has been “upfront with our field about that, too.”
Wright says, “We really adopted a fail fast mentality. Everything is new. We’re doing something with the specifics of our situation that has never been done before. There was no road map.”
He adds, “But at the same time we knew we couldn’t wait around and spend too much time thinking about what to do, whether it be promotional or things for customers.”
That focus is paying off, Wright says, even though it’s still a learning process. He says, “We knew action was better than too much strategy. It was a long year, but it has been a really great one.” Wright called the shift to single-level distribution a “massive change.”
“At times, we asked, how do we do this right? We relied on what we know we’re really good at. Maybe things can’t be like they were before, but our great products didn’t change,” Wright says. “We really couldn’t be more excited about where we are in this moment. It has been great to see everyone from the inside to the field rally around what we’ve been doing.”
That approach, Wright says, helped the company find its cadence much quicker, whether it was experimenting with promotions, product launches, bonus structures or commissions. The company has had to constantly adapt over the last year to find success with its new model.
“I don’t think you ever feel like you have it figured out completely, nor did we think that in the old business model. We’re constantly changing the recipe. Now we’re moving beyond our initial run as fast as we can and are settling in on a good cadence,” he says. “We’re not continually making big changes. Some things worked well, some didn’t. I feel like we’re in a good rhythm now, but always learning and evolving.”
New Model Creates Simplicity for Customers
There have been some advantages to switching over to a single-level distribution business model for AdvoCare. Wright called the multi-level marketing model more complicated for customers, a common thread echoed by many of the new companies coming into the channel.
Currently, AdvoCare’s sign-up process is much faster because it allows people to check out online as guests without having to create an account with the company. Some of those little things that make the customer experience easier, Wright says, “have made us better. We are constantly asking ourselves how can we better serve our customers?”
One big change for AdvoCare since exiting multi-level: no more recruiting, since building a team is no longer a part of the compensation plan.
Additionally, the company now markets the opportunity for distributors strictly as a part-time side business, putting it more on par with other gig economy work.
“This is an opportunity for people to earn additional income,” Wright says, noting it’s not meant to duplicate or replace a full-time paycheck.
As part of the switch away from multi-level, AdvoCare’s independent contractor distributors are only compensated for their own sales. Wright says AdvoCare has simplified its compensation plan to make “compliance and monitoring much easier.” We wanted “to be so simple we could show someone very fast if when you sell an item this is what you earn.”
“We don’t talk about income opportunities. We don’t project and say you could earn this much. We don’t even go there,” he says. “It’s very simple. We say this is the compensation plan, you get commission from sales, and here are a couple of bonuses you can earn. It’s that simple.”
But that change also led to plenty of defections in the company’s distributor base. Wright says there was a lot of change at the top levels of the company’s salesforce after it exited a multi-level structure.
“These were distributors who had made a career out of MLM, and the changes in the business model made things very difficult, and we understood that. However, so many great distributors continued with us.”
In the end, Wright says even though the company has switched its core business model, it’s focus remains the same one year later: customers.
A lot of the major changes taking place in the direct selling channel, he says, are forcing companies to realize that. “A lot of companies are saying ‘we need to adapt.’ But others already have. Newer companies have started out with the mind-set,” he says. “It’s coming down in the end to what is best for your customers and focusing on the end user. Whether you choose MLM or affiliate marketing or single-level or selling online, the customer is the key. At times there may have been a focus elsewhere, but that’s been the key all along.”
Newly appointed CEO of Nature’s Sunshine Terrence Moorehead (also profiled this month in Getting Real, page 29) agrees with Wright about the importance of focusing on customers and making the opportunity easier to engage with.
He says that the driving factor behind his company’s relaunch was staying relevant to the important touchpoints of consumer desires and behaviors.
Moorehead says, “One of the core tenets in this new world is accessibility. It’s very easy to sign up with our company now if you want to be an affiliate. You are just a couple of clicks away.”
Every company has to find its own way in the changing environment. Not long after AdvoCare stunned the direct selling channel last year with its abrupt announcement to exit MLM, another direct seller was facing a similar situation.
After AdvoCare settled its case with the FTC, Neora decided to fight the federal agency instead of opting to settle and change its core business model.
Wright says that path simply wasn’t for AdvoCare.
“Everyone’s situation is unique, as far as what was decided with the old AdvoCare. That was specific to the challenges we were facing,” says Wright.
“It remains to be seen, but we’ll know in the future how that works out for Neora. We’re cheering for them and hope they can come to a good conclusion. But for AdvoCare, we knew this model was what we had to move forward with.”
2020 is ending in a few weeks but the pandemic is still in force, and the future holds many uncertainties.
More change and more necessary adaption can mean more opportunities for those companies nimble and bold enough to embrace it.
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