Companies adapt and innovate to satisfy modern customers and demanding regulators
By: Stephanie Ramirez
This is called the direct-selling business, not the direct-recruiting business. Companies are going to need to bring their leaders into the mix and explain that times are changing, so we’ve got to change and they’ve got to change or we’re going to be left behind.
— Mike Sheffield, Founder and CEO, The Sheffield Group
The unprecedented amount of scrutiny brought on by the FTC over the past year has many direct sellers scrambling to shore up policies as well as update and modernize their marketing practices and compensation plans.
The customer is king in this new era of direct selling, and while some legacy companies have remained steadfast with their current plans, new channel entrants are starting fresh out of the gate with unique hybrid models.
Whether it is incorporating affiliate programs or app-based retention tools programs into their model, embracing verified influencers, or constructing a business plan around corporate social responsibility, the direct sellers of the modern age are acutely aware of the importance of showing network marketing’s best face to both regulators and an often-critical public.
“The concept of direct selling and the multilevel model of the past is dead,” says Mike Sheffield, founder and CEO of Sheffield Group. He has been advising and helping to launch new direct selling companies for nearly 30 years. “The companies of today that desire to be companies of tomorrow are going to need to think outside the box.”
Embracing Customer Acquisition
According to Sheffield, the availability and convergence of low-cost technologies and emerging marketing practices have shifted companies away from solely relying on independent distributors for customer acquisition.
Once a company has acquired a new customer, it can use these new technologies and techniques to give that customer all the attention it wants, adds Sheffield. The distributor to which that customer is tied to can still receive the ongoing benefit—so long as they are active according to the company’s compensation plan—even though the company has now taken on the role of nurturing the customer, he asserts.
The new model of compensation plans must start with putting together the best offer for customers and, as Sheffield alludes, it must also be an appropriately attractive compensation plan for those who find and serve those customers. But in doing so, companies may have to make adjustments to the distributor compensation plan.
“A lot of companies are scrambling to modify their compensation plans to fit this new model as it allows the company the freedom to not just depend only on its distributors for growth,” says Sheffield. “Distributors will need to understand that they are partners with the company and that their job is to bring the customer, and the company’s job is to keep the customer and grow the customer.”
Customer-centric plans are only part of the solution. According to Sheffield, there’s not a bona fide solution currently for helping companies report on retail sales to customers versus distributor purchases. To stay out of hot water, he says companies will need to “own” the customer and be the original sales consultant in the transaction to effectively delineate between customer purchases and distributor purchases.
As companies make the shift to more customer-centric comp plans, they have the challenge of working through those changes, especially with their field leadership as it relates to potential adjustments in distributor payouts.
“This is called the direct-selling business, not the direct-recruiting business,” says Sheffield. “Companies are going to need to bring their leaders into the mix and explain that times are changing, so we’ve got to change and they’ve got to change or we’re going to be left behind.”
Shifting Models, Keeping Customers
Customers have always played a pivotal role in the success of any business. However, for direct sellers, the presence of actual customers has the power to rewrite the characterization of the industry. Many companies are starting to incorporate very creative customer loyalty or reward programs that work alongside the compensation plan. Theorem Method, which offers a high-end hair-care line of products, is doing just that.
Theorem Method CEO Brian Palmer says the good news is that even with the model shifting to more customer-focused outreach, his company’s data shows that 60 percent of customers go on to become brand ambassadors benefitting from other parts of the compensation plan.
“The big question the industry needs to ask itself is ‘how much is the right amount to pay out in commissions?’ ” Palmer says. “The real difference between say an affiliate model and MLM is that the commissions are dramatically different. MLM pays much deeper, much higher, which really encourages recruiting heavily, whereas affiliate pays on customer sales and acquisition predominantly, and that changes everything.”
With the FTC remaining focused on compensation plans, Palmer opines, “More companies will need to focus on front-loading their plans to pay more to the first, second and third level as opposed to the infinite payout plans that encourage recruiting over actual product sales to customers.”
The Innovator’s Dilemma
How can legacy companies make the shift? According to Palmer, that’s the innovator’s dilemma at its finest. Albeit, it’s much easier for a startup to launch this way than for a legacy company to make a complete shift, in his experience and opinion, it can be done, and if companies don’t make the shift, competitors will rise up and overtake the market.
A move adopted by Palmer’s company is the focus on repeatable business acquisition and customer acquisition. Theorem Method has a three-part selling system. It starts with an easy sampling program. Using an app, with a few clicks the customer or brand loyalist can request a sample product from the company. Palmer says his company invests heavily in supporting its distributors by providing the samples themselves. The second part of the system is to offer the customer a discount code either directly or at the distributor’s discretion to encourage a purchase. The third part is to follow up with an additional offer, or with an offer to join what the company calls the subscribe and save program, which is a large part of its revenue. It offers distributors incentives, tools and training to consistently acquire new customers as opposed to recruiting.
While Theorem Method does offer a competitive compensation plan, Palmer says it’s weighted heavily toward customer acquisition, retail sales, and personal volume and much lighter on the leadership payouts.
Social Business 3.0
Social selling is the name of the game, but philanthropist and entrepreneur Sam Caster, founder of Alovéa, has taken that concept to a new level in terms of product distribution and corporate social responsibility. Prior to launching the company, Caster had established a non-profit organization called MannaRelief and was raising money and distributing nutritionally dense foods to orphanages all around the world.
However, uncertainty in the global economy often impacted his donor base, and subsequently his ability to support the orphanages as consistently as he desired. When a colleague introduced Caster to social business entrepreneurship and explained that the model leverages the economic power of the marketplace to fund non-profits activities, he was intrigued.
Alovéa is a nutritional wellness direct seller that was established just 18 months ago. It is legally structured as a public benefit corporation and has a “Buy One, Nourish Two” program where for every Alovéa product purchased, the company is able to support MannaRelief and continue the cause Caster started, now in a more permanent way.
“We have what we call a social business 3.0,” says Caster. “Traditional social businesses, such as Toms, sell their products through large retailers to support their causes, but our model allows anyone to participate and profit from this social business by building teams, and we can continue to support the causes that are important to us. We are a ministry that is leveraging the economic power of the marketplace to provide sustainable solutions for what we think is one of the world’s biggest problems, and that’s poor health and disease.”
Caster adds that MannaRelief has delivered more than 45 million servings of its nutritionally dense product to orphanages around the globe since its inception.
The Power of Influencers
Another newcomer to the channel, though not yet launched, is Tampa, Florida-based Bella Grace Global. Brian Bilbro, co-founder and COO of the health and wellness brand, wanted to go the social media influencer route for marketing his company.
“We decided to build a platform that influencers would be attracted to, and we have developed our compensation plan around what they expect,” says Bilbro. “We’ve built a very safe, regulatory-friendly model.”
Bilbro says his company researched and met with several influencers as well as influencer marketing companies to understand how they work and what they want, and then it built an affiliate model around those learnings. He adds that there is no “buy in” to become an influencer for Bella Grace or auto-shipment requirements. Any and all personal volume from purchases comes from customers.
“Get some good attorneys that understand what’s happening right now in the channel and make your changes, or you’re going to get your wrist slapped,” advises Bilbro.
He says Bella Grace executives took the advice of some of the channel’s top attorneys to develop a solid comp plan, and in its simplest form, it is designed to pay the people that bring the customers.
“The new way of doing things is to have way more customers than people who are building a network,” Bilbro says. “And the way you do that is to compensate people for bringing a customer, and you reward them accordingly. Our influencers can build a network, but recruiting is not the main focus of our model.”
Bella Grace’s influencer model was designed to attract professional influencers—individuals who are already being paid by other brands—but they offer training and tools for individuals who want to grow that social media following and become professional influencers.
“We’ve done everything we can with our model to reward the people who sell directly to customers and also to reward the customers,’’ shares Bilbro. “This is a customer-focused model, and we will reward those who continue to bring customers at the highest level.”
The past few years have shown those in the channel that more than ever before there is a need for novel ideas and innovative thinking. It’s clear the new frontier is finding and keeping customers. Whether they want to or not, companies will be forced to question traditional thinking.
Legacy companies may have a challenging road ahead where they must add to or modify their existing plans into a more customer-centric, regulatory-friendly model in order to take advantage of the tech-driven online platforms that power modern markets. This is a delicate dance as they must also maintain the human interaction and personal relationships that give social selling its unique place in this impersonal economy.
The innovative companies will do it, no matter how hard it is. Maintaining customer relationships as the main focus will make distributors more successful and also help to pacify regulators to move on to other threats and blatant scam operations.
Company leadership, distributors, and suppliers alike need to work together to make the necessary changes to utilize the positive and novel opportunities on the horizon—that is, if they are going to join the rest of the direct selling channel and embrace the modern, digital, and socially conscious age.
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