Guest author Ben Gamse is the Senior Market Research Manager at the U.S. Direct Selling Association. Ben is passionate about uncovering market trends and delivering actionable insights to help make better business decisions and drive growth. For more than six years, Ben has led the market research department at Direct Selling Association and collaborates with the Industry Research Committee, made up of senior business intelligence and analytics executives at DSA member companies to deliver market-sizing, salesforce, consumer, and other studies to meet stakeholder needs.
Guest Post by Ben Gamse
Five Ways the Direct Selling Industry Can Achieve Sustained Growth
“Growth & Outlook” is the U.S. Direct Selling Association’s annual market-sizing survey that reports on the size and scope of direct selling, key industry trends, and the industry outlook in the United States.
This year’s survey results were recently unveiled at DSA’s Annual Meeting, and they showed that after a couple years of modest decline, the direct selling industry in the U.S. has returned to growth, with a 1.3% increase to $35.4 billion in retail sales in 2018. Furthermore, DSA is optimistic this growth will continue at between 1-3% for the next three years. However, this projection will not be realized unless the industry takes an active role in shaping its future within a rapidly evolving retail landscape.
I collaborated with DSA’s Industry Research Committee, made up of top market research/business intelligence executives from DSA leading member companies, to better understand market-sizing stats and trends and develop actionable takeaways that can help DSA members and the industry grow. Based on this in-depth analysis, here are five strategies that can help direct selling achieve sustained growth:
1. Segmenting salesforce and customers to better understand your salesforce and become more customer-centric
Segmentation (or better distinguishing between sellers and customers) poses an opportunity for business growth by tracking sales by segment, improving engagement with active and unengaged reps, and tailoring communications by segment. By developing preferred customer/ loyalty programs, companies are more easily able to cultivate customer data and identify how to best empower the salesforce to meet customer needs.
2. Doing research on Gen Z and developing a strategy to attract future generations to products and the direct selling opportunity.
There’s been much research and analysis conducted on Millennials, but few in the industry are familiar enough yet to develop strategies to appeal to Generation Z (those born between 1996-2011). By 2020, Gen Z will make up 40% of consumers and 36% of the workforce, and significant differences between Gen Z and Millennials are emerging.
At DSA’s Annual Meeting, Josh Miller, a 17-year old entrepreneur and Director of Gen Z Studies at XYZ University, informed several DSA execs on how Gen Z is data-driven, competitive, and focused on financial stability and the future. Another fascinating insight Josh shared is that because Gen Z’ers don’t know a world without smart phones and social media, they now prefer face-to-face communication to online interaction. Information like this should help companies recognize if their direct selling strategy and model are poised to succeed with this generation. As the world’s largest upcoming generation, Gen Z represents the future of the labor market and consumer base. The sooner companies realize this, the more likely they will succeed.
3. Learning from the gig economy, which is shaping workforce expectations
With the ubiquity of companies like Uber, Lyft, and AirBnb, it’s easy to forget that the gig economy is relatively new, nebulous, and rapidly evolving. What is evident is that the gig economy has already had a significant impact on reshaping workforce expectations (including direct selling) and will continue to do so for the foreseeable future.
For example, workers are increasingly expecting instant payments. Transportation services like Uber and Lyft allow for immediate payment following a ride, and even Airbnb provides hosts with payment at the start of a customer’s stay.
Another way to learn and adapt from the gig economy is to make connecting with prospects easier. The appeal of many gig roles is that customers are connected to the gig worker through technology. The worker doesn’t need to do anything but show up. Some direct selling companies are addressing this challenge by matching prospects who visit their websites via geographic proximity. Companies may also be more proactive to drive prospects to their commerce sites, but traditionally many direct sellers view this as infringing on their prospect base. This is an area that needs further investigation. But, technology and evolution of e-commerce platforms is likely a step in the right direction.
Another thing direct selling can learn from the gig economy is being able to control the whole business from a mobile device. There are many things we can learn from them that if addressed may make direct selling a better destination for those considering other gig opportunities.
During a tight labor market that’s achieved 50-year lows in the unemployment rate, the gig economy has increased the appeal of flexible, part-time earning opportunities. This should be direct selling’s sweet spot where we can compete and win.
4. Innovating to avoid getting left behind during rapid evolution of retail & e-commerce
Another component of becoming more customer-centric is placing an increased focus on customer retention. It is well documented that the cost of retaining a customer is much less than acquiring a new one. Many e-commerce and gig companies are getting into the retention game with loyalty programs. A notable example of this is Dollar Shave Club, whose retention rate at 12 months is 50% – far exceeding many direct selling companies. Consider ways to engage loyal customers with targeted communications, product recommendations and promotions, and introducing gamification.
5. Prioritizing key points of differentiation that direct selling offers, and minimizing the impact of perceived weaknesses
The direct selling channel is at a crossroads as the 100+ year old industry sees the retail and labor landscapes rapidly evolving. Questions emerge like how do you stay true to your core identity while embracing technology and change? What is the best path for direct selling moving forward?
The U.S. macroeconomic conditions create favorable tailwinds for direct selling to thrive, and its best path forward likely lies first in prioritizing key points of differentiation.
The late author and management consultant Peter Drucker said, “Waste as little effort as possible on improving areas of low competence. Concentration should be on areas of high competence and high skill. It takes far more energy and far more work to improve from incompetence to low mediocrity than it takes to improve from first-rate performance to excellence.”
Direct selling has the ability to achieve sustained excellence and comparative advantages in certain areas such as personalization, relationships, and experience.
Monica Wood, Vice President, Global Consumer and Member Insights at Herbalife Nutrition and incoming Chair of DSA’s Industry Research Committee said, “Personalization is becoming ever important and is a key differentiator we have in direct selling. Our distributors listen to the needs of their customers and then they customize the wellness solutions we offer based on the individual needs of that customer.”
“Direct Selling, like any industry, needs to evolve with macro and consumer trends, but it should not compromise on its inherent points of differentiation such as the priceless personalized experience a customer has with their direct seller,” says Jeff Kaufman, outgoing Chair of DSA’s Research Committee.
The unique direct selling experience is also a differentiator. As Qualtrics (experience management software company) CEO, Ryan Smith said, “we’re in the experience economy. People will pay a premium for a good experience, and experience is a growth lever… Either you’re intentionally racing to the top with experience or you’re unknowingly racing to the bottom.”
Satisficing on Weaknesses
No matter how hard direct selling companies try, it’s unlikely they’ll be able to beat Amazon on selection, shipping time, and price.
Amazon’s economies of scale, technological expertise, and relentless willingness to incur massive losses to compete for market share/growth make competing across any of these dimensions very difficult.
Will direct selling companies need to be able to beat Amazon on one-day drone shipping? Should direct selling companies match Dollar General on pricing? Beyond egregiously underperforming across these metrics, the answer is likely no. 3-4 day shipping at a breakeven cost or selling cosmetics a dollar above the dollar store prices are likely fine – as long as you have value in other areas (e.g. the personalized ongoing service salesforce members offer their customers). Otherwise, you’re on a race to the bottom.
However, at the other extreme, if we surrender entirely on selection, shipping time, and price, then you’re likely doomed. No matter how good your product is, consumers’ expectations have increased, and no one wants to wait weeks for their next order of protein powder. The answer lies somewhere in the middle. Being good enough to not noticeably frustrate customers here is likely sufficient.