Direct Sales is Different from Cash Business

Direct Sales Vs. Cash Business

Traditional direct selling (which involves credit extension) is different from a cash business. The blunder of most company owners in this industry, as I see it, is evident: that is, putting a cash business guru at the helm of their direct sales operations.

Someone told me that cash and direct sales business have one universal principle, that is, to align all strategies on the side of money. Of course, it is basic until we start to misunderstand the dynamics of direct sales. Direct sales is different from cash business. For the former cannot survive in a "collect it, period" rule. It requires something more.

The Tupperware Way

Tupperware, for example, is a "tiger in collection." It requires a 100% Collection Efficiency Rating (CER). No wonder Fortune had named Tupperware Brands as "one of the most admired companies." This approach is termed as the Tupperware Way. Consequently, most of its distributors designed their own collection strategy, since a 100% CER is not doable at the grass-roots level in the sales organization. The Tupperware marketing idealism, therefore, requires the involvement of wealthier distributors, who will act as patrons or "cash" go-between of its ordinary dealers. The question is: how did Tupperware motivate its core group of well-established leaders to work hard and be loyal to the company for decades? The answer is the giving of add-on incentives, international travels, meetings, recognition, emotion-based marketing, and the making of its leaders richer. Yes, direct sales is different from cash business.

Cash-business Gurus Don't Know Much About Direct Selling

We know that collection is the other leg of credit extension, for a traditional direct selling to be able to stand. Cash-business gurus, however, don't understand that the nature of direct selling requires the enforcement of sales and collection through the power of incentives, meetings, and other motivation-related approaches.

Our Avon Analysis

We learned over the Web how did Avon Cosmetics, a centenarian in the industry, shifted focus from the old-fashioned direct selling ways to the semi-MLM, and its number-of-recruits-dependent marketing plan.

What do we mean by Avon's traditional direct selling approach? The answer is Avon's consistent application of the 80/20 strategy, also known as the Pareto Principle. According to the Italian economist Vilfredo Pareto, there is a "law of the vital few." Only 20% of the sales force will produce the 80% production. Therefore, the productive few will have to be treated differently from the regular members of the sales group.

But with Avon's new semi-MLM (or Multi Level Marketing), its entire sales approach has been radically altered. I would venture to say that such a path is more of a "Reversed Pareto."

Read More: Reversing the Pareto Principle in Direct Selling

In essence, Avon is now encouraging the lowest level of recruits to be doing direct-to-branch transactions, the role that was enjoyed only by the productive ones for the past one hundred years of business.

Instead of focusing on the real leaders of the sales force, the so-called magic 20% who could have maintained the standard 95% CER (Collection Efficiency Rating), Avon is now a retailer-based operation.

Consequently, Avon products are now sold at the Amazon.com. It is one proof that the company has shifted strategy from its traditional wholesaler-based approach to its retailer-based method.

It has been the conjecture of many in the industry that the turbulence experienced by Avon these few years was due mainly to the cash-business minds in its top management.

Cash-business gurus, some of them are now with Avon, tend to misunderstand the dynamics of direct sales. Incentive-loaded and leader-based, the traditional direct selling is entirely different from the cash business model.

The Natasha Magic

Natasha, one of the most successful direct selling companies in the Philippines, maintains its elite group of wholesalers--also known as Fashion Pros--through what it calls: Top 100 Fashion Pros nationwide. Many opined that one disadvantage with Natasha is its requirement that a distributor must issue a post-dated check. From the 80/20 perspective, this method is consistent with the principle of grooming only those wholesalers who have a checking account, to filter out the retailers from the wholesaler group.

Direct Selling Tweaks

Most cash-business CEOs think--when given the authority to manage a direct selling institution--that collection comes naturally in exchange for the products released to the dealers. That's how cash business works, after all. In traditional direct sales, however, there's a little tweaking required in the form of incentives and other add-ons to enforce collection, the only known method to improve CER.

In sum, as mentioned earlier, the wholesalers in the sales force are considered the real pillars of the direct sales industry.

Direct sales is different from cash business.

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