Reversing the Pareto Principle in Direct Selling

The Reversed Pareto Principle

The trend in direct selling is toward reversing the standard rule known as the Pareto Principle. What is it? Only 20%, according to this theory, of the entire sales force will produce the 80% sales. Most companies have adopted the reverse of it: focus on the 80% because the 20% is getting very demanding and influential in the sales organization.

The elite group of sales leaders of Avon Cosmetics, Inc., for example, known as the GMAC (General Manager’s Advisory Council) in the Philippines, was the offshoot of the Pareto Law. GMAC membership is the highest badge of success in Avon. Even though the GMAC is still there, Avon is now changing its primary strategy. Mass recruitment and promotion have become the trend not just with Avon. Focus on the mass of recruits--that is the curve--not just on the top earners.

The thrust of both the Natasha and MSE (Marikina Shoe Exchange) is just similar: reduce the requirement to promote a mass of Fashion Pros and Sales Leaders. The market has become like an ocean with plenty of fishing boats. Any symbol of monopoly in a particular sales territory has to be resisted through a mass recruitment and promotion.

The Reasons for Reversing the Pareto Law

One reason is that company owners have become less comfortable with the top earners’ dominance in the sales group. The 20% productive sales force, for example, tends to call the tune in the incentive aspect of the operations.

Secondly, the sales leaders are more favored in the area of the credit line, training, and other forms of accommodation. Once they have attained a particular level of success already, their tendency is to carry other products without regard to the company that had mentored them.

The Approach of Most Reversed Pareto Companies

The primary problem with the reversed Pareto companies is their addiction to developing the retailer (80%) sales force more. They would give the attractive credit line to prospects without the needed issuance of a check. Why require its issuance? The answer is to discourage the bad recruits (and the poorest poor, too) to sign up.

Read: How to start your own direct selling business?

In the Philippines, the issuance of the Trust Receipt Agreement (TRA) is the norm in direct sales. The TRA is legally advantageous. But most companies don't avail themselves of this legal facility because of the TRA's requirement, according to the Philippine Trust Receipt Law, to allow the return of the products.

Without Pareto's wholesalers, no direct sales company could stand for the long haul. Why, because the non-successful direct sellers don’t have an immense love for the trade; they are careless for a livelihood that has given them a less-attractive financial climb.

The trend in the direct sales is the what we call reversed Pareto. It evolves from the MLM hype. But we don't think it would be the best marketing strategy in the traditional direct sales.

Natasha's Neo-Pareto Strategy

They said that “the more a thing changes, the more it remains the same.” The Natasha Strategy is more Pareto compliant than the one employed by Splash Direct Sales (Note: closed operations already in 2017 -its 'direct selling' business only) formerly.  (Today, Splash DS has reinvented itself through its IBD or Independent Business-Distributor program.) In short, the more direct sales companies reverse the Pareto Principle, the more Pareto-like their campaigns have become.

What’s the point? Well, the Natasha approach is one good example. The company since its birth in the 1990s had been consistently pro-sales leaders. If a real Natasha top seller were asked to decide, it would always choose Natasha as his or her first company.

Today, Natasha did not just go down to the masses of ordinary recruits. Rather, it nurtures its 80% sales force by giving them proper incentives and travel opportunities just like what it did to the 20% productive leaders.

A sales convention with Natasha or MSE (they are sister companies!), for example, in a luxury hotel, is now offered to the second generation sales leaders. Some of them are not yet full-blooded direct sellers. But Natasha is bullish in organizing a new breed of Natasha members.

It is expensive, in my opinion, to give a national convention type of incentives in the local sales assemblies. But Natasha aims to raise new leaders, and it has money to burn. Such is so Paretoist a campaign by a company that has proven leadership in direct sales for a quarter of a century already.

Avon is becoming a retailer-based group. But the Natasha management continues with its organized-the-wholesalers game plan. Pareto, isn’t it?

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