In the era of e-commerce, where do direct selling companies with a sparse digital presence stand?
By Devika Singh
Direct selling companies are in a peculiar situation as their very mode of operation — selling through a network of representatives — is under threat from e-commerce players. Most of these players have been struggling as their representatives have started listing their products on online marketplaces at discounted prices, causing “financial losses”. In May this year, direct sellers Avon India, Amway India, Oriflame India, Modicare and others, moved the Delhi High Court against online marketplaces, accusing them of “enabling sale of their products through their platforms, without their consent”. The court has ruled in their favour, but Amazon has taken the dispute to the Supreme Court.
Frederic Widell, VP, head, South Asia, and MD, Oriflame India, says e-commerce has not impacted their growth, but “it negatively impacts how we do business”. “Why would a customer buy products from a consultant, if he or she can find it on an e-commerce platform at a cheaper price?” he asks.
Experts say that the tussle points to a bigger problem, that of changing consumer behaviour with the advent of technology. A 2018 study by ASSOCHAM says that the direct selling industry is expected to grow at a CAGR of 4.8% to reach Rs 15,930 crore in 2021. Critical to this, however, is how deftly these players are able to weave their digital strategy.
Most of the direct selling companies now operate through apps. Oriflame, for example, has five apps for its consultants, and also has a digital product catalogue in place, with a claim that 93% of its orders are placed online. Avon India, too, has recently launched an app through which its representatives can order products, and has done away with most printed materials. Swati Jain, marketing director, Avon India, shares that 30% orders are placed online and that “digital is a mode that one cannot ignore”. Both these companies enable consultants or representatives to procure products through their respective websites.
Online training for their representatives, product demonstrations in the form of videos and marketing are some of the other ways these companies are tapping digital. However, the digital interface is restricted to consultants and representatives. Most of these players are against getting onto marketplaces or setting up websites for the end consumer.
“We don’t want to become an e-commerce company,” says Widell. “Our consultants make a livelihood from selling Oriflame products. This concept would not work if we started selling on e-commerce websites and competed with our consultants.”
Tupperware is the odd one out, though. The company tied up with Amazon and Flipkart in July this year to list its products. The company is adopting an omnichannel approach now and has launched four stores in Bengaluru, Hyderabad, Nashik and Delhi; it also has 30 stores coming up in 12 cities this year in addition to a web store.
“Blindly selling the way you want to, and losing market share because the consumer is buying in a different way, is an option. But we decided against it. We changed as per the changing times,” says Deepak Chhabra, MD, Tupperware India. He maintains, however, that direct selling will remain the company’s primary channel.
The way out
Harsha Razdan, partner, KPMG, believes that the direct selling strategy works only if these companies create a niche for themselves. “A customer could shop online, at a large retail store, or even at a mom-and-pop store. In this omnichannel environment, we don’t control how the customer shops. So, unless the value proposition is very good, one has to play all channels,” he adds.
However, it is not going to be easy for these companies to employ more than one retail channel, given their large teams of representatives. Furthermore, correct inventory allocation across various channels will be crucial.
“They have to modify their operating model in a way that sellers on Amazon and Flipkart are their authorised sellers. This problem might get solved then,” says Rajat Tuli, principal, AT Kearney.
Tupperware India has adopted this strategy. It is operating stores on the franchise model and selling on Amazon and Flipkart only through its representatives. “Today we have 70,000 women entrepreneurs; they are our franchisees. They fund the capex, and we offer them training and marketing support,” Chhabra says.