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Direct Selling — The Next Stage In The Indian Marketing Revolution
Direct selling has become an extremely popular marketing model across the globe because of its tendency to cut costs, and increase rates of profit
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In the age of globalization, advancements in information technology and increased connectivity, the realm of marketing has undergone a sea change. Traditional marketing involved "brick and mortar" retail outlets, malls and multiplexes. This has now been replaced by e-commerce - a new frontier for marketing. Increased spending on advertising, celebrity endorsements, customer-friendly websites, the plethora of products and services available online, and easy access to these through social media have re-invented marketing completely.
However, apart from conventional e-commerce, the paradigm shift in marketing can also be attributed to the "direct selling" and "multi-level marketing" models. Direct selling involves the marketing of products directly from the manufacturer to the consumer away from a fixed retail location, through personal demonstrations or online sales, and does away with long distribution channels and intermediaries such as retailers, wholesalers, and forwarding agents. Direct selling has become an extremely popular marketing model across the globe because of its tendency to cut costs, and increase rates of profit. The multi-level marketing model is a form of direct selling which involves sales based on word-of-mouth referrals, recruiting other sales representatives, and commissions based on the sales of such representatives.
Apart from the minimum cost and low risk involved in direct selling, the popularity of this model stems from the fact that small businesses engaging in direct sales are able to provide a personal touch to their interactions with customers through personalized and tailor-made demonstrations and in turn, expand their professional network of contacts. This results in a steady stream of revenue from recurring customers who become loyal to the business' brand. In addition, direct selling require less formal qualifications, but provides tremendous flexibility of working hours. In a sense, direct sellers are their own bosses.
Consequently, direct selling advances trade and facilitates the economy by promoting alternative sources of income, self-employment, self-sufficiency, the setting up of micro-enterprises, and entrepreneurship. With the ushering in of digital growth and e-commerce proving to be a game-changer for the Indian economy, the time is ripe for populated nation like ours to cash in on, and adopt, the widely accepted "direct selling" model of marketing as well.
However, on ground, until recently, direct sellers in India were facing an enormous challenge - absence of legislation and a proper regulatory framework. Bona fide direct selling businesses were unfortunately being compared to fraudulent "pyramid schemes" and "money circulation schemes" and often came under the radar of the archaic Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS Act). This resulted in criminal action being taken erroneously against legitimate businesses on counts of alleged cheating, thus hampering the growth of the direct selling industry.
The Indian government deserves to be applauded for its efforts in countering such misguided exercises. In September 2016, the government issued an Advisory to the State Governments and Union Territories, which contain the "Model Framework for Guidelines on Direct Selling". The guidelines seek to regulate the direct selling industry and clearly state that a "direct selling model" will not be considered as "pyramid scheme" if it consists of subscribers enrolling one or more further subscribers in order to receive any benefit, directly or indirectly, where the benefit is, as a result of sale of goods or services for such subscribers. The guidelines provide for dos and dont's for the industry including the need for a written contract between a direct selling company and its agents.
In another interesting development, the Karnataka High Court in its progressive judgment dated 15 February 2017 recognized the emergence of "direct selling" as a global industry. The observed that the activities of Q-Net Limited, a large international, multi-level marketing company, did not constitute an offence which warranted criminal action under the PCMCS Act and that such legislations "…which do not even remotely apply to the activities of multilevel marketing companies, are applied by the investigating authorities leading to disastrous results". The judicial intervention should be certainly welcomed and used as tool to iron out differences, if any, in the direct selling industry.
The Indian government's model guidelines have been hailed as a welcome move by many direct selling companies in India such as Amway, Qnet, Avon and others. A FICCI report titled "Direct 2015: Direct Selling - Mapping the industry across Indian states" published in 2015 stated that the direct selling industry is projected to achieve a growth of Rs 645 billion by 2025. Accordingly, states need to frame guidelines conducive to the growth of the direct selling model in India. At the same time, legal and regulatory authorities should exercise restraint in maligning bona fide direct selling businesses and strive to follow the Karnataka High Court's example. Such endeavours, combined with entrepreneurial growth in India, will certainly enable the direct selling industry to reach its peak and pave the way for India to become the new global leader of the marketing space.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.
Nitin Potdar specialises in public and private mergers and acquisitions, including de-mergers, restructuring of business, asset & share purchase deals, joint ventures and strategic alliances, domestic and international capital markets, private equity and general corporate advisory. Prior to joining JSA, Nitin was a partner in Amarchand & Mangaldas & Suresh A. Shroff & Co., and prior thereto, he worked with Crawford Bayley & Co.More From The Author >>