Problems Encountered in Direct Selling

Abstract

Today, direct selling companies are expanding its network. In its goal to serve and give the consumers products of high quality, people in the direct selling business reach out for their clients through a number of their distributors. One of the problems that can possibly hinder these companies in accomplishing its goal is the slow production rate—less number of products is being produced in a given time. This will invite another problem for the distributors. Fewer products produced will mean a dilemma or an advantage.

Introduction

The roots of the direct selling industry can be traced back in biblical times. Today, its network is expanding globally (Mayer & Ellis, 1995). All direct selling business is a “distributor-to-buyer-sale,” wherein products are directly sold to the consumers. It is not necessarily be in marketplaces or stalls. Purchase of products may take place in the convenient homes of the consumers.

The distributor and the consumer share a personal relationship, according to Mayer & Ellis (1995). This connection is due mainly to the one-to-one interaction between the salesperson and the costumer whenever a product is being purchased. The products being delivered and sold by the distributors to the consumers are affected by two factors. First is the construction or manufacture of products and second, the strategy being practiced by the distributor and the direct selling company itself, in order to have sales. “Direct selling is an industry that is bound together by a common organizing strategy, not by common product or service” (Biggart, 1989, p.16).

The distributors are product-dependent (Mayer & Ellis, 1995). According to Biggart, there are four means on how the distributors earn. First, in a particular product sold in wholesale and retail prices, a distributor earns about a 30% gain. Second, in some marketing companies where distributors can get recruits to join the company, he can earn a volume purchase bonus wherein once he and the recruits buy wholesale, the pay will be lesser—3% discount for small order and 25% for large order. Third, distributors can get royalties—3% to 5% in some direct selling companies—from the sales of their recruits plus from the sales of the people of their recruits. Fourth, distributors can also earn commissions by sponsoring recruits who are successful at selling products and inviting new recruits or both (1989).

The direct selling industry may experience problems throughout the business process. Whenever a problem occurs, the distributors of its products are also affected. According to Biggart, the product-distributors or the salespersons are independent service provider of the direct selling industries, not direct workers of them (1989).

This paper will discuss and explore further the relationship between the slow production of direct selling companies and the rate of sales of the distributors in the country. Also, this will deal in the strategy being practiced by the direct selling industries and their distributors and how this strategy affects their sales.

In order to assess the effectiveness of the direct selling business, its direct relation and its effects to the distributors, the researcher conducted a survey. The author used a nonprobability sampling technique in getting the respondents. As the “Web Center for Social Research Methods” describes, nonprobability sampling does not use random selection of elements, therefore, the population, which is the set of variables or subjects of the study, is not represented well (2006). The characteristics of the variables in nonprobability sampling are diverse. Their responses in a particular theme may also vary.

Specifically, the author used purposive heterogeneity sampling. In this way of sampling, the author purposively chose all the samples to be included as respondents in the study; all opinions of the variables or the subjects regarding the topic are entertained without any concern on whether the views are represented proportionately or not (Web Center for Social Research Methods, 2006). The respondents in this study are heterogeneous–diverse in all terms, different in perspectives. Thus, the expected outcome will be just a collection of broad ideas to answer the problem of this study.

In this paper, the population of the study or the variable is also termed as respondent, sample and subject. The respondents were generally from the set of friends and coworkers of the author whose interest and inclination is in the business. The sample size of the population was cut into 37 people (n=37) in order to ensure the precision and accuracy of the study. The survey was conducted in the form of a questionnaire. The respondents were given a Business Survey Form with four statements—scaled questions—to assess whether they strongly agree, agree, uncertain disagree or strongly disagree. These statements are related to the research problem of the study—the slow production of direct selling companies greatly affects rate of sales of the distributors in the country.

The responses of the samples were collected. The results were tabulated, graphed and examined. A concrete discussions and conclusion were also established. The conclusion was then evaluated whether null, accepted or rejected.

Results/Findings

            In order to show the accurate results of the survey and the possible relationship among the findings, the author tabulated the responses of the samples. The table (Table 1) shows the variability of the results. This may be due the sampling technique utilized by the author in getting the samples. The respondents in the survey are all different—they are only similar in interest and inclination—age and present profession also differ.

            Based on Web Center for Social Research Methods, in nonprobability sampling of the possible subjects of the study, the response of the samples may be just a collection of broad ideas, so the results are characterized by variability and precision—agreement or similarities.

Table 1. Responses of 37 samples to the survey statements (scaled questions) in number and percentage form.

Given that the direct selling companies are producing and releasing new products in a slow rate, 15 out of 37 respondents strongly agree that the usual sales and discounts on the available products could increase the sales of the distributors, while 12 of them agree, six uncertain disagree and four respondents declare strong disagreement, as shown in Table 1.

From this survey result, one can conclude that, from among the respondents, the larger number express a belief that the salesperson or the distributor can earn much if sales and discounts will be offered during the shortage of production. This means that, while there is a shortage in product produced, direct selling companies should not go into either price hike or gradual release of products until production of new sets of products can be done. If this happens, economically speaking, since the supply is low, people will tend to buy those products which are becoming less available. But this is not the usual scenario, once the price for a certain product is increased, consumer may opt to decline in buying those products. Also, if direct selling companies will hold the discharge of the products—few numbers of products will be released to the distributor—consumers may choose not to avail the product until the next sale where there may be more choices. This eventually will cause low income to the distributors. But if, even the production rate is slow, the price will stay in its usual sale and additional discounts will be imposed, consumers may hurry up to get more products; thus, increasing the earnings of the distributors where the consumers will purchase their products.

In economic sense, when the supply is low, that is when production rate is slow; the demand for the products will be higher if the customers can avail the usual sales and discounts. And if the demand is high, the earnings of the distributor will also be high.

In the second statement, only two out of 37 respondents said that they strongly disagree that the direct selling strategies of the distributors should be improved; five uncertain disagree, 11 agree and the majority of the respondents, 19, strongly agree.

Mayer & Ellis highlight that direct selling is characterized by a channel of allocation of products.  In order for the salesperson to sell goods and eventually earn, he must practice good direct selling strategies whether it maybe in the customer’s home or in a demonstration environment, example, in an office or in a party where an audience is present (1995).The distributor should be able to convince the consumer to avail of his products and of his offers.  The result of the survey only shows that strategy in business is really important.

 The direct selling innovator, according to Mayer & Ellis, has sense of social responsibility, meaning, he should have commitment to offer the highest quality product to his costumers and he should be open to opportunities of increasing his earning capacity (1995). The majority of the respondents believe that the possible earning of the distributor is tantamount to his practice of good selling strategies and further improvement of these business strategies. The strategy or technique that the distributor is using may be his asset in order to stay longer in a direct selling business environment.

If the production rate is slow, the distributor should create ways on how to sell the products available at the moment without impeding on the costumer’s interest. This means that the distributors should convince the consumers that the shortage in the production has no direct effect on the sales and quality of the products available. While the slow production is a problem for the direct selling companies, the distributors should not consider this in the same way.

The distributors of direct selling companies are creative said Mayer & Ellis; the great challenge of the distributors being creative can be credited to their abilities to overcome any external and internal problems (1995). Strategies in business will win all the problems, as what the majority of the respondents believe.

In the third statement, a diverse result was obtained; the majority of the respondents, 14, agree that the loyal clients of the distributors should have special discounts from the sellers; eight strongly agree, seven uncertain disagree and eight strongly disagree.

            The dispersed result in the responses in statement 3—the loyal clients of the distributors should have special discounts from the sellers—may be due to the possible negative relation that may occur between the distributors and the consumers. If special discounts will be given to the loyal clients, distributors, in most cases will be less benefited because the possible earnings of the salespersons may be allotted to the special discounts that the loyal clients will likely to enjoy. The negative relation will be that, while the clients will get the advantage of having less to pay in specific product, the distributors will seemingly get the disadvantage of earning less. The majority of the respondents agree for the possible discounts that the loyal clients may avail from the distributors, while only a few express a strong agreement.

During when the products of the direct selling companies are in minimal amount, a major number of respondents, 15, strongly disagree that the potential ads should be done as to be able to sell more products; 10 strongly agree, nine agree and three uncertain disagree.

 Potential advertisements may be a way of attracting buyers to purchase the products of the direct selling companies. But for the majority of the respondents, when products are being produced in a slow rate, utilization of potential advertisement is not an option.  Since there is a shortage in the number of products available for sale, getting the attention of buyers will be no use. Economically speaking, the supply is low therefore, as much as possible the demand must be kept in the minimum, if and only if, the direct selling company has no interest in increasing the price of their products. But the implication of this to the distributor may be positive because the costumers may demand the products more which eventually will increase the distributor’s earnings.

To show the comparison of the findings, results were also graphed. Figure 1 shows the percentage distribution of responses of the 37 samples. Statement 1 is strongly accepted by 41% of the respondents. Statement 2 has the highest approval from the respondents, meaning 51% of the samples strongly agree that the direct selling strategies of the distributors should be improved. Statement 3 is agreed upon by 38% and also has received a low strong approval rate, 22% from the subjects. Statement 4 has the highest strong disapproval, 41% from the respondents, which only means that potential advertisement is not an option for the respondents whenever there is a shortage of production.

      Figure 1 shows that between the four statements, Statement 2 and Statement 4 has the highest rate of strong approval and the highest rate of strong disapproval, respectively.

The findings in the survey, the sampling technique used and the sample size of the respondents are related. The sample size of the population or the subjects is relatively small, 37 people. In statistics, if the samples under observation are few, a precise result will likely to be obtained.

Figure 2 shows the line graph representation of the 37 responses. From the data gathered, it shows that the responses yield precise results, meaning in each response, respondents show an agreement or similarities in choosing whether they strongly agree, agree, uncertain disagree or strongly disagree. In each survey statement, responses exhibit variability and precision.

Statement 1 shows a close variability among results, which means that the number of respondents who said they strongly agree, agree, uncertain disagree or strongly disagree to the statement, has a close range. The highest number of respondents is 15 who said that they strongly agree to statement 1 and the lowest number is four, who express a strong disagreement. Between these two numbers are six and 12 for the respondents who said they uncertain agree and agree, respectively. Statement 2 exhibits more varied results with the responses falling within 19, strongly agree and two, strongly disagree. Statement 3 has a close variability and precision because the number of responses is close to each other and the range between the response with the highest number, 14 and lowest number, 7 is small and the number between them, 8 is similar and is near to the lowest number. Statement 4 has less close variability and precision relation compared to Statement 3 but exhibits the highest number of respondents in strongly disagree response.

            From the results of the survey, the reactions of the respondents to the four statements in connection to the problem of this study—slow production of direct selling companies greatly affect rate of sales of the distributors in the country—differ. Primarily this is due to the varied backgrounds of the respondents. Table 2 shows the direct effect of the slow production to the distributors, based on the survey conducted. The effect is evaluated whether it is positive or negative.

Table 2. Effect of slow production to the distributors as manifested in four survey statements.

With the findings, the researcher can conclude that the slow production of direct selling companies greatly affects rate of sales of the distributors in the country in a positive way, as shown in Table 2. Only statement 3—the loyal clients of the distributors should have special discounts from the sellers—may cause negative effect to the distributors.

The null hypothesis—the slow, gradual release of new products from the direct selling companies can positively affect the current sales of the distributors of direct selling companies—is accepted as a concrete conclusion to the this study. On the contrary, the alternative hypothesis—the slow release and production of products can negatively affect the sales of the distributors of direct selling companies—formulated, is denied.

Therefore, as the survey to 37 people implied, the slow, gradual release of new products from the direct selling companies can positively affect the current sales of the distributors.

Summary

The direct selling companies are now expanding in all places in the globe. Products of these companies are being sent to the homes of the consumers through the distributors or the salespersons. One of the problems encountered by the direct selling companies is connected to its ability to produce its products at a certain rate that can accommodate the needs of its consumers. In this specific problem, the distributors are highly affected. This study determined whether the effects of this problem may cause the distributors harm or advantage.

The author conducted a survey to 37 people to assess the problems encountered by the direct selling companies especially to its distributors. A nonprobability sampling specifically the purposively heterogeneity nonprobability sampling technique was used. The survey was done through a questionnaire with four statements for the respondents to assess whether they strongly agree, agree, uncertain disagree and strongly disagree. The sample size is 37, relatively small to aid in the precision of the study. The responses were tabulated to see the variability of the findings. A bar graph was formulated to show the percentage distribution of the responses of the samples. And a line graph was used to show the range of the findings and the precision or agreement of the responses.

The results showed that only giving special discounts to loyal clients will yield negative effect to the distributors, when the production rate is slow. The other conditions—usual sales and discounts to available products, improvement of direct selling strategy and use of potential ads—will positively help the distributors.

Therefore the null hypothesis–the slow, gradual release of new products from the direct selling companies can positively affect the current sales of the distributors of direct selling companies—is accepted, while the alternative hypothesis– the slow release and production of products can negatively affect the sales of the distributors of direct selling companies—is denied.

References

Biggart, N. W. (1989). Charismatic Capitalism: direct selling organizations in America. Chicago: Chicago UP.

Mayer, M. & Ellis, K. (1995). Direct Selling in the United States: A Commentary and Oral History. Washington: The Direct Selling Education Foundation.

Web Center for Social Research Methods. (2006, October 10). Nonprobability sampling. Retrieved May 25, 2008, from http://www.socialresearchmethods.net/kb/sampnon.php.