The booming direct selling industry

BUSINESS BITS
Peter Imbong

Learn to distinguish between a legitimate direct selling biz from pyramid schemes

Do you have Tupperware in your house, use Avon cosmetics, or take food supplements from Herbalife? These are just a few of the products taking part in what has grown to be called direct selling. But what exactly is itIn a recently held management conference by the Direct Selling Association of the Philippines (DSAP), a nationwide trade and industry association of direct selling companies, insiders said the industry has been growing at a rate faster than before.

Direct selling is face-to-face selling. According to Ador Bonquin, DSAP Chairman, “It is as personal as you can get. There is a communication process where all your senses are engaged. You can see, you can hear, you can smell, you can shake hands and touch. Direct-selling is set-up for greatest communication impact.” It can be used to sell different products: from cosmetics, apparel, intimate apparel, fragrances, toiletries, plastic home products, water purifiers, and food supplements. Chances are you have a direct-selling product in your home or office right now.

Some notable direct selling brands are Tupperware, the makers of durable plastic containers; Mary Kay, cosmetics and beauty products; Fern Inc., makers of food supplements; and Amway that provides health, beauty, and wellness products. They are just a few of DSAP’s 29 members.

In the Philippines, the direct selling industry is “a stable and growing industry” says Bonquin. DSAP’s members register P25 billion in annual sales, with a growth rate of about 14 percent. “That,” says Bonquin, “is still a very conservative number.”

Global figures state that from over 50 countries worldwide, the direct selling industry is worth $120 billion annually. It is, perhaps, not surprising that many entrepreneurs and even employees choose direct selling. In fact, there is one direct-seller for every 7.5 households, says Bonquin.

The reason for the popularity in direct-selling, says Bonquin, is that “[it] provides opportunities to people to augment their income, there is no need for a formal education to take part in it, it can be a home-based business, and everything is simply based on your contacts.”

The DSAP warns, however, against hastily joining direct selling groups. “They need to ask questions,” says Bonquin, otherwise, they might unknowingly get into a pyramid scheme.
Besides being illegal, these pyramid schemes claimed many victims in the past. In direct selling, compensation is paid from the sale of products. However, in pyramid schemes, compensation is paid for recruiting individuals.

According to Scott Balfour, VP and Deputy General Council for Amway, the following are some telltale signs that the business is a pyramid scheme:

1. The costs to enter the plan are unreasonably high.
2. Participants are compensated primarily for recruiting other participants.
3. The compensation is not based primarily on the sale of goods and services.
4. The goods and services are not legitimate and currently marketable.
5. The participants are required to buy more products than they can reasonably sell or use.
6. The plan does not allow return of unused inventories.
7. There is no written contract providing key terms and a definite cancellation period.

According to Bonquin, “legitimate direct selling companies do not offer false hopes [like pyramid schemes do], but rather, offer attainable rewards.”

He adds, “We at DSAP have been working to broaden people’s awareness on the direct-selling business and appreciate the entrepreneurial opportunity offered by the industry so that more people will be able to enjoy the financial stability that a legitimate direct selling business can offer.”