As is evident, Amway has been registering revenue growth of nearly 100% yoy, whereas conventional FMCG firms have struggled to achieve even 4-6% in this stagnant economy.
Clearly, no other market has recorded such phenomenal growth for direct selling and it is believed there are some distinct structural factors in the Indian market which make direct selling (aka network marketing) a potent distribution model for consumer goods. So what are those key success factors and characteristics of the Indian consumer that make this model a runaway success? Let us begin by understanding how it all works in India.

A DIRECT SELLING PRIMER: Amway Case Study
In India, the major direct selling players are Amway (homecare, personal care), Avon (cosmetics), HLL (Aviance) (cosmetics), Oriflame (cosmetics) and Tupperware (kitchenware). Amway’s is a representative model, though there are minor variations across firms.
Direct selling involves person-to-person selling undertaken by ‘distributors’. Besides selling, they build ‘downlines’ by getting their friends, relatives and colleagues to join the supplying agency by paying a one-time fee. Distributors receive commissions based on the total sales of their downlines as well as personal sales.
As is evident from the figure, distributors play multiple roles in this business and are at the centre of the entire model. They are consumers of the products themselves, retailers/distributors, sales agents and even the advertising media (through word-of-mouth) for the supplier’s products. Other stakeholders include the consumers and of course, the supplier.
Motivational organisations (AMOs) are operated independent of Amway, by senior distributors. In India, three dominant groups exist – Britt, Network 21 and InterNet. These are responsible for ‘motivating’, training and educating distributors about the Amway business. In reality, different groups have different philosophies with regards to the best method of doing business in Amway. The groups train and persuade distributors to follow the group philosophy while dealing with their Amway business. So what’s in it for the groups? Essentially heavy margins on sales of business support materials (BSMs).

BSMs include cassettes, books and tickets for events where successful distributors are invited to aggressively promote the business. AMOs are an integral part of the Amway business model. They form another important revenue stream for the higher-level distributors who anyway earn a significant amount from their downlines’ business. The lower level distributors incur recurring expenses for the AMOs’ activities.

KEY SUCCESS FACTORS
Let us now take a look at some of the factors that have propelled this business to rapid growth in India:
* Loyal & Captive Consumer Base of Distributors: Distributors have a personal stake in “growing with the business”, so they are inclined to buy products themselves. They are influenced to a great extent by the groups as well and are always encouraged to try the product beforehand, to be able to sell it better (Wotruba 1990).
* Consumer-Distributor Word-of-Mouth Magic: Being a friend/relative of the consumer, the distributor would be expected to share similar tastes and interests (Chen et al 1998). Therefore, the distributor’s recommendations would be trusted and acceptable. Many a times, it is just tough to say “no” to an old aunt or good friend.
* Products: Product quality has been acknowledged to be really good, and endorsements and training from specialists at the supplier’s training centers builds positive perception as well. Products are extremely expensive, and high prices are justified on the basis of quality and the concentrated form of the product, which implies lower cost per use.
* More & More Subscription Revenues: The ever-growing urban Indian middle class is the ideal pool for potential distributors, looking to make extra cash which denotes “success” and “respect”. The margins seem extremely attractive in India, since some research revealed that prices for many products are identical to those in the US. Thus on a pure PPP basis, Indian distributors are much better off. Amway boasts of almost 3 lakh active distributors today.

* Aggressive Product Launch Strategy: Since a captive consumer base exists, trials and repeats are guaranteed to an extent, so revenues are accelerated by launching a new product almost every month.
* India Specific Initiatives: First-time initiatives for the Indian market have been taken up, such as mass advertising (which is not a usual practice in direct selling), smaller SKU’s (such as sachets) and tie-ups with big names such as BPCL and Standard Chartered through petro-card/credit card schemes to add credibility to the business.
These factors have contributed tremendously to the huge success that players like Amway have enjoyed in India. However, an important question still remains unanswered. Who are the distributors and do they make any money from this business?
Distributors in India come from across the various SECs. They can be from the affluent to the lower middle class in urban areas. The attractiveness of an easy alternative source or income is universal, we would guess. It is difficult however, to get real data on distributor incomes. Distributors tend to inflate their actual earnings when asked, disregarding the money they spent on buying the expensive products themselves. The way commissions are distributed, i.e., on the aggregate of all downline sales with higher commission on higher total sales, implies a pyramidal structure of income distribution. What this means is that most of the income accrues to the top senior distributors (rightly known as the crowns, rubies, diamonds, etc.) while very few of the majority (who are at the bottom of the distributor hierarchy) earn anything significant.
To conclude, the supplier earns significant revenues, not just from sale of goods, but also subscription incomes and a more efficient cost structure with savings on significant expenses such as distribution and mass advertising. This provides the business model a sustainable competitive advantage, which when combined with the scale offered by India’s densely populated urban centres, promises a healthy future.

LEARNINGS FOR MARKETERS
Despite its evident strengths, some conventional marketers do not wish to enter network marketing purely because it seems to involve mixing a bit of ‘false hope with good soap’. So could there still be any takeaways? Seemingly there is a lot more to direct selling than meets the eye and there is a wealth of consumer knowledge that can be derived from this model:
* Consumers demand sustained benefits in return for sustained loyalty: This point has been made again and again in marketing theory. Distributors see points translating into cash in each bottle of shampoo they purchase. This sustained benefit influences their decision making to try as many products as possible under the mother brand (Reichheld 1996). Some firms such as Britannia did a good job of implementing this learning. The loyalty points program provided consumers an excellent sustained benefit in each product they would purchase with the Britannia brand name.
* Increased knowledge about product develops confidence and preference: Amway educates distributors who pass on the information to other consumers about product attributes and ingredients. This high level of awareness results in inclination to purchase, especially for high involvement personal care products such as cosmetics.
* The power of word-of-mouth: When friends recommend a product, they do so without any vested interest, and that increases the credibility. This action generates trials and awareness and later becomes a great channel for consumer feedback on the product.
Though most of these aspects seem obvious and easy to reapply, yet it is necessary to point out that the ultimate driving force remains hard cash. And that is a tough motivation to substitute.

References
Chen, Robert, Wang & Cheng, 1998; “The Success Factors for Direct Selling Business”, 1998 Asia Pacific Decision Sciences Institute Conference, Proceedings p.p. 17-23.
Reichheld, F. F., 1996, Ed.; “Quest for Loyalty: Creating Value through Partnership”; Harvard Business School Press: Cambridge, MA.
Wotruba, Thomas R., 1990; “Full-Time vs. Part-Time Salespeople: A Comparison on Job Satisfaction, Performance, and Turnover in Direct Selling", Intern. J. of Research in Marketing 7, 97-108.