Amway's Indian Network Marketing Experience

MAKING OF THE DREAM

Privately held by the DeVos and Van Andel families of US, Amway, short for American Way, was set up in 1959. Amway and its publicly traded sister companies supported 53 affiliate operations worldwide. About 70% of Amway's sales were outside North America. With over 12,000 employees around the world, Amway was renowned for its strong R&D centre in Michigan, which had 24 laboratories. Amway was present in over 80 countries and its manufacturing plants were located in US, Hungary, Korea, China and India. The company had over 3 million distributors across the world. Besides its direct selling portfolio of 450 products, Amway promoted around 3,000 products through catalogue sales² as well.

Amway had received permission from the Foreign Investment Promotion Board (FIPB) in 1994, to invest $15 million in the Indian operations and to source products from India. The company began with identifying small and medium-scale companies to source its products from. Commercial operations began in May 1998 with a partnership arrangement with Network 21, a company, which acted as a support system and assisted in organizing training, seminars and meetings. Besides its extensive internal research efforts before entering India, Amway also conducted market research through agencies such as Pathfinders and ORG-MARG. Though prior to its entry into India, Amway did recognize the need for a special India-specific pricing strategy and eventually there were just a few marginal cuts in the prices, which were still almost 20% higher than those of the competing FMCG products. The company began with appointing distributors in the country by adopting the ‘NRI sponsored'by getting NRIs to rope in their friends/relatives in India into Amway distributorship. These distributors were duly provided with starter business kits containing products, training material, and sales literature.

The company's introductory product range comprised four home care and two personal care products, made available to distributors at the Amway Distribution Centers (ADCs) or through tele-service. A significant portion of Amway's investment was on transferring state-of-the-art technology and processes to third-party manufacturers from the small and medium-scale sectors for the indigenous production of its product range. Amway assisted its three manufacturing partners, the ISO 9001-certified Jejuplast at Pune, Naisa Industries at Daman, and the Hyderabad-based Sarvotham Care, to achieve benchmarking levels of product development, engineering and quality. These facilities were equipped with advanced machinery and world class technologies for production, packaging, and water filtration. Amway scientists and engineers at the India Technical Centre provided assistance in the processes of technology transfer and quality control. The company supported its independent distributors with five full service ADCs at New Delhi, Bangalore, Chennai, Calcutta and Mumbai. ADCs operated as product selection centers for Amway's entire product range and as training centers for distributors. Amway appointed Sembawang Shriram Integrated Logistics, and Mumbai-based First Flight Couriers as its total logistics partners for home delivery of Amway products across 151 cities in the country.

Amway's domestic operations fell into five areas - personal care, homecare, nutrition, cosmetics and home tech. The company introduced India-specific products, in pursuance of its go ‘glocal'philosophy. Also, for the first time in its history, Amway utilized media advertising to promote its products.

In the beginning, Amway had to deal with the negative attitude of many Indians to direct selling. Direct selling was typically seen as unwelcome, an intrusion into one's privacy. This was true to a certain extent. Sales people often used a ‘hardsell', the product quality was sometimes poor and most importantly, the salespeople were poorly trained and lacking in motivation. However, Amway changed all this radically and a significant change was brought in the field.

Amway was able to break the time tested and traditional distribution set-up of manufacturer-distributor-retailer-consumer. Within 11 months, Amway became the country's largest direct selling company and after two years of the commercial launch, Amway's distributor base crossed the 200,000 mark. Its strengths were clearly manifested in the aggressive product launch plans, its products which claimed to exceed consumer expectations, the ‘money back'policy, and a distribution network spread across 26 cities servicing more than 306 locations. In 1999, Amway reported a sales figure of Rs 100 crore. Reacting to reports stating this as a ‘below-expectations'figure, company sources commented that the concept of network marketing had not been a constraint for Amway. The then CEO & MD Bill Pinckney commented, “The direct selling model is not new to India. What's new is the structure. And while it's true that consumers do not rush in to buy an Amway product, network marketing works as a low-key approach and evolves over time.”

However, the problems like distributor attrition, a false ‘premium'image and customer dissatisfaction soon began surfacing. Amway could not sit back and let competitors like Oriflame, Avon and Modicare take advantage of its weaknesses.

[2] A sales catalog refers to a list of products/services provided by companies. These are sent to selected addresses. The consumers then place the orders based on the information provided in the catalog. The global catalog sales market stood at $ 87 billion in 1998.

2010, ICMR (IBS Center for Management Research).All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic or mechanical, without permission.

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