Amway's Indian Network Marketing Experience

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Case Details:

Case Code : MKTG003
Case Length : 9 Pages
Period : 1994 - 2000
Pub Date : 2001
Teaching Note : Available
Organization : Amway Indian, Eureka Forbes
Industry : Business Services & Equipment
Countries : India

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"Our biggest challenge is not how to expand the market in India, but how to convince the indifferent Indian consumers about the world-class quality of Amway Products. The quality of the product is Amway's strength."

- Sudershan Banerjee, CEO & MD, Amway India in 1999.

A Dream Gone Awry

In the late 1990s, the global direct selling giant Amway had to contend with increasing doubts regarding its survival in India. The company that had become synonymous with network marketing or multi-level marketing (MLM)1 the worldover was beset with problems. Media reports were quick to point out Amway's failure to sell the basic concept of direct selling to the Indians.

Though the company managed to rope in a substantial number of distributors, the attrition rate was at an alarming high of 60-65%. Most of the products that the distributors bought, they consumed themselves. Estimates put the percentage of self-consumption at almost 50-60% of the total volume.

Marketing Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies

(There were rumors that some distributors enrolled just to take advantage of the distributor's margin of 18-30%). In the initial stages, when trials were the only criterion, this worked well. However, this self-consumption did not translate into repeat purchases.

This was because the percentage of 'active' distributors at any given point of time remained at a low level of 35-40%. Many people who joined in the initial frenzy returned the product kits within the first month.

Company sources claimed that the returns constituted just 1% of the total strength, but rivals and ex-employees put the figure at over 5%. Of the total distributors, only about 10% showed reasonably high levels of activity.

To top it all, Amway was burdened with an image that had little basis in fact. Its products began to be perceived as being very expensive and meant only for the premium segment.

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1] The MLM system utilized a multi-tiered salesforce of independent distributors - none of them employees - to sell products directly to consumers. These distributors earned commissions at two levels - the first, the difference between the distributor's cost and selling prices, and second, a proportion of the commissions earned by other distributors recruited. MLM thus completely bypassed the retail chain and cut costs of the traditional distribution system.

A typical MLM setup began with the recruitment of a group of distributors who paid a registration fee and picked up product kits. Once these goods were sold, the distributors were given the next lot. The more a distributor sold, the higher the commission. Besides selling the goods, the distributors were also expected to hire new distributors for selling the company's products. The recruiting distributor also got an extra commission based on the sales effected by the distributors hired by him/her. As for the company, the compulsion on the part of the distributors to recruit more and more distributors led to its network penetrating very deep among the consumers. Also, the actual cost of marketing never exceeded 25% of the selling price on an average. As the distributor's primary commission was a mark-up on the selling price, the only outgo for the MLM team was the commission, which averaged at 9% and at peak levels stood at 21%. These distributo in turn, paid commission to the 'down-the-line' distributors out of their own earnings.

Fast moving consumer goods targeted at niche markets such as specialist cosmetics or premium fragrances were typically the most suitable for a MLM setup. Also, if the products were portable and needed to be demonstrated-vacuum cleaners for instance the personal interaction that MLM facilitated, helped a lot. Products, which were neither purchased very often nor very rarely, and were neither too expensive nor too cheap could be marketed well through this system.


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