Amway's Indian Network Marketing Experience

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Themes : Direct Marketing
Period : 1994-2000
Organization : Amway Indian, Eureka Forbes
Pub Date : 2001
Countries : India
Industry : Business Services & Equipment

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Case Code : MKTG003
Case Length : 9 Pages
Price: Rs. 300;

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Picking Up the Pieces

Amway soon woke up to the reality that it had to take steps to put its MLM machinery back to the track. For this, it had to first identify where it had gone wrong. Amway realized that like most direct marketing networks, it had hoped to leverage the global promise of the lucrative business opportunity for its distributors. Though this made sense in the developed consumer markets of the West, in India, distributors also needed to know the value of the products they were selling, this aspect was overlooked by the company.

One of the first 'corrective' measures it took was putting stickers on its products, which clearly indicated the number of usages very clearly. For instance, it introduced stickers on the packs of its car-wash solution to emphasize the number of washes that a consumer could get per bottle.

The idea was to firmly establish the fact of Amway's products being highly concentrated and with very low per usage cost. This practice was later expanded to other products as well. Amway realized that a complicated market such as India needed a focused approach for each of the product categories. To strengthen its product focus, Amway set up strategic business units.

Thus, though Amway had centralized marketing of all products worldwide, its Indian arm appointed category managers for individual product categories. Amway also decided to focus on the market in the smaller towns. Quick expansion of the distribution network to smaller towns was identified as a major tool to offset the impact of attrition.

The gameplan was to reach consumer homes all over directly by making the current distribution system more effective and decentralized. In early 1999, Amway realized that servicing distributors in 160 cities through its 13 locations was curbing growth due to unavailability of critical infrastructure like networked banks, toll-free phones and multi-service courier companies. The cost of making long-distance calls, the courier companies' refusal to accept cash and the time taken to deliver products were the three major hurdles that Amway faced.

The typical direct selling system comprised a central warehouse located close to the manufacturing locations, which sent the products to regional hubs like the metros and then on to the branch offices. As opposed to the traditional FMCG delivery setup, where the distributors or retailers carried inventory, here it was taken care of by the company warehouses and their region-specific distribution centers. Long distance calls and courier companies took care of distribution in cities where the company had no presence. However, with these facilities not being upto the mark, Amway decided that it had to effectively handle these issues and rapidly expand its offices in order to capture the growing direct selling clientele in the country.

The company also decided to give incentives to cost and freight agents (C&FAs) who could deliver parcels in the same city within 48 hours outside, in about 72 hours. Amway then planned to tap unemployed youth in smaller towns by subsidizing the entry fee for the starters' sales kit. Amway also offered to finance the sales kits through interest-free loans. It even gave free kits to visually impaired youth in Rajasthan. But media reports were skeptical about Amway's strategy to use localized strategies for its global products.

This 'gamble' as Amway's biggest test case the world over, they remarked. In a bid to make its products more affordable, Amway introduced value-for-money 'chhota (small) packs' in December 1999. The sachets significantly boosted sales. Sachets had two advantages - they helped Amway shake-off the 'super-premium-products-only' tag, and with their lower prices invited consumers from lower income levels to try the products. This was expected to brand penetration.

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