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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A Dream Gone Awry Contd...

When used in the proper diluted form, the cost per use of each product worked out to be at par with (and in some cases, even lower than) the nearest competitor's products. For instance, the product named LOC (priced above Rs 320 for a 1-liter pack), when diluted gave around 165 bottles. The cost per usage was thus very low. Either the distributors were themselves not aware of this fact, or they were unable to communicate this to the customers. Since the distributors themselves were unsure about the price-value equation of the products they were selling, they could not effectively convince the consumers either.

Amway also had to contend with customers complaining of poor customer service on the part of the company. Analysts commented that as long as the volume of products that moved through the network was high, network market such as Amway were satisfied.

Even though customers complained of the lack of services, the company deemed it more beneficial to go for higher salesforce motivation programs rather than undertake customer service initiatives. This was largely due to the fact that the company was almost never involved directly with the end-consumers and the sales volumes were the end of all discussions.

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.

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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.