Published Editorial

Directly in the mix

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The Hindu Business Line

by

Dinesh Mishra
Advisory Director and Leader - Customer Practice
EY

Most people would agree that indirect channels are critical to companies. They provide reach, scale and even additional capital. I agree, however, ‘direct’ selling must always be in the mix and here’s why – when we communicate with those most important to us, we always do it ourselves by making time to express care, listen, show commitment and above all let them know we value them, so why then should we treat a company’s most important relationships any differently?

The key is to ensure the role of each channel is clearly defined and that all channel partners are secure in knowing the company will always be fair to them in ensuring they are rewarded for the share of risk they undertake. However, channel mix should be designed to ensure customer experience is just as the company envisioned it. This is where direct selling comes in. Think of it as a reference benchmark for customer experience that all other channels need to emulate as well as a company’s direct connect with its most valuable partners, its customers. At EY we have been tracking the evolution of the customer from being only a consumer to co-creator of products and solutions. Can business then afford to not engage directly with this valuable partner in a meaningful way?

To ensure you don’t get left behind in this evolution you must separate the sales process from the transaction itself. Let me explain: A transaction is a snapshot in time when the sale happens but the selling process is an engagement with the customer. It is this engagement that determines the customer experience and how they will feel about buying from your company, both now and in the future. The transaction can be owned by any channel that takes the related financial risk but has no bearing on the current or future sale. So direct selling only competes with others in the channel mix to improve the overall quality of the customer experience without conflict on commercial terms with the indirect channels.

According to a leading survey 96 per cent of unhappy customers don’t complain. However, 91 per cent of those will simply leave and never come back. Improved engagement with customers through direct selling will positively impact the way your customers feel about your brand, the intelligence you gather and the quality of your channel sales thus helping understand and resolve customer problems proactively.

The share and role of direct selling would need to be tailored depending on the product or service but there should be no doubt about the value of some proportion of direct selling in your channel mix.

The key benefits of direct selling include better customer intelligence, improved customer experience through setting standards directly and better support to channel partners especially on strategic clients and complex solutions.

Leading implementation models of direct selling include a pure direct sales channel where company manages logistics as well, direct sales as one of the sales channels (the most common form) and an indirect channel-led model where the company uses its direct sales personnel to engage directly with customers on complex solutions (all sales transactions are routed through the partner).

Having hopefully established the important role that direct selling plays in improved customer engagement through better customer experience, let us now look towards direct selling as a route to market, especially in emerging markets where it might be a struggle to find effective channel partners with the required reach beyond the key commercial centres. Latin America, for example, generated 8 per cent of total global retail and 26 per cent of direct selling. Conversely, Western Europe generated 26 per cent of total retail sales and 14 per cent of direct selling.

Route To Market

Direct selling in India, though under-developed, is growing fast (11 per cent CAGR for multilevel marketing itself). The combination of an under-developed store retail network, rising disposable incomes in the country’s significant population beyond tier 2 cities and some rural areas is a potent opportunity for direct selling in India. From 2001 to 2011, cities with more than one million population have gone up from 35 to 53 and towns with more than 1 lakh people from 394 to 468. According to some research reports, income levels in India are going to almost triple by 2025 and rural income growth is going to accelerate faster than it has ever done.

These markets could be addressed by both MLM models or through the use of online stores directly run and operated by the company. The distribution is outsourced to a logistics company. Today almost all leading brands are selling their products through a direct option online and overcoming challenges of reach supported well by logistics companies that are focusing on this type of business for their own growth. This is an interesting development coupled with “cash on delivery” that instantly provides pan-India reach to businesses, normally the bastion only of large FMCG companies that had the advantage of both immensely deep pockets and decades as a head start in building a distribution network. I suspect this will potentially change the landscape of available products and quality of customer experience in these regions and have a significant impact on current established players using conventional distribution channels for access here, but that may be a separate discussion in itself.

In closing, I think direct selling is often an under-utilised channel in a company’s channel mix. The more this is leveraged the better for everyone, company, channel partners and above all customers.

(Views expressed are personal).