Big profits in direct selling

Photos By StoryPhotos GRACE CHEN

IF YOU think Tupperware parties, Mary Kay afternoons and cleaning machine demos are the domain of ladies of leisure, it is time to give the direct selling business a second look.

In 2011, Malaysia was ranked 10th in terms of sales turnover in the global direct selling industry. By 2012, the Direct Selling Blue Print launched by the Domestic Trade, Cooperative and Consumerism Ministry reckoned it will rope in some RM20bil in revenue by 2020.

By then, the average monthly income for an active independent distributor should be around RM3,800. At present, the approximate turnover for the direct sales industry for Malaysia in 2012 has reached RM10.5bil.

Direct Selling Association of Malaysia (DSAM) executive director Lawrence Cheah said the practice of direct selling where sales are conducted ‘door to door’ has been in this country from before the 1970s.

“The rotiman who delivers and sells bread is an example of direct selling. However, the structured form of direct selling probably came about in the 1960s and 1970s,” Cheah explained.

He cites several reasons for the popularity.

Firstly, it is an efficient method of delivering the goods or services to consumers without needing to leave the home. This cuts the costs incurred in the conventional retail model as there is no need for extras such as advertising and promotions, deliveries, rental of premises and staffing. Savings are thus passed on as bonus commissions to the distributors who sell the products.

Secondly, direct selling has always provided supplementary income in times of need.

“From factual records over the last five years, the increase in sales turnover for the direct sales industry is in tandem with the downward trend in the country’s GDP growth and unemployment figures,” said Cheah.

Lee Leong, 48, an automobile workshop owner who started the Malaysian chapter for Pro Aqua cleaning machines in 2008, was one who saw direct selling as a solution to address cash flow challenges.

“Our business capital was mostly stuck in spare parts inventory. Recovery time was slow because it was impossible to predict which part in a customer’s car would break down.

“By chance, a customer, Suresh Kumar Jeyaretnam, who had found out about the Pro Aqua cleaning machine online, approached me with a business proposal to use my house as a marketing base to recruit business partners and source for buyers. At that time, I was having a very bad bout of hay fever, which caused me to go into day-long sneezing fits, so I agreed to look at the demo, hoping that Suresh’s machine would help me breathe easier,” Lee recalled.

Impressed by its functions, Lee not only bought a unit but agreed to become the country’s sole distributor.

Starting up, however, was no walk in the park.

As the method of sale required Lee’s business partners to conduct demonstrations in customers’ homes, it would take a two-year-wait before he got his licence from the MTDCC. This was in addition to the stringent requirements of Sirim, which saw Lee sending five machines and investing some RM48,000 over the span of eight months into quality testing.

“They gave us the all-clear with a 66-page report,” said a satisfied Lee.

The next challenge was in finding business partners who could sell the machines. To kick start his recruitment campaign, Lee clocked in some 1,300km a day in a bid to woo aspiring candidates to the Pro Aqua camp.

Currently, Lee’s outfit boasts of 40 active business partners who conduct some 30 home demonstrations a day throughout the peninsula.

The potential average income per business partner is reported to be about RM20,000 per month.

Though the sales force is made up of males and females in a ratio of 8:1, the top performer is a female from Penang who stands only at 1.57m tall. She is assisted by her husband, who plays a main role in carrying the machines to the demos.

Cheah said the industry currently sees some 4.75mil independent distributors in Malaysia. Out of this number, 80% are made up of women who see this as a way to supplement household incomes and support their children for higher education.

Doreen Ngai, 58, who has spent the last 21 years building Brilliant Point by selling dietary supplements, lingerie and beauty and personal care, reckons direct selling has helped to empower a lot of women.

“In the past, a housewife was totally dependent on the husband for everything, even her happiness.

Today, the same housewife may be able to afford to buy her own house and drive a BMW via direct selling and discover her own worth,” Ngai said.

Starting with only 100 product distributors, it was Ngai’s late husband, Kwong Weng Kong, formerly of Amway, who got the ball rolling. While he travelled nationwide and sourced products from China and Taiwan, Ngai took care of administration and office affairs. In 1997, tragedy struck when Ngai’s husband succumbed to a rare viral fever. But before his passing, he had found the company its star product during a visit to a trade exhibition in China — a soy formula that began with a trial run of 3,000 packets. By the second shipment, they brought in a whole container (about 300,000 packets).

Ngai, who currently runs the show with her son Kwong Siew Kit, 28, recalled the unit price per pack was at RM14 and the sales commission to the distributor was RM 2.50 for every pack sold.

The marketing plan, which runs on a point accumulation system, has a first tier target of RM500 followed by RM1000 and so on. The reward system for top performers included incentives like bonuses, travel opportunities and a car as the grand prize.

At the moment, Brilliant Point has 80,000 registered product users and distributors who contribute to the company’s yearly sales of RM10mil. Of this, their best performer is still the soya formula which brings in some RM7mil a year in sales.

It has 10 branches including offices in Kuching, Sibu and Kota Kinabalu and these are used as meeting points to conduct sales seminars and product knowledge classes for distributors. Pivotal in centralising distribution operations is a 650.3 sq m warehouse in Batu Caves.

According to 2011 statistics from DSAM based on percentages of sales turnover by product range, dietary and herbal supplements are the top earners, followed by beauty products and home appliances.

The Chinese make up the majority of the direct selling distributors followed by the Malays. Of this, a majority are in the 40-49 age group.

Cheah said it has always been a challenge to educate consumers on how to differentiate legitimate direct selling with other illegal schemes that often come under its guise.

In 1993, the government enacted the Direct Sales Act 1993, to provide regulatory control for the industry. With this, the requirement of the direct sales licence came about.

This Act was eventually amended to the Direct Sales and Anti-Pyramid Schemes Act 1993 in 2011.

“Many illegal schemes use the multi-level marketing approach or network marketing model and pass themselves up as direct sellers. The difference is legitimate companies pay bonus commissions as a result of sales done by the distributors while illegal get-rich-quick and pyramid schemes pay commission from recruitment of members who pay exorbitant entrance fees.

“Illegal schemes do not offer a return policy and neither do they have a product that is of value or unique to sell,” Cheah concluded.

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