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NMBJ 9 September 2008 Publisher's Perspective 663 views No Comment Print This Post  Email This Post

By Dr. Keith B. Laggos

Even the Direct Selling Association (DSA) is reporting a three to six percent decrease in the direct sales industry. This decrease announcement is the first after 15 consecutive years of increases, with most years claiming a double-digit increase. The DSA membership may not reflect the industry as a whole. The majority of the DSA corporate membership is small party plan companies. These companies are disproportionably down. However, many of the old, mainline companies are slipping fast too, including Mary Kay, Avon and Amway.

I recently heard an Amway/Quixtar television commercial stating that Amway is a $3 billion corporation. As impressive as this is, I can remember a few years back when Amway boasted itself to be between a $6 and $7 billion company. A reliable source, reported that Melaleuca is experiencing a record number of autoship cancellations from people who have been on autoship for many years. They seem to be canceling, not because of any dissatisfaction with Melaleuca’s products, but simply having to make tough choices. Families are struggling to keep their gas tanks full, food on the table, while paying mortgages and minimum payments on their credit cards. They simply have to cut someplace.

Back in February, I wrote and published a “Publisher’s Perspective” calling for the direct sales industry to adjust to the economic conditions in which we find ourselves. I wrote this while others were still promoting an industry upswing. They still held tight to the axiom that the direct sales industry moves opposite to the economy. This axiom is based on the assumption as the economy slows and people are being laid off, receiving less overtime and have less options for income, they turn to direct sales/network marketing opportunities to earn the extra money needed. To be fair, this axiom has demonstrated historically to be accurate. But economic conditions are different this time around.

As with past economic slowdowns, available disposable income has been greatly reduced. However, in the past people were able to invest in a direct sales/network marketing income opportunity by drawing upon credit. This option has been greatly reduced. Let me summarize the present economic situation in which many families find themselves.

What families are facing

Gasoline prices have about doubled within just a year. This alone can result in as much as a $200 average monthly expenditure increase. Food prices are increasing rapidly. One report said that the average family of four is having to spend between $100 and $125 more a month for food. In fact, the only thing decreasing are families’ home values. This has greatly limited one source of credit, home equity loans, that has been available to prospects. The consumer is over leveraged in consumer credit, including credit cards. Many families have their credit cards maxed out and cannot obtain more credit. Some families had interest only and/or short-term ARMs (adjustable rate mortgages) that have come due and are forced to either pay higher rates, sell their homes at a loss or face foreclosure. In February, the number of foreclosures had a record increase of over 15 percent. Even after considering that many of the foreclosures were a result of speculators, this left tens of thousands of families’ finances devastated.

To put it simply again, many families in these economic conditions just don’t have any disposable income or the ability to use credit to finance an income opportunity. Families don’t even have enough income for discretionary purchases. They must maximize the value of each expenditure.

Another reliable source reports that XanGo’s U.S. juice sales have been flat for almost two years. It is not that XanGo’s juice is not a valuable source of nutrition. It is. However, if you are not receiving income from the XanGo opportunity to offset the cost of a bottle of juice, many families have to make a tough choice of trading off superior nutrition in order to fill their bellies.

Simply put, in these economic times direct sales/network marketing companies must offer more than innovative, high-quality products. They must offer value. This is not a new concept to this industry. When I started in direct sales as a distributor with Amway, its lead product was a detergent, LOC. It boasted that it offered a great value. Although it cost more, it was highly concentrated and required less to be used to obtain better results. It also had no fillers. Most other detergents were using corncobs as a bulk-building filler.

This made Amway’s concentrated detergent cost less per load and could save in repairs to the washing machine too. Amway’s detergent was sold based on quality and value. Gas additives are now making a big comeback in network marketing. With the rapid increase in gasoline prices, families are seeking any way possible to cut fuel costs. Network marketing gasoline additives can save several times more in fuel costs than the additives themselves cost. They are providing good value.

Increase value, lower prices

The direct sales/network marketing industry must continue to offer high-quality, innovative products but must also find a way to offer them at affordable prices, which provides great value too. Companies must trim overhead and lower prices. If they don’t, volumes will fall. This will force companies to cut overhead, but won’t reduce the rate of decrease.

As Amway, Avon and Mary Kay have been doing recently, network marketing companies need to increase their marketing. However, as I explained in last month’s “Publisher’s Perspective,” you must get the most out of your marketing dollars. Mass marketing to the general public is expensive and ineffectual. You should use mediums that are highly targeted to your products and others to your opportunity. Your message needs to promote product value and quality or affordable opportunity.

Companies also should make entry cost to the opportunity as low as possible without any penalty or loss of income potential. Simply put, people need to make money without having to spend more money they don’t have. If we can help them do that, more families in need will turn to our opportunities.
Distributors need to understand that lower prices will at least proportionately reduce gross profits and override commissions. Wise distributors will be willing to forego some bonus pools, etc., to help offset price reductions for the company. This does not necessarily result in less net income for the distributor. Currently, many companies are experiencing growing rates of attrition. This requires higher marketing cost and effort by distributors just to maintain status quo. A lot of leaders are finding their checks decreasing in spite of their efforts. If lowering prices and increasing value slow attrition and increase the attractiveness of our products and opportunities, then distributors’ net income may be maintained or even increase.

Simply put, in tough times, to make more money, you need to be able to sell a greater value for less to more people.

Keith Laggos has been in the direct sales industry for 37 years, half of that time as a successful distributor. He is one of only three people worldwide chosen for the Hall of Fame Award. He is president of a 23-year-old, multi-level company, which he founded. He is a board member of an industry association as well as other companies, an expert witness and an industry consultant.

His publishing company is the largest in the industry and produces Network Marketing Business Journal (NMBJ), formerly Money Maker’s Monthly, the first direct sales college textbook, Direct Sales – An Overview and Higher Than The Highest Mountain, an inspirational, warm and humorous fictional account of how a Christian family’s love and faith overcome all while facing everyday challenges in today’s society. It also provides a positive example of how network marketing helps families at various aspects and junctures of their lives. Most recently, he has published How to Recruit & Sell in an Over-commercialized Society, a how-to textbook on marketing. The MLMIA, “the association for network marketing,” has awarded Laggos and NMBJ’s predecessor Money Maker’s Monthly, several prestigious awards, including its Global Vision Award, Supplier of the Year and President’s Spirit Award, among others.

Laggos has also been published and quoted in other publications and academic journals around the world. Laggos has a bachelor’s degree in math and computer science, a master’s of business degree in management and marketing, a master’s degree in economics and a doctorate (abd) in public policy analysis and a doctorate in business economics.

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