The term Direct Selling has evolved over the years. The first vacuum cleaner I ever bought was sold directly to me by a door-to-door salesman. Seriously! It was a solidly built (not lightweight plastic) Electrolux. (That’s the exact model and colour in the photo.)
So, that is one definition of direct selling – where a sales(wo)man or agent sells directly to the customer. In this business model the company holding the stocks of the product might sell directly to the agent who would resell the item to the end user under the agent’s name. However, the company manufacturing or importing the products would also sell through retail shops.
If we look at this model in that way, we can already see that, whether the selling is done through a retail shop or a private agent or salesman, it is multi-level selling: from company to agent/associate/distributor, and from the distributor to the end-user. This is how some of those party-plan systems work or used to work. I can remember the plastic kitchenware parties the ladies would have, and the linen parties, the jewellery parties, and so on. There would be a person who had the role of the party-plan order taker, who bought directly from the company once she had received the customers’ orders and the cash from the hostess of the party.
Today, however, Direct Selling as used by Direct Selling companies usually means something different. It means, simply, that the company does not sell through retail shops but only directly to individuals. The individuals may be resellers, associates, or end-users, depending on which system the company uses.
If a customer can buy directly from the company, then the consumer is engaged in Direct Buying. If that customer can also resell the product or service, they s/he is engaged in Direct Buying and Direct Selling.
A Network Marketing company, for example, sells its products or services directly to its own customers instead of via a multi-level chain of supply – distributors, wholesalers and retail stores – where a profit mark-up is added at each level to cover each level’s expenses in respect of product inventory carry (stock), marketing, selling and delivery, administrative overhead costs, and so on, and to make a profit.
So, with a network marketing company those marketing and distribution costs become available for utilisation in other ways, the most significant way being to allow its own customers to earn an income by doing the marketing on its behalf. But instead of paying an upfront fee to the customer for doing the marketing – whether or not that customer’s efforts yield results, the company pays its marketing associates (customers) based on results — i.e. sales by the company that can be attributed to the customer’s own marketing efforts.
Often this personal marketing is done via recommendation to one’s own network of family, friends and other contacts. It is sometimes called network marketing, or referral marketing, where it is recommended to such prospects that they try the company’s products for themselves.
If one those prospects registers with the company to buy directly, then the referring customer or associate is paid a commission or rebate calculated as a percentage of that new customer’s purchases. In network marketing, the referring customer is paid again whenever their referred customer buys again.
This is why it is important for the whole business model for the products to have two key qualities: They should be consumable, so that there are ongoing repeat purchases, and thefore ongoing repeat earnings for the referring customer.
They should be unique and/or of better quality than any alternative brand, to cause customers to want to use that company’s brand.