Multi Level Marketing (MLM) was the fastest growing sector of the direct selling industry worldwide. In 1988, the total revenue generated by MLM was $ 12 billion, which doubled to $ 24 billion by 1998. The direct-marketing industry in India was about Rs. 6 billion in 1999. This was a growth of 62% over the previous year. In the pre-liberalization era, network marketing in India was usually in the form of various chit fund companies like Sahara India. These had a system of agents, who simultaneously mobilized deposits and appointed sub-agents for further deposit mobilization. Companies such as Eureka Forbes and Cease-Fire pioneered the direct selling system in the country with a sales force that was trained to make direct house- to-house sales. Oriflame International was the first international major to begin network marketing operations in India in 1995. This was followed by the entry of Avon India in late 1996. Tupperware, with product portfolio comprising plastic food storage and serving containers, also entered India in 1996. The direct selling industry in India was in its initial stages even in early 2001. Besides Amway, Oriflame, Avon and Tupperware, other players included Lotus Learning, LB Publishers and DK Learning, all selling books. 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 sales 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. Amway’s domestic operations fell into five areas - personal care, homecare, nutrition, cosmetics and home tech. The company introduced India-specific products, in pursuance of its go ‘glocal’ philosophy. Also, for the first time in its history, Amway utilized media advertising to promote its products. In the beginning, Amway had to deal with the negative attitude of many Indians to direct selling. Direct selling was typically seen as unwelcome, an intrusion into one’s privacy. This was true to a certain extent. Sales people often used a ‘hardsell’, the product quality was sometimes poor and most importantly, the salespeople were poorly trained and lacking in motivation. However, Amway changed all this radically and a significant change was brought in the field. Amway was able to break the time tested and traditional distribution set-up of manufacturer-distributor-retailer-consumer. Within 11 months, Amway became the country’s largest direct selling company and after two years of the commercial launch, Amway’s distributor base crossed the 200,000 mark. In 1999, Amway reported a sales figure of Rs. 100 crore. However, the problems like distributor attrition, a false ‘premium’ image and customer dissatisfaction soon began surfacing. Amway could not sit back and let competitors like Oriflame, Avon and Modicare take advantage of its weaknesses. Amway soon woke up to the reality that it had to take steps to put its MLM machinery back to the track. For this, it had to first identify where it had gone wrong. Amway realized that like most direct marketing networks, it had hoped to leverage the global promise of the lucrative business opportunity for its distributors. Though this made sense in the developed consumer markets of the West, in India, distributors also needed to know the value of the products they were selling, this aspect was overlooked by the company. One of the first ‘corrective’ measures it took was putting stickers on its products, which clearly indicated the number of usages very clearly. For instance, it introduced stickers on the packs of its car-wash solution to emphasize the number of washes that a consumer could get per bottle. The idea was to firmly establish the fact of Amway’s products being highly concentrated and with very low per usage cost. This practice was later expanded to other products as well. Amway realized that a complicated market such as India needed a focused approach for each of the product categories. To strengthen its product focus, Amway set up strategic business units. Thus, though Amway had centralized marketing of all products worldwide, its Indian arm appointed category managers for individual product categories. Amway also decided to focus on the market in the smaller towns. Quick expansion of the distribution network to smaller towns was identified as a major tool to offset the impact of attrition. The gameplan was to reach consumer homes all over directly by making the current distribution system more effective and decentralized. In early 1999, Amway realized that servicing distributors in 160 cities through its 13 locations was curbing growth due to unavailability of critical infrastructure like networked banks, toll-free phones and multi-service courier companies. The cost of making long-distance calls, the courier companies’ refusal to accept cash and the time taken to deliver products were the three major hurdles that Amway faced. The typical direct selling system comprised a central warehouse located close to the manufacturing locations, which sent the products to regional hubs like the metros and then on to the branch offices. As opposed to the traditional FMCG delivery setup, where the distributors or retailers carried inventory, here it was taken care of by the company warehouses and their region-specific distribution centers. Long distance calls and courier companies took care of distribution in cities where the company had no presence. However, with these facilities not being up to the mark, Amway decided that it had to effectively handle these issues and rapidly expand its offices in order to capture the growing direct selling clientele in the country. The company also decided to give incentives to cost and freight agents (C&FAs) who could deliver parcels in the same city within 48 hours outside, in about 72 hours. Amway then planned to tap unemployed youth in smaller towns by subsidizing the entry fee for the starters’ sales kit. Amway also offered to finance the sales kits through interest-free loans. It even gave free kits to visually impaired youth in Rajasthan. But media reports were skeptical about Amway’s strategy to use localized strategies for its global products. In a bid to make its products more affordable, Amway introduced value-for-money ‘chhota (small) packs’ in December 1999. The sachets significantly boosted sales. Sachets had two advantages – they helped Amway shake-off the ‘super-premium- products-only’ tag, and with their lower prices invited consumers from lower income levels to try the products. This was expected to promote brand penetration. The most significant of Amway’s Indian initiatives were its ‘Indianisation’ efforts. The company started printing Hindi slogan ‘Hamara apna business’ (our own business) on its stationery. The company’s first product line, Persona, was created specially for the Indian consumers. Amway even named its expansion drives as ‘Operation Gaadi’ and ‘Operation Ghar.’ Operation Gaadi was launched in east-Uttar Pradesh where a store was mounted on a truck and made trips to different regions on different days. The project was later extended to West Bengal as well. Operation Ghar was primarily designed to provide better service to the customers as well as to its large family of distributors. Involving an outlay of Rs 15 crore in its Phase I, Operation Ghar eventually covered 19 state capitals. Operation Ghar was designed to provide five Es - ease of ordering, ease of paying, ease of receiving, ease of returning and ease of information/operations. Amway also utilized the Internet and electronic kiosks to hook up with its distributors and give them information. By 2004, Amway planned to become a Rs 1000 crore company with a physical presence in 198 centers across India. As part of its plans to tap unexplored markets, Amway announced an ambitious expansion of its distribution infrastructure in Andhra Pradesh, which included setting up a warehouse. Once the marketing business in urban areas was strengthened, Amway planned to turn its attention to untapped rural areas as well.

1. Comment on the concept of network or multilevel marketing. Do you think the model would be successful in India? Also, compare and contrast the MLM model with the traditional distribution system, bringing out the merits and demerits of both. 2. Critically examine the corrective measures adopted by Amway to make the MLM model a success. What further measures can the company take in order to tackle the competition from FMCG majors like HLL and P&G?