Why direct sales is expanding and replacing traditional marketing models

If you have not noticed more products and services are being introduced to consumers by direct sales. Just a few years ago there was a hand full of products that were introduced by direct sales. The model was very effective for introducing products to consumers in competitive markets that offered a something different. This track record of bringing new products to consumers quickly for less money has captured the eyes of companies in almost every sector. Initially this model was very effective for introducing personal care and nutritional products. Recently this was expanded to include finance, telecom and technology.

Direct sales is truly a love hate industry but an industry that is quickly capturing the attention of companies struggling to compete in a world economy. Because many new products are being delivered by this model consumers are adjusting to the concept of being introduced to new products in this format almost without knowing its happening. I predict that over the next 5 years a significant portion of our spending habits will be dependant on direct sales and here is why.

Companies are adopting this model for three major reasons:

• Advertising is a significant expense to the bottom line. Companies spend millions of dollars each year promoting their products over traditional media outlets like TV, Radio, and in print. With the introduction of Internet they are directing some of their advertising dollars into this new format which includes lower cost pay-per-impression model and email advertising.
• Product competition from foreign markets is eating into profits. World markets are creating competing products in almost every industry and it is becoming difficult to compete. When products are placed back to back on the same shelf, brand recognition becomes more important. At the same time sales are lost to less expensive generic brands placed strategically next to traditional brands.
• Brand recognition sometimes makes it impossible to compete against higher end products. Years of advertising and brand recognition of products make it difficult to introduce a new product regardless how much better or different it is. Especially when it is placed on the shelf right next to the well known brand.

Direct sales provides companies the ability to deliver products with very little spent on advertising and the money paid to the distribution channel and retailer is then paid to the direct sales network in the form of commissions. This allows companies to quickly spread the story of their product and a shortened marketing timeline. Marketing teaches us that consumers need to hear and or see a product 20-30 times before they recognize the product or why they need it. Introduction by word of mouth advertising drastically reduces this lead time.

This is a win-win business model.

It is staggering how quickly a new product can be introduced by this business model. I have witnessed many product sales exceeding over 1 million dollars per month from inception to initial launch. Only huge distribution companies and channels can launch products that quickly and this is after spending millions on advertising and sampling.

Make no mistake about it, direct sales is here to stay and it will continue to expand into other industries over the next few years as more companies adopt the business model. The question is who will be smart enough to position themselves in front of this opportunity and who will wait until the industry is saturated to jump on board. The winners are the people that recognize an opportunity when it is fresh and new. The 5% that make things happen.