Brilliant Compensation

|

Dr. King and Tim Sales

Tony Robbins Understanding How The Mind Works

How to shape your destiny...it all begins with a thought!

Watch your thoughts, for they become words. Choose your words, for they become actions. Understand your actions, for they become habits. Study your habits, for they will become your character. Develop your character, for it becomes your destiny!" People are often unreasonable, illogical and self-centered; Forgive them anyway. If you are kind, people may accuse you of selfish, ulterior motives; Be kind anyway. If you are successful, you will win some false friends and some true enemies; Succeed anyway. If you are honest and frank, people may cheat you; Be honest and frank anyway. What you spend years building, someone could destroy overnight; Build anyway. If you find serenity and happiness, they may be jealous; Be happy anyway. Give the world the best you have, and it may never be enough; Give the world the best anyway. You see, in the final analysis, it is between you and God; It was never between you and them. Live today as if its your last day. Live for God and never dwell on the past. Pray for the negative people and embrace the positive ones. Associate with the elite, then dominate them. Never let fear control you. Let others fear you. Brace for the surface, and indulge in the heart. Infiltrate others emotions and utilize them to your advantage... Success is Yours!!

How to have Your Best Year Ever

Tony Robbins explains the story of Sylvester Stallone

In case you missed "The View"

Corporate America's New Salesforce!!!

Despite the sputtering economy, independent contractors are reenergizing the U.S. retail industry through the art of direct selling.

Robust cash flow. An army of salespeople. Loyal customers. Minimal overhead. The ability to bypass the relentless demands of traditional mass retailing. Those are just some of the attributes of direct-sales companies, which rely on independent contractors to sell everything from lipstick to long-distance service directly to customers.

It's no wonder, then, that such major players as Berkshire Hathaway and Binney and Smith have recently entered the world of direct selling. "I think it's the most effective form of selling in the world," says Roger Barnett, whose Activated Holdings, the private investment company of a highly successful family, recently signed a letter of intent to buy Unicity Network, a seller of nutritional supplements based in Orem, Utah.

Call it the age of direct selling. With its emphasis on personal, one-on-one relationships between distributor and customer, convenience, and a high degree of consumer education, the industry may be tailor-made for today's consumer and company. The result: The industry, with U.S. sales of $28.7 billion in 2002, up 7.5% from the year before, has become a magnet for both corporate behemoths lured by its efficiencies and dozens of entrepreneurs attracted by the lower cost of market entry. At the same time, the industry continues to offer a unique blend of empowerment and inspiration for the 46 million distributors operating around the world. Says Neil Offen, president of the Direct Selling Association (DSA): "The industry has come of age."



Yet the public image of direct-selling companies is largely negative. Studies by the DSA show that many consumers don't trust the industry. What's more, unethical players still exist. Some 25 years ago, so-called cooling off laws put an end to the use by salespeople of high-pressure tactics, by giving consumers three business days to cancel any purchase at home of more than $25. But they didn't address another fraudulent practice pyramid schemes, which require that distributors make substantial investments in products before signing on, without giving them their money back if they leave. To address these issues, the DSA has launched a major image-enhancement and anti pyramid scheme campaign (see "A Principled Approach to Business," page S16). "Since we operate mostly as guests in people's homes, we should adhere to the highest of ethical standards," says Offen.

Proponents of direct selling view the public's skepticism as a natural part of the development of any retail channel. Direct selling as we know it today hasn't been around for all that long. It really got its big boost in the '40s and '50s, when Tupperware Corp. refined the party-plan method and made Tupperware parties a part of the lexicon. "Every form of retailing, including the first department store in Paris, has been controversial, and eventually became a valid, acceptable form of commerce," says Barnett. "In a similar way, direct selling has evolved."

Barnett should know. Earlier this year, he agreed to buy Unicity from Royal Numico, with the intention of turning the company into a "multibillion-dollar player." By doing so, he joined a host of other major corporations that also recently entered the area. Last year, for example, Warren Buffett's biggest purchase was The Pampered Chef, a kitchenware supplier based in Addison, Ill. Hallmark's Binney and Smith is launching its own direct-selling company, called Big Yellow Box by Crayola. Unilever plans to start a direct-sales firm to sell cosmetics in South Africa. Other companies already in direct selling range from AOL Time Warner (parent of FORTUNE's publisher) and Sara Lee to the Body Shop and the Virgin companies.

Still, the backbone of the industry remains smaller players and entrepreneurs companies like Country Bunny Bath & Body, based in Nixa, Mo. The company, which sells soaps and gels, was started three years ago by husband and wife Ron and Nancy Bogart. Their story is typical. A full-time mother at home with three children under the age of 10, Nancy Bogart decided she needed an outlet. She started attending crafts fairs to sell her home-grown soap and bath products. The response was so positive that she realized she had stumbled onto something big. With the help of five other stay-at-home mothers, she started making products in her living room. On the advice of a friend, she decided to adopt the direct-selling method, in part, says Ron Bogart, "because she saw how this could benefit the sort of stay-at-home mom she was." The company has now recruited about 3,700 distributors and expects more than $5 million in revenues this year.

For Country Bunny, as well as many other companies large and small, one key ingredient to success is the compensation system. Most direct-selling businesses now employ a multilevel system, in which distributors earn money on their own sales in addition to those of people they recruit (called the "downline") and individuals brought in by their personal recruits. That's different from the single-level approach, in which you only make money on your own sales. In 1990, about 20% of DSA members in the U.S. used the multilevel plan; today, it's about 80%.

Avon Products, the New York-based beauty company, put a significant focus on multilevel compensation four years ago; thanks in part to that change, last year sales rose 4%, to $6.2 billion, and profits were $534 million, an increase of 20%. "Before, if you wanted to earn more, you sold more," says Brian Connolly, president of Avon-North America. "Now we can offer a tremendous earning opportunity. Multilevel marketing is at the center of the transformation of Avon."

At the same time, of course, no two company's compensation plans are alike. For example, Nu Skin Enterprises, a seller of hair, body, and skin-care products and nutritional supplements based in Provo, Utah, allows its 550,000 distributors to make money on six successive generations of recruits, while many others only allow three. Even companies using the single-level system don't use a one-size-fits-all approach. At Home Interiors & Gifts, a Dallas-based company that sells products for the home and employs a single-level plan, 3,000 of the 80,000 reps are licensed trainers; that means they earn money from sales made by people they trained.

To keep up with changing times, some of the more established companies are making other changes as well. To address consumers' time-starved lives, Tupperware, for example, recently reduced its parties from three hours to one hour and 15 minutes and, to rev up its image, introduced such innovations as "decadent and delicious" chocolate parties. Four years ago, Avon embarked on a major campaign to transform its image, stepping up R&D, increasing advertising, introducing new health and wellness products such as nutritional supplements and stair steppers, and repositioning itself to be what it calls the "company for women." This year it plans to launch "Mark," a new line of products for 16- to 24-year-old women. "We're making Avon more relevant to the next generation of women," says Connolly.

The Industry's Lure
What exactly are the benefits of direct selling? For one thing, it's cheap to enter. Distributors, who go by a range of titles depending on the company, are independent contractors conducting business largely in customers' homes, so overhead is minimal. Plus "there are no retailers or wholesalers to nurture," says Thomas Wotruba, emeritus professor of marketing at San Diego State University. The result: a lower cost to acquire new customers. Greg Provenzano, president of ACN Inc., in Huntersville, N.C., which sells telecommunications services, says his company's cost of bringing in new customers is 50% to 75% less than in telephone companies selling through more traditional methods. Another result: Companies take in 45 cents to 50 cents on the dollar that they sell. "These companies are cash machines," says Offen.

What's more, companies don't need big advertising budgets to push products and build a brand; instead, they rely on the powers of persuasion of thousands of distributors dealing directly with potential customers. "In our industry, you might spend $100 million on advertising and only get ten customers," says Joe Mitchell, CEO of Excel Telecommunications Inc., a Dallas-based seller of telecommunications services. "But with our system there's no guesswork. We're spending our advertising dollars on commissions."

Consider Fridge Smart, a product to store fruits and vegetables that Tupperware introduced in 1999, after working with agronomists at the University of Florida for two years to develop it. "We were able to start selling that product within two weeks of introducing it to the market," says CEO Rick Goings. "All without any advertising budget at all." It's now among Tupperware's top ten selling products.

In fact, the ability to introduce new products is one of the key benefits to direct selling. In today's crowded retail environment, it's become a Herculean task even for the biggest companies to convince retailers to carry innovative products. "If you can get in the store, salespeople still might not have a clue your product is even on the shelf," says Truman Hunt, president and CEO of Nu Skin Enterprises. The industry is filled with examples of innovations that would most likely never have been accepted in a traditional retail environment. Earl Tupper, who invented Tupperware and started the company in 1946, turned to direct selling when he had trouble convincing regular retailers to carry his products. When Forrest Shaklee, a nutritional supplement pioneer and founder of the Shaklee Corp., tried to sell stores on the value of supplements, he mostly got the cold shoulder; it was, after all, the era of synthetic products. So in 1956 he decided a direct-selling force able to educate consumers about his product was the only way to go.

It's that educational component, the process of explaining and demonstrating products in a way virtually impossible in other retail methods, that gives companies a uniquely effective, hands-on way to sell products. Distributors spend anywhere from one to four hours sitting down with customers, not only discussing their products' attributes but literally teaching how to use them.

Case in point is Creative Memories, based in St. Cloud, Minn. It sells materials for putting together photo albums. But in fact company distributors do a lot more than that. They run two-hour classes in people's homes in which they go over every step, from adhering photos to the page to writing comments by each picture, a process they call journaling. At the end of the meeting, customers leave with two completed album pages. "People are afraid their handwriting isn't good enough, but we teach them they're creating memories that will last," says Heidi Everett, community relations director. "If they put the album in a closet after we've gone, we haven't done our job." The upshot: Sales of the ten-year-old company are over $300 million.
All that explaining also helps companies get higher price points. "When consumers shop for products in stores, price is what they're looking for," says Tupperware's Goings. "But customers don't think something is expensive once you explain what it is and what it does." Richard Bizzaro, CEO of Unicity, points to a nutritional supplement called Visutein, aimed at eye care. Introduced in 2001, it includes a higher-than-usual amount of a vital—and costly—ingredient, leutein, and sells for a whopping $49.99. "You could never put that on a shelf at that price," he says.

"But with direct selling, we can explain to customers why it's important for the product's efficacy to include that ingredient and why the product is so expensive." The product is one of the company's top sellers.

Customer Loyalty
Ultimately, distributors are able to develop the kind of one-on-one, intimate relationships with customers that most retailers would kill for. "It's the ultimate goal, the purest form of sale," says Barnett of Activated Holdings. The result is a kind of mass customization, as companies are able to tailor their messages down to the level of the individual consumer. In some cases companies are using technology to further refine that process. What's more, thanks to the strength of these relationships, customers stick around.

"You get tremendous brand loyalty and repeat business," says Avon's Connolly. That's especially useful in such industries as telecommunications, where customer loyalty is particularly fickle. Customers of ACN stay 30% to 60% longer than those of competitors, according to Provenzano. "We keep customers for more time because of these relationships," he says. That loyalty has helped fuel company growth; revenues for last year were $280 million, up 31%, and this year Provenzano expects sales to increase to $460 million.

Those close interactions also provide an immediate mechanism for feedback, a grassroots-level forum for determining customer reactions, complaints, and desires—and acting on them. "They're like a series of focus groups," says Tupperware's Goings. As a result, companies often find out quickly about problems or questions that need to be addressed, and can respond swiftly. For example, Nu Skin recently introduced a new kind of toothpaste. Almost immediately, however, distributors reported that customers were complaining about the packaging; the lid, it turned out, was next to impossible to remove. The company responded right away and rejiggered the design to make it easier to open.

"We've done everything from reformulate products to change packaging design," says Hunt. "And if we mess up, we hear about it very, very quickly." Many companies also have institutionalized methods for gathering and acting on this information; senior field directors at Tupperware, for example, meet every six weeks to toss around ideas and provide field reports.

A Passionate Corps D'elite
Perhaps the most unusual feature, however, is the development of a committed sales force. "People are truly passionate," says Lori Bush, president of the Nu Skin division of Nu Skin Enterprises. That passion comes in large part from the opportunities that direct-selling companies offer their distributors. In most cases, distributors come from every strata of society, from college professors to housekeepers. Requirements of entry are no more than a willingness to work hard and an investment in a starter kit. "This business is unique in its ability to impact our distributors' lives directly," says Nu Skin's Hunt. "It comes down to, Can you sell? Do you have the discipline and the desire to do it?"

Take Avon representative Lisa Wilber of Weare, N.H. Back in 1990, Wilbur was laid off from her $15,000-a-year secretarial job, living in a 12- by 70-foot trailer with her husband, and trying her best to stave off creditors. Then she decided to sign on with Avon. Over the past ten years she's made more than $1.4 million in bonuses, and she is No. 4 in the country in earnings.

The fact is, however, that not every representative makes nearly that much money—or wants to. Many reps, most of whom are women, get into the business with the intention of working part-time or even, say, earning a little extra cash around the holidays. Or they crave social contact or simply want a way to buy their favorite products at wholesale prices. That's why rep turnover rates tend to be 50% or higher.

Money is only part of the attraction for reps. What most direct-selling companies have discovered is the importance of providing public recognition to people for a job well done. So they've perfected the art of establishing reward systems for distributors. And they don't all mean more money. Avon's Wilber, for one, has earned 15 trips and enough trophies to fill nine bookcases.

Consider Mary Kay Inc. The Dallas-based beauty products company has established the model for employee recognition in the industry. There are 15 steps where recognition occurs, from entry-level "beauty consultant" to top national sales director. Each step is determined by the number of recruits and amount of sales a representative achieves. Some mean bigger commissions, but others involve quite different rewards, from the famed pink Cadillac's to the applause of their peers and a pink rose. Thomas F. Whatley, president of global sales and marketing, says Mary Kay "was an expert in the area of extending the everyday courtesy of letting people know they're doing a good job."

Mary Kay's guiding philosophy, revolutionary for the time of the company's founding in 1963, is providing women with a feeling of self-esteem by giving them the chance to become independent moneymakers. This is not unusual. Most successful direct-selling companies are built on a strong, specific mission. Shaklee's is the importance of creating products that combine the best of science and nature. Creative Memories' is helping people pass memories on to future generations. The Pampered Chef's is to sell products that help families interact over meals.

In fact, it was the company's deeply ingrained philosophy that helped Mary Kay thrive, despite its founder's debilitating stroke in 1996 and her death five years later. As part of a conscious strategy—what Whatley calls the "world's most sophisticated succession plan"—Kay created a system that institutionalized her personality and mission. Among other things, she developed a top tier of distributors who would have learned her methods and approach so thoroughly by the time they reached that spot that they could easily lead the rest of the company's more than one million reps worldwide when she died. Today, there are more than 180 of these women in the U.S. "You have to be dedicated to Mary Kay's mission," says Whatley. "These are the Mary Kays of today."

Global Expansion
Like all industries in the retail sector, direct selling has gone global. A range of forces have been behind the trend, from use of the Internet to the boom in entrepreneurialism in all parts of the world. As a result, global expansion among direct-selling companies has become the norm. Over 80% of the DSA's 150 U.S. members operate overseas, compared with 20% in 1980. Total global sales in 2002 were $85 billion, up from $78.7 billion the year before. "Most of our companies go international in their first few years in business," says Offen.

Of course, this expansion has also boosted sales and profits at companies considerably. At Avon, for example, approximately 60% of net sales and operating profit come from outside North America. Its fastest-growing region, Central and Eastern Europe, had sales of $544 million, up 48% from 2001. And, of course, these moves have created a growing opportunity for distributors worldwide. Total global sales force has grown from 14.9 million in 1993 to 46 million last year.

Still, establishing operations overseas has its unique challenges. For starters, since distributors operate in people's homes, they must address the specific cultural differences in each country in an especially intimate way. Take Creative Memories. When it entered the Japanese market, the company realized its usual mode of operation—six to eight customers, each working on their own 12- by 12-inch photo album—wouldn't work in the typical tiny Japanese home. The company recently decided to cut class size down to no more than three customers.

As for recruiting and training distributors, for the most part companies put a knowledgeable person in charge in a region or country to get the ball rolling and target a few initial recruits. After that, reps generally tap family, friends, and neighbors to become part of the downline. Tupperware, which operates in more than 100 countries, for example, introduces a managing director in each country or group of countries it enters; they then pretty much replicate the basic recruitment system wherever they are.

Industry experts concur that the trickiest overseas market to crack so far has probably been China. In 1998, the government, which had previously welcomed such companies as Amway, Avon, Mary Kay, and Torrance, Calif.-based Sunrider, a seller of nutritional supplements and personal care and household products, banned direct-selling companies, only allowing them to stay if they sold through more restricted operations. Thanks to a recent agreement with the World Trade Organization, the government agreed to allow direct-selling distribution by 2005. Of course, expansion into the huge Chinese market inevitably will give a significant boost to industry growth. Indeed, in this new borderless global marketplace, direct selling has found its place in the business landscape.
— Anne Field

Automating the Sales Force
Technology can empower legions of grassroots marketers. Here's how …

Naturally, as the direct-selling industry grows up, it's turning more and more to the use of new high-tech tools. From the Internet to videoconferencing, companies and individual direct sellers are using all sorts of technology to increase efficiency, provide more convenient service, and lower costs.

However, while more companies are using technology in a variety of ways, there are limits. It's unlikely that anything will take the place of the face-to-face interaction that lies at the core of the distribution model. After all, as industry insiders explain, the soul of the business is person-to-person contact, and that can't be replaced.

Probably the most prevalent use of technology is the web. Today, a growing number of distributors are placing orders through their company's website instead of using the usual faxes or snail-mail orders. Many companies report that 80% to 90% of their orders are now placed by a sales representative via the web. According to Tei Fu Chen, chairman of Sunrider, a Torrance, Calif.—seller of nutritional supplements, personal care, and household products, for example, 20% of the company's $700 million in revenues comes from online orders made by both sales reps and customers.

In addition, distributors are using company websites for help in recruitment and training. Other companies are using the web as a channel for customer reordering. And at ACN, a seller of telecommunications services based in Huntersville, N.C., customers will soon be able to view and pay bills online.

But the web isn't the only technology being embraced. There's videoconferencing, which is particularly effective for companies with extensive international operations. Tupperware Corp. is a case in point. It holds a monthly videoconference session in which representatives from all 103 countries it operates in give progress reports.

Some companies are also experimenting with handheld devices for use in product demonstrations. Nu Skin Enterprises, based in Provo, Utah, for one, is launching a prototype to help representatives tailor their product selection to each customer. Using a PDA, customers answer a series of questions related to such topics as climate, age, and previous skin-care habits. The program then spits out the recommended regimen best suited to meet the individual's needs. The upshot: Technology is being used to make direct selling more effective and enhance the relationship between customer and distributor.

A Principled Approach to Business
The Direct Selling Association is spreading the gospel about industry ethics around the world.

They're the Rodney Dangerfields of business. Despite their records of solid growth, high-quality products, and loyal customers, direct-selling companies still don't get enough respect. A recent study by the Direct Selling Association (DSA) found that half the population of the U.S. has a negative or somewhat negative perception of the industry, thanks largely to the misdeeds of a small number of companies and distributors. "With 46 million salespeople operating globally, a few people doing the wrong things can create a lot of bad publicity and make everyone look bad," says Raymond "Buddy" LaForge, Brown-Forman professor of marketing at the University of Louisville in Kentucky.

That's why the DSA recently launched an all-out effort to raise the ethical standards of its approximately 150 U.S. members and 1,000 overseas members of affiliated associations and improve their image globally. For starters, it's launching a series of ambitious studies to evaluate the economic impact of direct selling globally, and working with private and government consumer-protection groups around the world. But, perhaps more important, it's raising the stakes for members who engage in pyramid schemes, which require that distributors buy a substantial amount of product or sales and training aids initially, without repurchasing such items if they decide to leave the business.

The first big step came in 1993, when the DSA revised its code of ethics to include a requirement that members give all salespeople a buyback guarantee, promising a return of 90% of their net costs for inventory and sales aids if they drop out of the system. More recently, the association started an effort to publicize how to recognize a pyramid scheme and the difference between such companies and legitimate direct-selling businesses. It also has backed an anti pyramid scheme bill, currently pending in Congress, and is stepping up its monitoring of members and applicants for membership by paying unannounced visits to recruiting sessions. And president Neil Offen plans, in addition to the association's one-year screening process, to have his legal staff review the marketing plans and rules of a randomly selected 20% of DSA members each year. "If we find unethical behavior, our investigation will continue, even if the member resigns," he says. The upshot: Only companies with the highest standards will be allowed to be members. That's because today the association's No. 1 commandment is, "Thou shall not overlook corporate social responsibility." For those that do, there will be a nasty backlash.