gnrhost posted on November 24, 2011 18:25
The role of ecommerce in MLM
The internet, and ecommerce in particular, has changed the face of MLM forever. The statistics are staggering. South Africans are migrating online at an unprecedented rate. According to STATSSA, R2 billion was spent online in 2010. This was a 30% increase on 2009 and 2011 is expected to top R2.8 billion. These are big numbers!
The online success rate is also something to take note of. In South Africa, 80% of online companies are profitable, 19% are breaking even and only 1% are running at a loss. I ask you... how bad do you need to be, to be in the bottom 1%?
The line I hear repeatedly is that black South Africans don't buy online. This is totally untrue. There is a vast and rising black middle class in South Africa. They are educated, occupy well paid jobs, have informed access to technology and their online spend has a marked impact on the ecommerce statistics. In 2010, 38% of all online purchases were made by blacks. That's an astounding R760 Million and this number is rising.
Where does MLM fit into this picture?
The industry leaders globally have been grappling with this issue for some time. MLM is all about people while it would appear that ecommerce is all about technology. How do you integrate a hands-off online transaction with a personalised business such as MLM? What are the advantages and disadvantages of going online? Where do you draw the line? What will the impact be on the team?
Advantages of taking your MLM business online
Owning the customer
In most MLM companies, a distributor purchases product from the company and sells it to a client at a profit. The client’s only contact is with the distributor and the company’s only interaction is with the sales person. This is a perfect arrangement up to the moment that the distributor resigns. At this point, the company loses not only their distributor but also the distributor’s customers. Due to the fact that most distributors who resign are only marginally successful, companies ignore the impact of the customer loss. The real picture is, however, serious and warrants exploring.
Let’s say you have churn of 30% (not unrealistic in most MLM companies). This means that if you recruit 300 new distributors in a month, you are losing 100. Let's assume that even the worst distributor is capable of acquiring 4 customers and that these clients are capable of spending R300 per month. Now let’s do the math:
100 people x R1200 = R120 000 x 12 month = R1.4 Million
Plug your own numbers into this calculation and see where you land up.
Adopting ecommerce as a part of your MLM strategy can help reduce this attrition. Ecommerce offers the client the opportunity to connect directly with the company and allows the company the opportunity to market directly to the client. On the surface this would appear to eliminate the distributor from the process but this is far from the truth.
Web Replication
In the modern MLM business, each distributor is provided with a replicated company controlled website. Any transactions taking place on this site accrue to the distributor who owns the site. The company incentivises their new distributors to register their clients for online shopping and to train them to use the online systems. The distributors receive their full commission, and sometimes even a slightly higher commission for sales that take place online. With this strategy, you retain your customers even if the distributor resigns.
Supporting marginal distributors
For the most part MLM is about leveraging people's networks. Everyone has a network of friends and family who is interested in purchasing your products. Not everyone is capable of effectively selling to them. Ecommerce offers the company the opportunity to sell directly to the distributor’s network, delivering a meaningful message and a strong call to action. Long after the marginal distributor has given up, the client will still be purchasing online.
The DIY set
There are a huge number of people out there who would purchase your product directly online. They don’t want to host a party, attend a sales presentation or call a friend to order your products. These people my even find your products online and purchase without any direct interaction with your distributors. If your strategy includes replicated websites then this is where the sales will take place. The result - both you and the distributor have a new client. Everyone is happy!
Merchandising
Merchandising, special offers, volume discounts and give-aways are all part of an MLM company’s arsenal. The challenge is that many of the offers that are designed to create customer pull, land up with the distributor and never get passed on to the client. For example, you run a "two for the price of one" special. The distributor bu
ys a great deal of product but doesn’t pass the benefit on to the customer. They sell the product on at full price, creating a sales slump in the following months.
Any decent ecommerce solution will provide you with merchandising tools and options. These can be used to offer specials directly to your clients. This is not bypassing your distributor as the sales still accrue to them. Rather, it is a supporting service that ensures that the client benefits along with the distributor.
Conclusion
Obviously not all sales will take place online and there are always going to be people wanting to do things the traditional way. The aim of this strategy is to gain direct access to as many end-users as possible while limiting the impact on the network.