WHAT IS DIRECT SELLING? Direct selling is a distribution method for marketing consumer products directly to a customer, away from a fixed retail location. Direct selling allows a connection with customers, one-on-one, in groups and through online sales. Customers benefit from direct selling because of the convenience and service it provides them, including the personal demonstrations and explanation of products by their distributor.
New Image’s direct selling distributors are known as members. They are rewarded for their efforts with a commission based on their sales volume. New Image, like most direct selling companies, uses a multi-level marketing (“MLM”) compensation plan, whereby our members are paid commissions not only for their own sales but also a percentage of the sales by other members they introduce to New Image. New Image customers purchase from our members because of the health and well-being benefits and the convenience of access to our product offerings. A large percentage of our customers become members because of the factors above, the business opportunity we offer them and the opportunity to buy our products at wholesale prices. The traditional retail distribution method requires a considerable proportion of the retail price to be allocated to cover all selling costs, including promotion, marketing and advertising expenses, the costs associated with maintaining a retail presence and associated labour costs, as well as wholeselling and distribution costs. This cost infrastructure is not applicable in the direct selling industry. In New Image’s case, we manufacture our products and our members act as the wholesaler with low overheads. There are no middle men. The substantial savings in our cost of sales are then available to be paid out to our members as commissions, not only for their efforts but to encourage them to introduce and train new members, thereby creating growth for the company. The key advantages for direct selling companies over traditional distribution channel operators are: Low overheads as distributor commissions are performance-based The low cost to market for new products through the person-to-person distribution channel The direct selling distribution method has no boundaries and, subject only to local regulatory approvals, can readily spread into other countries, expanding the earning opportunity of distributors as commissions are paid on all sales generated from their group, regardless of country of origin. Acceptance of direct selling products is generally very high so that customers buy them regularly, usually monthly. Direct selling companies invest considerable resources into competence training for their network leaders to ensure they have a sound understanding of their organisation’s product range. Distributors are paid commissions for what they personally sell and for what is sold by all distributors whom they have personally sponsored or whom are part of their personal group. As with all legitimate direct selling companies, New Image’s commissions are only paid on product sales and not for recruiting new members. Typically, direct selling companies focus on marketing products that meet essential consumer needs as the basis for their product lines, encouraging repeat business. As most distributors have personal relationships with their customers, these customers will also develop an on-going trust in the direct seller’s products. New Image has been an active participant in the direct selling industry for many years, joining the Direct Selling Association of New Zealand (“DSANZ”) in 1990. Our Founding Chairman Graeme Clegg has been on the Board of the DSANZ for the past 4 years. The DSANZ commissioned the University of Otago to undertake a study into the social and economic impacts of the direct selling industry on the New Zealand economy. The study found that the industry had a significant impact on the economy, with the total economic output estimated at NZ$3.1 billion p.a. in 2008 inflation-adjusted figures and based on current DSANZ membership. An estimated 130,000 people are employed in the industry. A full copy of the study can be found on the DSANZ website, www.dsanz.co.nz New Image is the only direct selling company to list in New Zealand and competes directly with the US-headquartered direct selling companies. New Image was the first MLM company in New Zealand and Singapore. Our Malaysian company is recognised as the fastest growing direct sales company in that country and is in the top 10 performers out of 700 competitors. Our Taiwanese direct selling operation is also in the top 10 in the industry category. The direct selling industry is unique in that it has a small group of employees but a large group of independent distributors. In New Zealand and elsewhere, the general public sees little of the industry through the media, as direct selling does not market itself using traditional media. As most direct sales activity takes place at home, socially and often at night, there are no fixed retail outlets where customers and the public can find out about the products and learn more about the industry. The industry prides itself on high standards of self regulation and professionalism around the world. In the USA, direct selling is taught as a subject at Harvard University’s Business School and a number of substantial direct selling companies are publicly listed in the USA.
Codes of conduct designed to establish a fair partnership between customers and their distributors are in place in the countries where there is an established direct selling industry. Most national direct selling associations belong to the World Federation of Direct Selling Associations (“WFDSA”) which has 59 regional member associations, including New Zealand and who account for US$114 billion in retail sales for calendar year 2007, through the activities of more than 62 million independent distributors. According to the US publication, Direct Selling News, the five largest direct selling companies in 2008 by revenue in US$ were as follows: Avon Products Inc - $10.9 billion Amway Corporation - $8.2 billion Vorwerk& Co. KG - $3.2 billion HerbalifeLimited - $2.4 billion Mary Kay Inc - $2.4 billion The direct selling distribution channel has proven to be a successful one for health and wellness products, with 21.4% of the total 2007 direct sales in the USA of US$30.8 billion from this category. In New Zealand, 47% of direct sales in 2008 were in the personal care and nutritional products categories. The direct selling channel is particularly suited to the marketing of such products, as the customers gain confidence in the products because they deliver to expectations and from the personal service from their distributor. This contact provides the customer with educational material about nutrition and health and wellness, as well as motivating the customer to begin and maintain their own individual health and wellness programme. Also, since many distributors will be product users themselves, they provide a uniquely powerful sales tool with their personal testimonials of the products' effectiveness. New Image has differentiated its direct sales efforts by establishing a niche position, marketing and distributing a unique range of health and wellness products containing colostrum.