Direct selling is the sale of products directly to consumers in a non-retail environment. Instead, sales occur at home, at work, online, or at other non-commercial locations.
What is Direct Selling?
With direct selling, distributors bypass intermediaries in the supply chain and sell products directly to consumers. In traditional retail settings, products are sold online or in a physical store, but direct selling heavily relies on sellers reaching customers in unconventional settings.
How Does Direct Selling Work?
Direct selling eliminates many intermediaries involved in distributing products, such as regional distribution centers and wholesalers. Instead, products move from the manufacturer to the direct selling company, then to the distributor or representative, and finally to the consumer. Typically, products sold through direct selling are not available at traditional retail locations, meaning that finding a distributor or representative is the only way to purchase the products or services.
Direct selling is often associated with party planning companies and network marketing companies. While these companies utilize direct selling, they are not the only ones; many companies that sell business-to-business (B2B) also use direct selling to target and sell their products to end customers. For example, many companies that sell advertising or office supplies send their representatives directly to businesses that can use their services.
Note: Do not confuse direct selling with direct marketing. Direct selling occurs when individual sellers reach consumers directly, while direct marketing involves the company marketing directly to the consumer.
Types of Direct Selling
There are a variety of methods that business owners can use in direct selling, including:
- Single-level direct sales
- Sales through hosting or party planning
- Multi-level marketing
Single-level direct sales are typically conducted one-on-one through door-to-door interactions, personal demonstrations, online meetings, or catalog sales. Income is usually earned from sales commissions, with the possibility of bonuses for achieving targeted goals. Sales conducted in a hosting or party planning framework are done in a group setting and typically involve the distributor or representative giving a presentation either at their home or at a potential client’s home.
In some cases, a company may sell products to individuals in the business. For example, a real estate software sales representative may offer group sales to a group of real estate agents. Income can be generated from commissions earned from sales, and sometimes from recruiting other representatives.
Sales in multi-level marketing occur in various ways, including those associated with single-level sales and hosting or party planning sales. Revenue in multi-level marketing is earned through sales commissions, as well as through sales made by other business partners recruited by the distributor in the company.
Direct selling may sometimes be mistakenly referred to as multi-level marketing or network marketing, but these terms are not interchangeable. For example, in single-level marketing, the sales representative is paid a commission solely on the sales they personally make, with no recruiting of other sales team members or commissions earned from their sales.
Direct Selling vs. Pyramid Schemes
Unfortunately, it can often be difficult to distinguish between a legitimate multi-level marketing business opportunity and a pyramid scheme because they share many of the same characteristics. Both multi-level marketing and pyramid schemes require participants (distributors) to recruit other people, and each ties an individual’s compensation directly to their recruiting results. The main difference is that pyramid schemes are designed to keep the flow of money from distributors to the company.
Often,
The hierarchical systems continue to generate income by imposing fees and requiring distributors to purchase a certain quantity of products regularly for sale, even if they don’t need them. There may be products or services for sale, but most people’s income heavily depends on how good they are at recruiting since the company is more interested in having a continuous flow of income from the distributors. Here are some potential signs of pyramid schemes:
- Generous promises of quick wealth
- Significant focus on recruiting more distributors
- You are required to invest a large sum of money upfront
- Promoters use emotional sales tactics to persuade you to join
- Very little focus on the actual product or service
Are Direct Selling Companies Legal?
Direct selling – especially multi-level marketing and network marketing – suffers from a bad reputation because many companies have been scrutinized for using marketing methods resembling pyramid schemes. Direct selling is perfectly legal, but pyramid schemes are fraudulent and illegal. In the United States, recruiting individuals into a pyramid scheme can be a criminal offense, with the primary authority responsible for stopping such cases being the Federal Trade Commission.
Key Takeaways
- Direct selling involves selling products or services directly to consumers by distributors.
- Three types of direct selling are single-level direct selling, party plan selling, and multi-level marketing.
- Pyramid schemes are different from multi-level marketing and are illegal.
Was this page helpful?
Thank you for your feedback!
Sources:
- Federal Trade Commission. “Multi-Level Marketing Companies and Pyramid Schemes.” Accessed July 10, 2020.
- Financial Security Agency. “Pyramid Schemes.” Accessed July 10, 2020.
- Federal Trade Commission. “Pyramid Schemes.” Accessed July 10, 2020.
Source: https://www.thebalancemoney.com/what-is-direct-selling-1794391
Leave a Reply