Tianwen Note: As an independent researcher of the Chinese direct selling industry with limited proficiency in English, I have written this article for over 10 years. Despite the decline of direct selling in China, new retail models such as social e-commerce and WeChat business that are based on the core logic of doubling still thrive in China and never ceased. I believe that the fate and fatal flaws behind the industry that I pointed out continue to affect the new generation of micro-entrepreneurs. With the birth of ChatGPT, I have retrieved this article and asked it to translate and spread it in the English-speaking world to stimulate more thinking and discussion among professionals in various countries and regions, which may have some value.
Original text as follows：
For someone who has been immersed in the direct sales industry since the age of 20 and has tirelessly practiced and researched it for over a decade, it is surprising that they would suddenly begin to refute the direct sales industry. Clearly, this is an extremely special case within the direct sales community.
To refute direct sales is not to deny its historical significance and relevance in its respective era. Rather, it is to address the current context in which direct sales has become an outdated and unsuitable marketing model. To understand this, we must first analyze the larger context in which the direct sales industry was born.
1. The Background of Direct Sales
The early concept of direct sales was mostly defined from a sales perspective. It originated from Avon’s founding in 1886, where Avon ladies were hired to conduct single-level direct sales, i.e. Face 2 Face sales. The modern definition of direct sales, namely multi-level direct (or network) sales, was born with Amway’s founding in 1959.
Whether it is Avon-style single-level direct sales, Amway’s predecessor Nutrilite’s flawed multi-level direct sales, or the birth of numerous global multi-level direct sales companies in the 1970s and 1980s (such as Forever, Mary Kay, and Herbalife), they all carry distinct characteristics of the times. That is the result of fierce competition in the post-industrial era.
In the agricultural era when resources were scarce and demand exceeded supply, there was no possibility of modern marketing and advertising promotion. The invention of the steam engine brought about the first industrial revolution, directly resulting in an increase in production scale. The competition in this era marked the beginning of modern commercial competition, and people began to discern and pursue the quality of similar products. Hence, modern management represented by Drucker was based on this competitive experience.
The two world wars resulted in the advent of the automotive industry, which relied primarily on oil as its main resource. Production began to grow on a large scale, and the competition between countries after the war directly led to the establishment of the modern marketing system founded by Philip Kotler. The further fierce competition also gave birth to the birth of modern advertising. Therefore, marketing and advertising are almost two sides of the same coin, becoming the best means and weight for competition among large enterprises.
For small and medium-sized enterprises and entrepreneurial individuals who hold high-quality products but have no access to the marketing channels and advertising competition between large enterprises, they have entered a bottleneck that is almost stifling. Direct sales were born under such a demand for low-cost expansion and high-growth development.
The history is already far away. It is said that the boss of Nutrilite, Carl Rehnborg, was unable to market his high-quality products despite his passion for them. By chance, he met two Harvard students who creatively invented the current multi-level direct (or network) sales model that now rages worldwide.
This history has been mythologized, with some saying it was two Jews, and others claiming it was two mathematical geniuses. However, regardless of what the historical facts actually were, there is one reality: the purpose was to sell products through word-of-mouth marketing by personnel.
This era has already determined one concept, that multi-level direct sales is a typical personnel sales model. Its core is to establish a sales channel and pathway through marketing personnel (salespersons or direct sellers).
2. The Social Psychological Principles of Direct Sales
The birth of Amway Nutrilite’s multi-level marketing model is undoubtedly one of the greatest inventions of that era. As Amway’s corporate culture emphasizes, it provides the best quality products and a unique opportunity for everyone to have their own business.
Initially, if you asked almost all direct sellers why they wanted to participate in the direct sales industry, they would almost unanimously answer, “The products are great!”
If the product is so high-quality, almost all users will quickly experience a physiological pleasure of satisfaction! This physiological pleasure is bound to trigger a social demand as a social animal, which is irresistible to share. The sharing promoted by this social psychological demand undoubtedly reinforces the user’s pleasure.
Therefore, direct sales was born under these seemingly very reasonable conditions.
Then, someone asked why, under the same mechanism of physiological and social psychological satisfaction, it was born in the United States rather than other countries or regions? As an aside, this may have a lot to do with the hundreds of years of tradition of Protestantism in America. As we all know, Protestantism on American soil uses a family-style gathering and witnessing miracles sharing mechanism to achieve rapid dissemination and development. After World War II, the adjustment, growth, and competitive environment of the US economy were providing a more appropriate breakthrough and carrier for this evangelism mechanism (which is essentially sharing) in commercial behavior – multi-level direct sales.
Based on our understanding of the competitive environment of the era of large-scale production, we can basically determine that direct sales were invented when high-quality products could not be pushed into the market. Although this marketing model seemingly fits the social psychological mechanism of human nature at that time (remember, I said it seemed to fit, there will be a dedicated discussion later), it has led to the global prevalence of this model in direct sales for over half a century.
Only by understanding the social psychology mechanism that gave birth to this multi-level direct sales model can we understand why this model was eventually resisted and marginalized by mainstream society.
3. Why did the value system of direct selling collapse?
As previously mentioned, we can summarize the birth of direct selling as follows: the left hand satisfies physiological needs with high-quality products, and the right hand obtains happiness by sharing to fulfill social psychological needs.
However, is it really like this in reality? Few people doubt its rationality. Rather, most people see it as an American Dream – a dream where individuals can start a business from scratch by building a sales team through personal efforts and become rich.
This destiny rooted in direct selling thus came into being, and the rat race that was born with it also accompanied it. In other words, direct selling has been caught in a nightmare of demonization and coexistence since its inception.
Let’s take a look at why the mainstream population resents direct selling fundamentally:
Firstly, the inventor of direct selling established the joy of sharing as a reward-based incentive system on the right hand, rewarding performance evaluation of your sharing behaviors. If you are careful enough, you will notice that the joy of sharing purely from your nature has been replaced by the pain of “sales” here. However, for most people, the excitement of the product and the dream advocated by this business mechanism have already covered up the fact that the joy of sharing has been replaced.
Statistics show that 97% of people in the world resist going into sales, and 100% of people do not want to be pushed to buy something. This is human nature. However, while they are excited as consumers of high-quality products, they are not mentally prepared to work as professional salespeople. Yet, they are led by this exciting entrepreneurial opportunity to a frenzy.
It is conceivable that when he believes that he has found the world’s best entrepreneurial opportunity and business with enthusiasm, and shares this business opportunity with his relatives and friends, he will inevitably face the consequences of a rejection rate that could reach 100%.
Most (about 80%) of those who accidentally enter the direct selling industry choose to give up under the pressure of rejection from their loved ones. However, no one is willing to find their own reasons for giving up. They are more willing to attribute their failure to this sales model being impractical or even to impulsive mistakes and deception. Because they are eager to regain acceptance and recognition from their former friends, and to return to the comfort zone of life. And their actions have reinforced the resistance and misunderstanding of this sales model among more mainstream social groups. This was the original pain that multi-level direct selling brought to practitioners.
If this primitive pain is not a big deal, then the few (about 20%) who are unwilling to give up their dreams and this business begin to embark on an irreversible path, even a devil’s path.
These few people continue to move forward on their dream path. However, they quickly discovered that people with the same qualifications, abilities, and efforts could earn very lucrative income in just six months, while others spent two or three years without progress or even stagnation. After summarizing the lessons, they found that the first reason was that the team leaders and recommenders of others were outstanding, while their own team leaders and recommenders were inadequate. So they entered the first growth trajectory in the direct selling industry – internal reshuffling.
The experience and results of changing teams were quickly verified. An excellent direct selling company needs to grow with an excellent team. However, many people soon discovered that the company they had chosen as their first love was likely to be unsatisfactory under the impact of other companies. The worst thing was that after jumping to another direct selling company, members of the team who used to be in the same battle trench as themselves soon earned a lot of money, making them envious!
Where is the reason? After summarizing the experience again, they found that the direct selling enterprise was not one, and in competition, direct selling enterprise owners began to constantly withdraw commission from direct sellers rather than increase it, or reduce the difficulty of obtaining commissions. Faced with this competitive background, the wise choice is to once again choose a direct selling partnership that is better than their original company. This is the second growth trajectory in the direct selling industry – corporate reshuffling.
At this point, we will find that the essence of the left-hand happiness and right-hand happiness in the direct selling industry is gradually changing with the intensification of internal and external competition in direct enterprises.
Firstly, in the competitive environment of direct sellers or even direct selling companies, products are becoming less and less important, while the bonus system needs to be increasingly adjusted to its optimal state. What is the optimal state of the bonus system? Withdrawal rate? Difficulty? Therefore, if you search for changes in the direct selling industry’s systems over the past half-century, you will find a shocking universal phenomenon worldwide:
From a zero-base to an accumulation base, from low quality to hierarchical bonuses, from solar lines to matrix structures, from matrix structures to dual-track systemsand hybrid systems, and from binary systems to unicorns, what has been added is not the improvement of product quality but the optimization of the bonus system. The original intention of satisfying physiological needs through high-quality products has been gradually replaced by the desire for monetary gain.
Secondly, in the competitive environment of direct sellers, the joy of sharing has gradually become the pain of sales. Direct sellers are no longer focusing on the joy of sharing their high-quality products with others, but rather on how to win bonuses and commissions by pushing people to buy products and join their team.
Therefore, the value system of direct selling collapsed because it became increasingly driven by monetary incentives and less focused on genuine product quality and the joy of sharing. The sales-driven approach led to high rejection rates and reinforced negative attitudes towards the industry among the mainstream population.
4. Direct selling is destined to perish in its evolution
Throughout the history of multi-level direct selling for over half a century, the author even looked back to Avon’s birth in 1886, researching and summing up three waves of growth based on the evolution of direct selling system: retail-oriented with Avon, Mary Kay, Jafra as early single-level direct selling representatives; recommendation-oriented with Amway starting from tiered direct selling such as Herbalife and Forever; consumption-oriented with hierarchical and dual-track models with companies like Mead Johnson and New Era.
Interestingly, with the intensification of competition, old-fashioned single-level direct selling companies such as Avon, Mary Kay, and Jafra have started to modify their single-level model to a multi-level one like Amway’s successful model. Meanwhile, Amway, Herbalife, etc., have increasingly realized the importance of locking in end consumers, while new-style companies have set their sights on sales elites of these old-school direct selling companies believing that capturing this group of successful distributors can directly take over the “pipeline” (marketing channel).
However, as mentioned earlier, the struggle for channels between direct selling companies directly brings about competition for high commission ratios with distributors, and almost all direct selling companies and distributor teams focus on how to increase sales and improve performance. This directly leads to the result that large numbers of direct selling companies’ distributors hoard goods for achieving performance and rank. The new generation of companies seems to have more tricks up their sleeves. To effectively solve the problem of hoarding and reduce the “difficulty of success,” they directly increase the membership threshold to a high level, hoping for rapid expansion and quick wealth.
The result of focusing on short-term gains and pursuing high profits and quick wealth is that products are repeatedly ignored or even virtualized, and it has brought more extreme phenomena such as cross-regional pyramid schemes and financial pyramid schemes in mainland China. The barefaced behavior of pyramid schemes has blurred the line between so-called legal enterprises and underground pyramid scheme enterprises. This is also what the author wrote in a special article last year, where mainland China has entered a comprehensive “licensed pyramid scheme era.”
All of these lead to the formation of a set of internal operating rules within the direct selling industry, completely detached from the valuable “manufacturer-channel distributor-end consumer” marketing chain and becoming a speculative gamble, a game of chance. The result of self-circulation and marginalization will inevitably cause it to move further away from mainstream society and towards a path of inevitable death and irredeemability.
To rejuvenate the direct selling industry, external forces are needed when internal solutions cannot be found.
With the advent of the Internet in the 21st century, no one could have predicted its birth, which accelerated the death of direct selling companies. This unexpected information revolution quickly brought all products with inflated prices for high commission ratios, through hoarding sales by direct selling refugees and the operation of organized scalpers, back to the real value law on e-commerce platforms.
The cancer of direct selling has since been terminal. Distributor leaders of major direct selling companies can only switch companies with their teams in a carousel-like manner to seek a reshuffle, rather than exploring new markets. The mainstream society’s perception of the direct selling circle is getting worse day by day.
It is worth noting that since the beginning of this century, the Chinese market, due to WTO entry and direct selling legislation, seemed to have started to recover superficially. In fact, this is only a special expression of the lagging Chinese mainland market and economic imbalance.
If you lose rational thinking about the global economic integration of the information age and indulge in this superficial prosperity and vanity, you will inevitably head towards death without realizing it. If you have insight, you can conclude that the death knell of direct selling has been sounded by the Internet!
No destruction, no construction. Only by being reconstructed and breaking free from the fate of direct selling itself can the direct selling industry undergo a thorough transformation and possibly have a truly promising future. As a marketing model, it may disappear or need to be redefined to be viable.
In 2003, the author creatively proposed a concept called “Direct Consumption” in mainland China, and gave it a new double meaning in 2006: consumption and disappearance.
It can be foreseen that in the Internet age, if direct selling companies expect their quality products to be accepted and recognized by the market, they must first pass the hurdle of inflated prices and truly return to the origin of consumer benefits. The demonization of quick profits and the fate of direct selling on its roots must come to an end.
The greatest pain of foreseeing the future is that you may be a prophet or a martyr. What kind of business model can bring about a comprehensive solution for the direct selling industry? Has it already been created? Does it already exist and succeed?
This is a question.