UK: Best Practice - Cut out the Middleman.

UK: Best Practice - Cut out the Middleman. - The use of data to target the right customers with the right products is replacing the random, door-to-door direct sales approach.

by Rhymer Rigby.
Last Updated: 31 Aug 2010

The use of data to target the right customers with the right products is replacing the random, door-to-door direct sales approach.

Mention direct selling to most people and they imagine travelling salesmen cruising a pastel 1960s Americana, flogging vacuum cleaners to guileless housewives. The appeal was obvious, cut out the middlemen - the wholesalers and retailers - and use the savings to undercut the opposition or boost your own profits. 'If possible, most companies would prefer to deal direct with their customers rather than going through a whole series of middlemen, each of whom takes their cut,' says Richard Berry, director of the Direct Selling Association (DSA), which represents the face-to-face sales industry.

Direct selling has been flourishing - according to the DSA, the total direct market (of which face-to-face selling accounts for some £1 billion) has grown by 26% in the past five years and is currently worth around £7 billion a year. But things have also moved on a bit. The fact is that the old face-to-face sales operations weren't actually that direct - the customer's relationship was with an agent rather than the company. Now in many cases even the agents have gone, superseded by banks of telephone operators and massive electronic databases. Indeed the activities of the door-to-door salesman and Avon ladies are rather looked down upon by the direct marketing community, which covers everything from direct mail to contract magazines as well as direct-distribution or direct-selling operations like Direct Line and, the latest, Internet shopping. As Neill Denny, editor of Marketing Direct, explains, the crucial thing that distinguishes modern direct selling from brush salesmen, is that there is a two-way flow of information. Once customers log in their details in order to purchase something direct, that information can be used by the vendor in all sorts of ways - as anyone who has been deluged by junk mail after answering an ad will know.

The advantages of this approach are more than financial, says Martin Bartle, communications manager at the Direct Marketing Association: 'One of the great things about taking the direct route is accountability. In the past, advertising was all about brand building but that's very difficult to quantify. Sales figures took time to feed through and any rise in sales might have been nothing to do with your advertising. With direct response, you know exactly what's happened.' On television this trend has been particularly evident, with companies like Direct Line and Eagle Star eschewing arty, high production value ads for the blunt 'Here's our product, here's our number' approach. Notes Bartle: 'Direct TV advertising has been one of the largest growth areas, with a knock-on effect to radio and mail. It makes you available to your customers and lets you know about them. And the more you know, the finer your targeting can be.'

So what are the factors driving the growth of direct selling? In one sense these are the same as those behind the proliferation of new media, from cable channels to specialist magazines: the fragmentation and polarisation of the market into a whole range of different interest groups and increasing demand for more consumer choice, ie services and products that are directly relevant to them. The effective use of data both to target the right people is at least half the battle. Add in increasing distribution costs and pressure on overheads and the argument for dealing direct with your customer is a powerful one. But before you can do that you have to make contact - which is where direct marketing comes in. The old-style, door-to-door sales operations got part of the formula right (ie direct distribution to your own home, and some direct communication).

But making random visits to people at home is a time-consuming and inefficient way of selling. These days most direct-selling operations rely on advertising or direct mail to build up a customer base. The advantage for the company is that the information is held by them rather than by a rep and using direct-response advertising puts customers in control of how and when they make contact.

Of course it helps if you already have a name that people recognise.

Operations such as First Direct and Direct Line are backed by massive media spends; others such as Virgin Direct benefit from their association with an existing brand. Indeed it is probably no coincidence that much of the real growth in direct selling has been from established companies running it alongside their existing distribution operations. Next scored a notable success when it launched the Next Directory which now accounts for around a third of the group's £947 million sales and M&S, which already clocks up around £85 million in direct sales, is looking at bringing out a comprehensive clothing catalogue next spring.

But what makes some of today's direct selling operations really different is that not only is the communication with the customer conducted on an individual level, but that the service or the product can actually be tailored to the individual. One of the champions of this approach is Dell Computers. Dell takes directness very seriously - indeed, it sells nothing at all through retail outlets. For small companies and individuals, there is Dell Direct, which is driven by media such as advertising in the specialist and national press, with direct response numbers and direct mail. Director of marketing Peter Hubbard explains: 'We build every single machine to order and we have no warehouses anywhere. This allows us to be very aggressive and very nimble with our prices. If the price of a component falls, we can pass it on directly to the customer - that wouldn't work with large amounts of inventory.' Selling direct has also allowed the company to build up an enviable database: 'Because nobody deals with us through retailers, we have a record of everyone who's ever shown an interest.'

The idea of using direct selling in order to gain a price advantage is one which has many champions. Examples include easyJet, where the elimination of travel agents allows the company a 25% saving on ticket prices and the financial services sector, where competition has resulted in innumerable firms going more or less direct. That said, price is not the only reason.

Compaq Computers has recently started selling direct after research showed that, while customers in the small-office, home-office (Soho) market rated brand name, service and price as the most important criteria, they also wanted 'the personalised delivery and installation service which take the hassle out of buying a PC'.

Selling direct doesn't have to mean vast amounts of money spent on advertising and IT. For all that the direct marketing industry would like to distance itself from face-to-face sales - of the door-to-door and Ann Summers party kind - that industry still has its adherents. Dorling Kindersley Family Learning (DKFL), the direct-selling arm of the publisher, uses this technique.

DKFL has 8,500 self-employed advisers in the UK who buy from it at a discount and then sell the products on. The products incorporate Dorling Kindersley's normal range as well as 'exclusives', which are available only through DKFL. 'Basically,' says a spokesperson, 'the whole thing is word of mouth, we don't need to advertise.'

The real future of direct selling, however, lies in interactivity and the development of new media such as the Internet and interactive TV.

TV shopping is an institution in the US but here it is restricted to one channel, satellite-based QVC (Quality, Value & Convenience). Although QVC says its turnover rose from £37.2 million in 1995 to £80 million last year, research suggests many viewers find it boring. The advent of digital TV could provide it with the boost it needs, enabling viewers to choose what they are interested in from a menu of shopping programmes and then to order what they want electronically. But it is the Internet that is causing the most excitement although these are early days. Says Bartle: 'It's truly multimedia, it's truly one-to-one and it could allow companies to have the one-stop shop. But very few people have really made any money on it yet. And those that have are the traditional direct sellers - things like records and books.' The problems are threefold. Those with access are, by and large, AB1s who have never really been very interested in catalogue clothing and Tupperware. Then there are the security problems: people will never be happy buying on the net if they think their credit card numbers are going to be hijacked. And, finally, there is the relatively poor quality of the medium. 'Companies', says Bartle, 'are at the bottom of a very steep learning curve.'

Avon Cosmetics

The Avon ladies raise their profile

Despite its rather cutesy image, Avon Cosmetics - as in the 'Avon lady' - is one of the biggest direct-selling companies in the world, with global sales of $4.8 billion (£3 billion) and 2.5 million representatives. Around 70% of its sales are accounted for by the cosmetics, fragrances and toiletries market.

In the UK, where it has had a presence since 1959, the company has 150,000 representatives and sales of £200 million, with around 10% annual growth.

Explains UK president Sandra Mountford: 'Avon ladies (though there are actually a few blokes) are all self-employed. They either go door-to-door or sell in the workplace or just sell to family and friends.' Representatives are paid a commission on what they sell which, depending on meeting targets, can be as much as 35%. Generally customers place orders with their reps who send them off to the company, although higher sellers may keep some stock.

Individual representatives sell in territories; a number of territories make up an area; and areas are grouped into divisions. Such geographic exactitude, explains Mountford, is very important: 'You really know your customers and where your business is coming from. It makes repeat business much easier.' The level of an individual's sales depends on what they want: 'If someone wants to do two hours per week, that's fine: you can just do it for pocket money or sell full-time - our top 50 UK reps get a free trip to New York.'

Avon has a network of area managers who are responsible for the representatives in their area and are directly employed by the company. On joining, representatives receive initial training from their area manager: after that the manager is there to provide support, advice and, should the representative want it, further training.

Avon's strategy is changing somewhat: the company's products are now available on the Internet and it is going to start doing some conventional advertising. 'We've rather hidden our light under a bushel,' says Mountford, explaining that although Avon's products are known by its loyal customers, outside of that group, perceptions are hazy. However, she insists: 'Most successful direct selling is done face-to-face and Avon reps will always be the core of the business. We're known as a company that knows how to do it.'.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

When should you step down as CEO?

Bob Iger's departure poses an unpopular question for bosses.

The death and resurrection of the premium customer

Top-end service is no longer at the discretion of the management.

What HS2 can teach you about project failure

And how you can prevent projects going astray.

35 Women Under 35 2020: Nominations open

Management Today's 35 Women Under 35 showcases the country's rising stars in business. Here's how...

Practical steps for breaking silos

Briefing: Adam Williams, former CEO of influencer marketing agency Takumi, shares what he has learned...

The Power 50: Proof that you can be a part-time CEO

Just a few years ago, executives were reluctant to admit they worked part-time for fear...