By Dr. Anne T. Coughlan, Dr. Manfred Krafft, and Dr. Julian Allendorf
This paper uses a unique dataset of over 13,000 individual direct selling distributors from dozens of firms, at a wide variety of stages in their direct selling experiences, to investigate the motivations to join, stay, and leave a direct selling distributorship. We build on the literatures in sales force management and compensation, economics, organizational behavior, psychology and sociology to develop hypotheses both about each of these key decisions a distributor makes, as well as the interlinkages among the join, stay, and leave junctures in the distributor’s life cycle. Our analysis shows that many insights from these underlying academic research paradigms are robust to the direct selling situation, while others are not supported—suggesting that direct selling has many parallels, but is not a replica of, other non-direct-selling sales channels.
We find that individuals join as direct selling distributors for a variety of reasons, many of which combine multiple aspects of direct selling that a cluster of distributors finds attractive. Only a small proportion of joiners sign up purely for personal consumption of the direct selling firm’s products—but a great majority do join for this and other reasons as well. We further find that stated reasons for joining are frequently replaced by other motivations for staying as a direct selling distributor, consistent with the idea that distributors join without always knowing what direct selling will offer to them; they learn in the process of doing it. We also link certain traits as well as certain joiner and stayer types to the likelihood that a distributor will leave the firm; but interestingly, we do not find that a distributor’s reasons for joining have a relationship with his/her likelihood of leaving. Thus, the join/stay/leave life cycle path does show linkages from each stage to the next, but its failure to directly link join reasons to likelihood to leave is consistent with the learning that naturally occurs as distributors develop. Read full paper →
Managerial Implications:
- Keep it easy, inexpensive to join, & easy to leave.
- Poll your new distributors to learn their join-type and cultivate those who identify as social sellers and enthusiasts.
- Communicate realistic expectations, do not over-promise—important for both “stay for business+social” and for “low intention to leave” distributor types.
- There are many reasons for joining, staying
and leaving. - Clearly communicate Rules of Conduct—direct ship has made inventory loading much less likely.
- Poll stayers for signs of intention to leave because nature and nurture are both at work.
- Invest in training/mentoring distributors in skills that increase productivity and retention: selling, landing new customers, recruiting/mentoring.
- Cultivate financially successful stayers (retail sellers, income earners) à lower turnover.
Policy Implications:
- Not all motivations are financial—there are many reasons for joining, staying or leaving a direct selling company.
- Policy requirement to offer “preferred customer” status isn’t inherently good: most do not join solely for product discounts, but most do mention product discounts as one benefit.
- Allow flexibility in ability to enjoy different direct selling distributor roles, at any given time across distributors and over a given distributor’s life cycle (social, not just income, can connote “success”).
- Turnover is not diagnostic of poor performance or pyramid scheme threat—turnover is most likely in first year, when “learning on the job” about one’s fit with direct selling happens.
- Judging a direct selling company by distributor income, “losses,” or turnover is not diagnostic of viability of business—even leavers do not uniformly blame the company.
Direct selling is a business model that offers entrepreneurial opportunities to individuals who, as independent contractors, market products and services to consumers, typically outside of a fixed retail establishment through one-to-one selling, in-home product demonstrations, or online. Direct sellers are called distributors, representatives, consultants, associates, or various other titles. They may participate in direct selling in various ways, including selling products and services themselves or through their sales organizations, providing training and leadership to their sales organizations, referring customers to their company, and purchasing products and services for personal use. Compensation is ultimately based on sales and may be earned through personal sales and/or the sales of others in their sales organization.
These three effects—Direct, Indirect, and Induced—collectively represent the economic impact of direct selling activity on the nation’s economy. In addition, the analysis estimated the fiscal (tax) implications of direct selling activity in the United States.
Because of (1) the analytic approach and (2) the nature of the industry (i.e., the widespread use of independent contractors), the total estimated economic impact of $111.4 billion should be considered conservative.