Friday, May 02, 2008

Amway India: We Are Listening

Corporate Brand : Amway

Agency : Rediffusion Dy&R

Brand Analysis Count : 324

Amway is one of the global leaders in direct marketing. The name Amway is derived from the words "American Way " . Amway was established in 1959 by Jay Van Andel and Richard Devos. Amway global now have a presence in over 88 countries and has a $6.5 Billion turnover.

Amway was established in India in 1995 and commenced operation in 1998. Currently the company have 80 products in 4 categories. Amway operates in the following categories :
Personal Care
Home Care
Nutrition and Wellness

Amway is often used as an example of a direct marketing company. The company sells its products using direct distributors called Amway Business Owners ( ABO). The model works on a business networking model .
The ABOs can build a team by recruiting a team of ABOs under him. The ABO earns commission on the products sold . Further , the ABO also gets commission for the sales done by other ABOs recruited by him. The payout is decided by the point system. The Amway business model also divides the ABOs into different categories based on the sales performance of the team. The payout varies with different levels.

Amway India in now a 800 crore company with its operation spanning across India. It has more than 4.5 lakh independent distributors and 117 offices across the country.
Considering the nascent stage of Direct Marketing Industry in India, Amway India has been reasonably successful. According to Business Line, the direct marketing Industry in India is estimated to be Rs 3150 crore.

The success of Amway products is predominantly driven by the quality of the products. Amway India's products are mostly sourced from manufacturing units from India. It has outsourcing contracts with 5 major units in India. The products are sourced after strict quality checks.

Amway is a 100 % direct marketing company . That means the consumers will not get any Amway products from shops. The products can be bought through ABO's. Hence the sales are driven by the efforts of ABOs. Since the company does not advertise its brands, the only communication channel is through ABOs who visits households and make presentations. There are two tasks of a typical ABO : the first task is to sell Amway products and second task is to appoint new ABOs .

Typically direct marketing firms faces issues of reach and cost. Since the sales depend entirely on the independant distributors , the company has to pay huge commission. This results in the increased cost of the product. Hence the products become expensive resulting in lower sales.

Amways also faces this issue. The products of Amway are excellent but very expensive. For example, the Persona brand of soaps cost Rs 30 which is almost double the rate of an ordinary soap. Persona is one of the best soaps in terms of quality but price is definitely a dampener. Another example is the range of cosmetics under the brands Attitude and Artistery . Artistery is targeted at the premium class and Attitude at the middleclass. But the price of these brands make the consumer think twice before buying it. Hence the ABOs have a tough time convincing the value proposition.

In a value conscious country like India, the expensive tag of Amway products is the singular reason for the lack of popularity of its products.

Understanding this issue, Amway launched its first corporate branding initiative in India . The brand came out with a Television campaign highlighting the customer-centric approach .

Watch the TVC here : Amway

Amway uses the slogan " We are listening " . The idea revolves round the theme that Amway understands the Indian consumers and the products are derived from this understanding . The purpose of the campaign is two fold :

a. The company wants to build equity around the corporate brand which will enable the ABOs to tide over the initial customer resistance.
b. The enhanced corporate image will also attract people to join Amway as independent business owners.
Along with this, the company is also rationalising the pricing strategies. The company is launching a new range of value products like coconut oil , shaving creams. But here again the company will face certain issues . For lower priced products, the commission payout will be less and hence the ABO will have to sell more volume to get higher commission. Amway had introduced sachets for most of the products, but the low commission payout for sachets has prompted ABOs to try and sell high value items.

Another significant change that the company made was rationalising the entry cost for new ABOs. Earlier, a person had to shell out Rs 5000 to join the firm. The cost was to buy the Amway business kit which consists of various Amway products and brochures. The ABO can recover the money by selling these products. Now the company has introduced a starter pack for Rs 995 which does not have Amway products but brochures . This will be a big relief for the existing ABO since the higher joining costs turned away most of the potential ABOs.

Among the 80 products, one of the best seller for Amway is the Nutrilite brand. Nutrilite is a nutraceautical supplement and this brand contributes around 50% of Amway's turnover. The brand virtually faces no competition so far. The Indian nutraceauticals market is estimated to be around Rs 1500 crore and is rapidly growing. Many Indian companies are eying this segment and has serious plans to enter this segment.

Amway has understood that doing business in India will require a new business model. The company has started to take steps in the right direction. It had tried to rationalise prices and bring in new value products. But to balance the price , cost, quality and higher commission is no easy task.