The Hindu Business Line : `Brand loyalty in direct marketing takes time, lasts longer'

"It takes much longer for direct selling companies to develop brand loyalty among their customers but it lasts that much longer. While comparing us with HLL or P&G, one must keep in mind the fact that our base is much smaller than these companies."

William S. Pinckney, CEO and Managing Director, Amway India Enterprises.

IN a market which has been flat for most fast moving consumer goods players, direct selling company Amway India, which markets a host of consumer products, has been registering a hot growth curve, growing at over 100 per cent annually in the past three years. This year, it expects to grow at a more `modest' 25-30 per cent. It's making an operational profit already and expects to break even in 2003-04. Marketers, whose FMCGs have been moving slowly, have looked on sceptically at Amway's blazing growth. In a reply to Catalyst's e-mailed questionnaire, Mr William S. Pinckney, CEO and Managing Director, Amway India Enterprises, puts the company's growth in perspective. Excerpts:

Generally, performance for most FMCG companies has been quite slack and most companies have recorded only a few percentage points in growth. In this context, it's quite surprising that companies like Amway, which is also in the business of selling personal products and other FMCG goods, is growing like Jack's beanstalk. Your comment.

In 1998-99, the turnover was Rs 100 crore, in 1999-2000 Rs 250 crore and in 2000-01, Amway India recorded a turnover of Rs 553 crore. For the last three years, Amway India has been growing at over 100 per cent. While talking of these figures, you must realise that the high growth is on a lower base. In coming years, it should settle down to a healthy double digit growth.

Of the amount that a potential Amway distributor pays, Rs 2,000-odd goes towards Amway as licence fee and the rest towards purchase of a kit with consumer products. How much is Amway's turnover purely through sale of your consumer products and how much is through the subscription fee?

Amway offers a low cost, low risk, independent business opportunity. Any adult person with no criminal background can become an Amway distributor. The investment that one requires to make to take the independent business opportunity of Amway is Rs 4,400 only. This is the price of the business kit, which contains products worth Rs 2,600. The remaining amount is subscription fee. However, all revenue generated through subscription and renewal is ploughed back to meet expenses incurred on providing unlimited free training to all Amway distributors across country, other value added services, Amagram, a bi-monthly magazine and data management and so on. In 2001, Amway spent eight per cent of its total turnover on training alone. Amway India conducted 21,000 training sessions last year. As you can see, sales of business kits are also leading to product sales.

Out of a turnover of Rs 553 crore during 2000-2001 (September-August), revenue from product sales was Rs 458.99 crore (83 per cent). Subscription fee with respect to new distributors during the year amounted to only 17 per cent (Rs 94.01 crore) of the overall turnover. In mature markets, the ratio between revenue from product sales and recruitment is 90:10. In India also, Amway is moving in that direction.

Which categories of goods that Amway sells have seen the fastest growth rates and, by how much?

The nutrition and wellness category is the fastest growing category. It recorded a growth of over 100 per cent during September 01-April 02 compared to the corresponding period of the last year (September 00-April 01). Some of these products were launched in 2001-02. Again, this growth is on a very small base. However, personal care is the biggest category for Amway India in terms of market share.

How do you compare growth and consumption rates for your products vis-a-vis other products from established players in the market, be it a CavinKare or a HLL and P&G?

I must share with you that it takes much longer for direct selling companies to develop brand loyalty among its customers but it lasts that much longer. While comparing our growth with HLL or P&G, one must keep in mind the fact that our base is much smaller than these companies. Direct selling per se commands a very small share of the big pie. The names of the companies that you have mentioned have been there for a very long period, whereas Amway's operations in India are only four years old. As you are aware that direct selling companies sell their products through distributors only whereas these companies sell them through retail outlets, which gives them a much wider reach. While making any comparison, these things should be taken into account.

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