Feb 06, 2009 06:52 PM
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Amway! In the last 5 to 6 years this "opportunity of a life time” has been offered to me some 4 to 5 times by different people. Each time, I rejected it after some analysis (By the way I am an analyst by profession). But it surprised me that the company still exists, unlike the others in the MLM line of business. So this called for a re-analysis, and here are my findings about the different aspects of the Amway business:
The People
One thing common about all the people who approached me with this offer was that they were all enthusiastic, energetic, outspoken, and soft spoken. In short, they have been taught well how to sell. That is good. I would love to send my kids to a training school like that.
The Products
Two things about the products – (i) High quality. (ii) Very expensive. I won’t talk much about the quality as it speaks for itself. The cost. You will often hear an Amwayer say that “in the traditional distribution system, your hard-earned money goes to the superstar who endorses the product. But in Amway the product comes directly from the manufacturer to the consumer.” etc. etc. Ask them “Then what are you doing here?”
Any business under the sun, right from your panwala, to mafia, to Reliance, to jumbo wadapav, every business has income and expenditure. Income always comes from what is paid by the customer. And expenditure is always made in an attempt to keep the existing income coming and grow it. Isn’t that the basic basic rule?
And Amway is not an exception to that. In a “traditional distribution structure”, the margin is distributed among the manufacturer, distributor, retailer, shopkeeper etc. (déjà vu huh?). In Amway and other MLMs, the margin is distributed among the chain of people. Of course the company also makes money (real big money) out of the CDs, seminars, your joining fees etc. etc.
The reason Amway products are so costly is that it has a big chain of people to feed. It has to “realize the dreams” of many. And it costs a dear to do that. And you pay for it. Believe me, even after the 20% discount it is damn expensive as compare to the other similar products.
Now, there are products that are not available elsewhere. But tell me, didn’t you and me, and all your ancestors and mine, live life without these products for so many years?? It’s like creating the need because there is a supply. (By the way, same logic goes for that latest high tech mobile phone you bought the other day!)
The Business Model
As an Amway IBO, you need to do two things – (i) Convince people to join (ii) Sell the products. The problem is, people have forgotten that the core business is selling the products. If the products are not sold where will the money come from? Joining more people and not selling products increases the pressure on the costs. At the end, people who have joined feel cheated because they are not able to join more people. So it’s like a bubble. Not enough strong substance inside.
Now, lets analyze why is it still running in India. There are two major factors that drive the buying decisions of the Indian customers – (i) Price (ii) Prestige. This basically means that an average Indian customer will usually go for the cheapest available product except when the expensive product is associated with a brand. This opting for the costlier product for the sake of the brand gives him the assurance of quality (trust factor) and/or a sense of pride of being able to buy an expensive product, like in the case of branded clothing, cars like BMW, Merc, etc.
Obviously Amway products fall in the expensive alternative category. So it has to offer the customer both, that is, assurance of quality and a sense of pride for it to sell successfully in the Indian market. Unfortunately, it offers only assurance of quality. There is no sense of pride attached in buying an Amway product. This explains why the sale of the products is on a slow track in India.
We Indians are by nature more emotional than practical as compared to our western counterparts. Human relationships matter a lot here. Successful Amway IBOs cash in on this emotional side and bring in people into the system. For example, tomorrow if my brother-in-law comes to me asks me to join Amway, and it only costs me Rs. 4000, I will take up the offer, to avoid a fight with my wife. After all, Saari Khudai Ek Taraf, Joru Ka Bhai Ek Taraf!
I am not saying that people join Amway because they are emotional fools. I am only saying that in some cases people do join because of pressure on relationships. And this very pressure leads to people losing good friends and relationships as you must have heard from lot of Amway haters.
Other big reason for the Amway success is the sales force. Their training as I mentioned earlier focuses on keeping their sales force motivated. So they are able to bring people into a business of selling high quality products at very high rates so that lot of people including themselves can make money.
After analyzing for the 5th time around my answer is still: Amway – NOWAY! Comments welcome from those who agree but eagerly awaited from those who don’t!
