Amway eyeing millennials
Direct sales company still sees human contact as its key to success.
Traditional multi-level marketing (MLM) industry can survive for 10 or 20 years without being disrupted by the digital transformation, says Kittiwat Ritteerawee, managing director of direct sales company Amway Thailand.
As the company gets ahead of the market trend by catering to the digital preferences of millennials, its Thai operating unit expects a rebound after three years of flat growth.
Amway reported a global revenue of US$8.8 billion (2.94 billion baht) in 2016, down 7% from $9.5 billion in 2015. In Thailand, the company posted a revenue of 18 billion baht last year. During the three years preceding 2016, the Thai unit posted growth rates ranging from -1% to 2%.
"The company rebounded in 2016, when we grew 7%. For this year, the company projects a growth rate in the 5-7% range, and somewhere between 3-5% for next year," said Mr Kittiwat.
Amway claims to be in a privileged competitive position, saying its share of the direct sales market in Thailand is close to 25% in terms of sales, out of total industry value of 70 billion baht.
Mr Kittiwat said the direct sales market is massive, not only in terms of revenue, but also of members. There are about 11 million direct sales representatives in the country -- one out of every seven Thais -- with 10% of them on Amway's payroll.
According to Euromonitor, most direct sales customers in Thailand are low- and middle-class consumers who have been affected by the economic slowdown. However, Amway targets consumers with high-spending power, with prices far above those of its competitors.
Amway has been in the Thai market for 30 years, and many of its consumers have been loyal to the brand for decades. "Currently 70% of our customers are over 35," he said.
But as millennials have become more economically prominent, replacing these long-standing customers, the brand must move quickly to attract them to the direct sales channel.
Millennials are less interested in spending on big-ticket items, according to Mr Kittiwat.
"Before, success meant being wealthy, having a luxury car, travelling first class and staying in luxury hotels. But that may not be the case for the younger generation. Many newer consumers would just be happy with a coffee shop that generates 1,000 or 2,000 baht a month," he said.
In order to cater to the change, he said the company is seeking to shift the bulk of its sales to the beauty and supplement sector, which despite the products' relatively high prices, remain attractive to younger consumers.
The company will also have to adapt to millennials' preference for online shopping. On a traditional multi-level marketing model, company representatives receive incentives for every additional representative they sign up, and for every sale they or the representatives they sign up make.
The company's online model is nearly identical, the only difference is that customers receive the product direct from the company, not the representative. Representatives are not allowed to sell products online on their own, but must refer customers to the company website. Sellers receive the exact same incentives and the margins are similar, said Mr Kittiwat.
Online direct sales moves the business from consumer-to-consumer (C2C) to a B2C framework, but the change is superficial from a competitive perspective, he said. Multi-level marketing companies derive their competitive advantage from their ability to control the availability of their products, and from the trust consumers have in their salesmen. Representatives often sell products to friends and acquaintances whose purchases are based on the representatives' recommendations.
The online model retains both these aspects.
Currently only 5-6% of sales comes from the online channel. In the next couple of years the proportion will reach 10%, said Mr Kittiwat. Part of the challenge is providing reliable and fast delivery, on which the company has been lagging. he said. Companies like JD.com, in contrast, position themselves as logistics companies in addition to e-commerce platforms, and thus have formidable delivery services.
"You can order something from Lazada and have it delivered the same day," said Mr Kittiwat. "But sometimes you want the human contact, and having a product explained to you by a friend."
Only time will tell whether intimacy still has market value in a fast-paced society increasingly concerned with convenience.