Thanks to the growing 'gig economy' and the rise of social media, social selling businesses are thriving.
LONDON, United Kingdom — When Beautycounter launched Countermatch, a lightweight moisturiser designed to hydrate, feed and oxygenate the skin, all 25,000 units of the product sold out within 12 hours. The moisturiser attracted over 10,000 names on a waitlist and when the product was restocked a month later, again, it flew off shelves, selling out within a week. “I got mine today and cannot stop touching my face. This product is incredible,” wrote one fan online. Another despaired: “Oh no, I didn’t get to order mine!”
The success of Beautycounter — which was founded by Gregg Renfrew in 2011 and is currently on track to generate $225 million in annual revenue by the end of 2017, according to market sources — is particularly impressive given that the company doesn’t spend any money on traditional advertising. Instead, Beautycounter, which only sells products it says are free from harmful chemicals, relies largely on direct peer-to-peer sales by a network of over 25,000 independent consultants.
Pioneered by the likes of Avon, Mary Kay and Tupperware, the concept of peer-to-peer selling has been around for decades, having emerged as an early way for non-working women to earn extra money. Now the approach has new momentum, thanks to social media and the rise of the “gig economy,” a term coined at the height of the financial crisis in 2009 to describe the growing shift to more part-time, short-term or freelance work arrangements.
Whether it’s an opportunity for people wanting to supplement their income or a lifestyle choice, more and more people are working as independent contractors than ever before. In 2016, the number of freelancers in the US hit 55 million, according to a survey by the Freelancers Union, a non-profit advocacy organisation based in New York.
As a result, direct selling is picking up steam. “Direct selling is the original ‘gig economy’ employment. Decades before people worked to a schedule, direct selling gave people flexibility that traditional jobs did not,” says Katherine Hutt, director of communications for the Better Business Bureau, a non-profit focused on advancing marketplace trust.
But direct selling has always had a bit of a stigma. Some people call it a “pyramid scheme,” while others are swift to underscore the difference between pyramid schemes and what is known as multi-level marketing (MLM), a strategy often used by direct selling companies to encourage existing distributors to recruit new distributors by paying the existing distributors a cut of the sales made by their recruits. “The essential difference is whether the seller is primarily selling goods to consumers or primarily recruiting ‘down line’ sales consultants,” explains the Better Business Bureau’s Hutt. “In some pyramid schemes, there is no product at all, just a pool of money that requires new participants to invest, in order for the current participants to receive any profits — and usually it is only the scheme’s founders who receive anything worthwhile at all.”
Yet allegations of deceptive misconduct have been raised against several direct selling companies, including Herbalife and Team Beachbody. The Federal Trade Commission in the US has argued that Herbalife cheated hopeful salespeople out of hundreds of millions of dollars, while Team Beachbody has been criticised for requiring sellers to pay a monthly fee and continually buy products themselves. “It’s really important for people to research the company, read the contracts and agreements carefully, and understand what they are getting into as a direct seller. It’s also important to feel good about the products you are selling, especially since you will — at least in the beginning — be mostly selling to your family and friends,” says Hutt.
Not all MLM companies depend on a constant churn of recruiting or require their consultants to stock up on as much inventory as possible, of course. “We’re not the typical ‘get started for $99’ churn-and-burn type of business that largely profits from consultants’ personal product consumption,” says Lynne Cote, chief executive of Cabi, one of the largest direct selling womenswear businesses in the US. “We support those who are serious about building their own business, and who are willing to begin with a solid investment coupled with a true entrepreneurial spirit.” The company, which this year celebrates its 15th anniversary, hit over $255 million in revenue in 2016 and now works with 3,500 independent “stylists” in the US, UK and Canada.
As for Renfrew, she first got the idea for Beautycounter after seeing "An Inconvenient Truth," the documentary film about former US vice president Al Gore's campaign to educate people about global warming. When she couldn’t find many beauty products free from potentially harmful ingredients, she realised she had a business opportunity on her hands. It was then that the “Never List” was conceived: a roundup of more than 1,500 potentially unhealthy ingredients that Beautycounter has pledged never to use in its products.
This is why the brand favours one-to-one selling sessions, during which consultants can explain the importance of safer ingredients, says Renfrew. But whatever the reasons, it’s a strategy that is driving results. “Our growth continues to be explosive. We’ve seen strong revenue growth for the past few years [about 200 percent year-on-year] and we expect to reach over 30,000 independent consultants by the end of 2017,” says Renfrew.
She credits the rise of social media for enabling today’s direct sellers to more easily maintain a far greater number of personal relationships than ever before, thereby significantly extending their reach and driving stronger results. Indeed, these days, Facebook live parties, Instagram and personalised websites are all part of the direct seller's arsenal.
Stella & Dot, a "social selling" jewellery and accessories company launched by Jessica Herrin in 2003, made more than $220 million in sales in 2013, up from $100 million the previous year, thanks, in part, to the company’s integration of new technology.
Today’s social sellers also benefit from data analysis. “We provide analytics to our sellers on a weekly basis, whether it’s how many items they sold, how many people liked their products, and we also have a league where they can see where they stand in terms of traffic rankings. It can be very competitive,” says Maria Raga, chief executive of Depop, a social shopping platform with over 7 million users worldwide.
Poshmark, another player that has adopted a peer-to-peer sales strategy, has pivoted away from its origins as an online reseller site. “The key to our success was not to be another resale company, but to build a platform to support people to start, run and grow their own businesses,” says Tracy Sun, co-founder of Poshmark. The San Francisco-based marketplace, which has over 2.5 million registered users, is currently on track to double its revenue to $100 million by the end of 2017, up from $50 million in 2016. The previous year, the company launched a wholesale business allowing pre-qualified sellers to buy merchandise from brands at wholesale prices and sell it on their pages for a profit.
Glossier, a direct-to-consumer beauty brand launched in 2014 by Emily Weiss, the founder of beauty blog Into the Gloss, has also taken a page from the direct selling playbook, introducing a referral initiative where customers can get a $10 credit for each friend referred by email or social media, who goes on to make a first purchase (friends receive 20 percent off). This was the first time Glossier has offered monetary compensation to its most engaged audience. Fans quickly caught on — there is now a dedicated Reddit thread where users debate whether or not Glossier has gotten “too close to MLM territory” — although this kind of marketing strategy is becoming standard practice inside and outside the beauty industry.
Earlier this year, Glossier launched a more formal representative program. According to a spokesperson at the company, there are currently over 500 ‘reps,’ all of which have been selected by hand. Some even have their own landing page on the Glossier website with a video introduction and their favourite products.
Oakland-based Adia Adores was one of the beauty bloggers invited by Glossier to be part of the program. “I’m a huge fan of Glossier, so of course I was blown away… to be part of the Glossier rep program. Lots of makeup brands use big influencers, but the Glossier program is really driven by their most loyal and involved customers (like me),” she said in a blog post. Being part of the rep program means that sellers earn a commission if users click on their unique link to purchase a Glossier product. “Just think of it as a way to support me and my blog,” said Adia.
But for Beautycounter, a traditional store could be the next step. “Gone is the time when you could tell your customers how to shop. Now, they dictate to you how they want to shop. We want to meet our customers wherever they want to be met,” says Renfrew. Today, Beautycounter’s products can be purchased via the company’s e-commerce site, through strategic partnerships with retailers like Target and J. Crew, at a pop-up shop on Nantucket Island or, of course, through peer-to-peer sellers, which remains the brand’s largest sales channel. “[Beautycounter is] not a direct-selling brand. We consider ourselves as a direct-retail brand: direct to consumers through multiple channels.”
Source: businessoffashion.com