In the light of 70% rule, the distributors are required to...

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customer informs the company of some of his needs and the company customizes its product

to meet it. Every interaction and modification improves the company’s ability to fit the

product to his particular customer. Eventually, even if a competitor offers the same type

of customization and interaction, the customer will not be able to enjoy the same level of

confidence without taking the time to teach the competitors, the lessons, the company has

already earned.”10The aim of relationship marketing is to create strong, lasting relationship with

core group of customers. It is to a firm’s advantage to develop long-term relationship with

existing customers because it is easier and less expensive to make an additional sale to an

existing customer than to make a new sale to a new customer. The emphasis is

onkeeping and improving the current customers rather than acquire new ones. The primary goal

of relationship marketing is to build and maintain a base of committed customers who are

profitable to the organization. In the opinion of Dr. Atul Dhyani “the cost of retaining a

customer is just the one tenth, the cost of acquiring a new customer, is the core philosophy of

relationship marketing.”11 There are four major factors that are significant in the

implementation of relationship marketing. These factors are: Identifying the customers,

differentiating the customers, interacting with customers, and customizing the company’s

behaviours. For identifying the customers, the company should first prepare a brief database of

customers and should include in it the names and addressable characteristics such as their habits,

preferences, buying capacities, etc. Such a database is to be created on the basis of personal

interaction. After the database is created, as an effort in identifying the customers, the next step

is to differentiate the customers on the basis of their needs and levels of purchasing capacities.

Once the customers needs and purchasing capacities are found out, it is possible for the company

to make changes in its attitudes in further interaction with such customers. Every interaction with

the customer should take place in the context of all previous interactions with that customer.

Finally, to hold a customer in learning relationship, the company must adapt, at least some likes

& dislikes of the customer, which he himself has personally expressed during the interaction.

This is called customizing company’s behaviours, and it is possible only when the company

brings flexibility and responsiveness in its operations.

Dr. Suresh K. Chandu, in his article on relationship marketing, says “the key to efficient

relationships is to get closer to the customer and deal with him on one to one basis. The big idea

about relationship comes from the customer. He tells the marketer in simple words what buttons

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to push to motivate him. What the researcher has to do is to read the signals correctly and then

customize the products & services according to the customer’s requirements. The only way

marketing executives can survive is to get greater inside about the needs of customers.”12

Relationship marketing is now gaining wide acceptance among the business world. Customer

retention has become more important. It is a big challenge for the marketers as to how to retain

customers as there is certain amount of customer migration at different stages of customer

lifestyle due to various reasons. Sometimes even fully satisfied customers switch over to other

brand without having any perfect reason, hence there is a great need to put efforts to minimize

the same.

Multi-Level Marketing (MLM)

Multilevel marketing is nothing but direct marketing or direct selling wherein the

distribution of goods, at wholesale price is performed by the dealers. The dealers are no other

persons than the distributors. According to Wikipedia, the free encyclopedia available on World

Wide Web “independent, unsalaried salespeople of multilevel marketing, referred to as

distributors (or associates, independent business owners, dealers, franchise owners, sales

consultants, consultants, independent agents, etc.), represent the parent company and are

awarded a commission based upon the volume of product sold through each of their independent

businesses (organizations).”13 Since the commission paid by the parent company to the

concerned distributor is on the basis of his/her sales efforts, which is not as handsome as

expected, therefore, these distributors are also allowed to recruit, under them, other independent

distributors. Such distributors, in addition to their own commission, based on sales efforts,

receive a good additional commission on the sales made by their down-line distributors. In

addition to these two commissions, they are also allowed to sell the products to any other

customer, off-line, on wholesale price. This is how a network of distributors is created and the

one, sitting on the upper layer of network earns commission not only on his sales efforts but also

on the sales efforts of its down-line distributors. Multilevel marketing is also known as “Network

Marketing”. Any member of this network, even if becomes a dormant, then also no harm is done

to the down-line distributors.

Multilevel marketing is based is based on payments of commission only on the sales

volume of parent company’s products, it never allows commission only on the down-line or new

recruit distributors. So far as the inventory holdings is concerned, the MLM follows a 70% rule.

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In the light of 70% rule, the distributors are required to sell 70% of their previously purchased

inventory so as to qualify for additional business i.e. they must sell 70% of their purchased

products to unregistered consumers before placing new orders with the parent company. There

is, however, a variation in this rule that allows either to sell 70% of the previously purchased

inventory to the unregistered customers or the same/part should be consumed by the distributor

himself/herself. In a 2004 Federal Trade Commission (FTC) staff advisory Letter to the Direct

Selling Association states “much has been made of the personal, or internal, consumption issue

in recent years. In fact, the amount of internal consumption in any multilevel consumption

business does not determine whether or not the FTC will consider the plan a pyramid scheme.

The critical question for the FTC is whether the revenues that primarily support the commissions

paid to all participants are generated from purchases of goods and services that are not simply

incidental to the purchase of the right to participate in a money-making venture.”14 Multi-Level

Marketing is always associated with pyramid schemes. A pyramid scheme is nothing but an

investment scam, “in which the money from later investor is used to pay earlier investors”15.

Similarly, in a 2007 Wall Street Journal interview, FTC economist Peter Vander Nat stated, “if

people are buying because they want to use a company’s products, these sales can count or

retail.”16

Compensation Plans in Multi-Marketing

Since the emergence of multilevel marketing till today, the world has seen a variety of

compensation plans offered by MLM.

1. Staistep Breakway Plan : This plan is designed only for those distributors or participants

of direct selling who are directly or indirectly responsible for both personal and group

sales volumes. Sales volume is an outcome of new recruit of distributors and by self-

consumption of purchased inventory. Group leaders, in MLM, are entitled to receive

several commissions and discounts. A group leader is one who has recruited one or more

distributors under him/her. Once the given target of sales volume is achieved, a

distributor moves up a commission level. This increase in commission, if everything

remains the same, continues until the distributors sales volume reaches a maximum limit

and becomes stagnant. Here, at this particular point, the distributor breaks away from

his/her up-line.

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2. Uni-level Plan : The uni-level plan is the simplest of all compensation plans. It pays

commission to the distributor on the basis of level which the distributor has occupied in

the hierarchy of levels from the last distributor who is purchasing the product. Here, after

the targeted sales, distributors are paid commission on the basis of newly recruited

distributors.

3. Matrix Plan : This plan is similar to the uni-level plan. But here, it counts the number of

distributors who are placed in the first row of the matrix of distributor. When all the

positions, in the subsequent layers are filled with new distributors, a new matrix of

distributors then starts. Distributors get commission in such a matrix with minimum sales

quotas.

4. Binary Plan : The name of this plan is self explanatory. It tells the distributor to add only

two new distributors, but if the distributor adds more than two new distributors then such

excess distributors are placed in the matrix at a subordinate level. This feature of binary

plan that tells to add only two distributors to qualify for the commission is obviously a

motivating factor to the new distributor, because by adding only two, he/she is entitled to

claim compensation.

5. Hybrid Plan : Hybrid plans are those compensation plans in which two or more

compensation plans are considered in aggregate.

Relationship marketing & direct marketing

Relationship marketing & direct marketing can be understood with the help of a

common saying, “old wine in a new bottle”. The academics and practitioners of marketing

always debate on ‘relationship marketing & direct marketing’ and they are of the opinion that

these two are indistinguishable. Biplab S. Bose, says that, “relationship marketing should be seen

as more embracing than direct marketing, often incorporating relationships between multiple

levels of a supply or distribution chain.”17 In the context of the above, direct marketing can be

seen as a process of simplifying distribution and communication channels, whereas relationship

marketing involves structuring complex networks of inter relationship between organizations and

different points in a value chain.

In a small-scale industry, most of the transactions are entered into between company and

its customers directly, and thereby establish one-to-one relationship with each of its customers.

To comprehend this, consider the example of small shoe making industry. People of small

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locality usually prefer to order and buy the pair of shoes produced by the local cobbler uniquely

for them. The cobbler, through repeated dealings with the same customers, comes to know the

tastes & preferences of people for the shoes and paying capacity of the people for the new pair of

shoes. On the other hand, a large shoe factory never comes directly in contact with its customer

and so developing one-to-one relationship with each of its customers is just a dream. Large shoe

factories sell their produce with the help of wholesalers and retailers who are geographically

spread over large market. In short, the large-scale industries are at the mercy of their

intermediaries, so far as the sales are concerned. Here, communication becomes impersonal and

one-way that too through the advertising media.

Today, direct marketing, by virtue of information technology, has helped large scale

industries to deal directly with their customers on a one to one basis. The factors, which have

contributed a lot in making the direct marketing possible are modern databases, computer

assisted manufacturing systems, and so on. As a result of these new changes, it has become now

possible for the remote large-scale industries to establish one to one relationship with the help of

a direct dialogue with each of their customers.

Principles of Direct Marketing

Biplab S. Basu, states that, “successful direct marketing is based on four features. These

are targeting, interaction, control and continuity, or TICC for short.”18 Targeting refers to the

selection of ultimate customers from among the prospective customers, who will read our

message, for sale. The messages of sales can be sent through broadcast media, print advertising,

direct mail, or telemarketing. Through these media and the message for sale we should try to

capture our customers from the large audience. The tactful framing of message and intelligent

offer of goods & services is the crux of targeting. For correct targeting, we must make use of our

past attempts to target and their result and in this way, we must go on refining our future

targeting.

Control refers to the management of planning at the strategic and operational level,

budgeting and assessment of results. The future planning must be influenced by the previous

results.

Continuity refers to retaining of the customers. It can be achieved by cross selling other

products and upgrading them .Because the cost of making a sale to an established customer is

very less as compared to the cost of making a new customer. In this context, Jones & Roose in

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their book ‘the machine that changed the world’, reports that “Toyota was determined never to

lose a former. It could minimize the change of this happening by using data on its customer

database to predict what Toyota buyers would want next? To know this, Toyota went directly to

its established customers.”19 According to him, Toyota treats its established customers as

members of its Toyota family. Because of this reason only, today, Toyota went from a small

producer to the world’s number one in the automobile market.

Interaction includes responses from the people in the target market. The responses are

required to be analyzed properly. This is nothing but the base of information system. Frequent

interaction makes us more efficient at targeting, control & continuity. This is because we are

learning by experience.

Database Marketing

Database marketing is a new approach. Some people call it ‘relationship marketing’.

Direct marketing practitioners call database marketing as ‘one to one marketing’ or ‘interactive

marketing’ or ‘dialogue marketing’ or ‘micro marketing’. Edward L. Nash, calls database

marketing as “relevance marketing”.20 According to P.R. Smith & Jonathan Taylor “database

marketing is not a short term activity, but instead, it is a long term commitment that facilitates

the development of a dialogue and a relationship with each prospective customer.”21 It involves

careful selection, collection and constant analysis of computerized customer records. In the

opinion of Biplab S. Bose “at the heart of companies’ direct marketing efforts is a database

identifying prospective customers, current customers, and lapsed customers. The effectiveness of

direct marketing is critically dependent on the quality of customer details held on the

database.”22 A particular strength of direct marketing is its ability to understand its customers in

detail. With direct marketing, a company can use its database to develop a profile of who its best

customers are. A database gives an organization access to its own private marketplace.

Organizations with properly managed databases enjoy a competitive advantage over competitors

without databases. As Peter Drucker prophetically stated in 1973 during marketing’s Bronze

Age: “The aim of marketing is to know your customers so well that when your prospects are

confronted with your product, it fits them so exactly that it sells itself.”23 Therefore, a marketing

database is considered as “intelligence-gathering apparatus” that allows marketers to implement

their marketing strategies most effectively. As Rose Harper, of Mailing List Strategies, notes, “a

database is a collection of data organized for rapid search and retrieval.”24 There is no dearth of

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definitions of direct marketing. George Orme of David Shepard & Associates defines a

marketing database as an organized collection of data about individual customers, prospects, and

suspects that is accessible and actionable for marketing purposes.

Database building

A database is more than a list of names. There are two types of information kept on a

database, one is historical data and second is predictive data. Historical data means transactional

data or back data, it includes name, address, and frequency of purchases, responses to offers and

value of purchases. On the other hand, predictive data identifies which groups or subgroups are

more likely to respond to a specific offer. This is done by giving statistical scores to customer

attributes such as lifestyle, house type, past behavior, etc. These attributes help in determining

the future behavior of customers.

A customer database is a valuable asset for the organizations that intends to market their

products. Databases can be bought, borrowed or built. Customer databases are considered as the

most valuable assets a company has. Like other assets, they too require investment for

maintenance. Without maintenance, databases deteriorate, sometimes to the extent of becoming a

liability.

Data warehousing and data mining

Databases require security and protection so as to avoid unauthorized handling of them.

Just like valuable goods are safely kept in godowns and warehouses to provide security &

protection, exactly in the same manner, large databases require large warehouses. Here comes

the concept of data warehousing. Successful database marketing is all about data capture,

storage, analysis, interpretation and application in a manner that discovers patterns and

relationships previously hidden in the data. Data warehousing & data mining helps direct

marketing to become more refined and better targeted.

Applying advanced statistical analysis and modeling techniques to data, to find useful

patterns and relationships are called ‘data mining’. Data mining can find the hidden information

in the existing data that is beyond human capability. For mining the data, a range of statistical

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tools is used, including regression analysis, time series forecasting, clustering, associations,

logistic regression, discriminant analysis, neural networks and decision trees. These all have

ready applications for the marketing manager.

Types of Marketing Databases

Marketing databases come in two varieties namely internal or customer databases and

external or non-customer databases.

Internal databases result from the relationship-building process between marketers and

their customers. It consists entirely of information about the behaviour of customers or prospects.

But it can be supplemented by adding other valuable individual data from other sources such as

age and income information obtained about specific customers through an overlay process with

an outside data source. In fact, an internal database is a proprietory medium. It consists entirely

of customers and has been either purchased by the marketer or developed in the course of

establishing some sort of business relationship with consumers. Traditionally, the internal

database consisted of a customer file of names and addresses to which summary transactional

information was appended. According to Edward L. Nash “the most commonly capturedand the

most useful transactional data are (1) recency (When was the last purchase made?), (2) frequency

(How often does the customer purchase?), and (3) monetary value (How much money did the

consumer spend over the past year?). These data elements are usually referred to collectively as

RFM.”25 The transactional data elements that are to be stored in the database depend on the type

of business collecting such data. Each business has got its own marketing needs, and in the light

of such needs the data elements are to be captured, stored, and used. Though the data storage

cost is lower today as compared to past, but still the cost factor plays an important role.

Therefore, the selection of data elements must be made judiciously.

External databases are collections of consumer characteristics, attached to specific

individuals, that can be either by name & address or by some other specific identifier. Such

external database is made through external sources such as census, telephone directories,

questionnaires, etc. For example, marketers first seek census description of geographic

aggregates that match their target market characteristics and then select the names & addresses of

individuals who live within those specified geographic aggregates from other list source. The

marketer then apply the techniques of clustering and segmentation. According to Edward L.

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Nash “there are four basic types of external data elements: demographic, geodemographic,

psychographic, and behavioural.”26

Demographic Data: Demographic data describe the physical attitudes of an individual

like gender, age, income, marital status, education level, and occupation. Geodemographic Data:

Geodemographic data are clusters of demographic data. These clusters are used to categorize

units on the basis of geographical background. The consumption of a particular product varies

from one geographical area to another. For example, in Kashmir woolen cloths are more sold

whereas in Nagpur it is not. Therefore, it is necessary to further divide the demographical data

geographically.

Psychographic Data: Psychographic data describe the state of the individual’s

psychology. It includes attitudes, beliefs, opinions, traits, and values. These data values speak

about the fabric in which the demographic individual is clothed. In the opinion of Edward L.

Nash “marketers have recognized the importance of psychographic information for decades but

have rarely been successful in making it work in marketing applications. In many instances,

psychgraphic factors have been very product-specific, and a set of psychgraphic data values

discovered to be predictive in one situation often fails in subsequent applications, even after

costly surveys and analysis.”27

Behavioural Data: Behavioural data is proved to be the hottest category of data, because

it gives marketers an opportunity to measure prospective customer’s willingness to buy. By

collecting transactional data on retail purchases, marketers can build and maintain a record of

individual purchase behaviours and then use that data to predict the likelihood of future

purchases of specific products. Behavioural history gathered through questionnaires can also

provide a reliable estimate purchase willingness.

Lifestyles are another extremely valuable aspect of behavioural data. Lifestyles have no

definition or meaning without activities and behaviours. Therefore, lifestyles are often regarded

as psychographic in nature since they are related to person’s attitudes & values and fall within

the behavioural dimension. People’s lifestyle activities & behaviours define who they are,

whether they own or rent, or how much money they make. Lifestyles also function as an

effective link in social interactions. People get attracted toward other people with similar

lifestyles. Because lifestyles are so significant to the relationship process, marketers should give

sufficient importance to lifestyle. It can be used to identify and communicate with consumers

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when we know someone’s lifestyle, we can make other inferences about that person’s behaviour

and how & what to communicate to that person as a consumer. Lifestyle data gives a marketer

the correct language to use while communicating with consumers.

Direct Marketing Media

Direct marketing uses a wide range of media as listed below:

- direct mail

- telemarketing

- media advertising

- catalog marketing

- direct response marketing

- door to door marketing

- on line marketing

Direct mail

The term ‘direct mail’ was coined by Home J. Buckley of Chicago. In the early 1860s, a

number of firms used direct mail in the form of informational circulars and handbills to advertise

goods and services. In the 1960s, David Ogivy commented: “Direct mail was my first love” – a

secret weapon – in the avalanche of new business acquisitions which made Ogilvy & Mather

(O&M) an instant success.”28 One of the most effective and valuable forms of media for the

small firm is direct mail. It is used to provide product particulars and a call to take immediate

action. Many finance companies use direct mail to provide interest rates, loan terms, and notice

period. The technique is to first obtain a list of all potential customers and then the leaflets,

brouchers, technical information can be sent by direct mail to these potential customers.

According to Jhon Winkler, with direct mail it is important to have a series of concentrated

bursts. Two or three mail shots in rapid succession pay off better than one mail shot sent

occasionally. This statement focuses on delayed response from the side of potential customer.

Even if a potential customer is anxious to respond to the direct mail, he is not going to write a

formal letter and he is not going to pick up a telephone, but there is a chance that he will write

down his name and address, provided a reply paid facility is offered. The cost of stamps is to be

borne by the companies. It has been found that the response rate goes up when the reply envelops

have stamps put on them. Warren Keegan, states that, “the usage of direct mail varies around the

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world, based on literacy rates, level of acceptance, infrastructure, and culture. In countries with

low levels of literacy rates, a medium that requires reading is not effective.”29 The infrastructure

of a country must be developed sufficiently to handle direct mail. The postal system must deliver

mail on a timely basis.

The ‘Sales Letter’ is one the extremely important methods of direct mail. Its job is to

expressly convey, to the prospective customers, the relevant information about the product or

service to be marketed, such information includes the firm’s offer, products, their prices, etc. A

very important rule that has to be kept in mind while writing the sale letter is “a sales letter must

be short, precise, and to the point.” It should not be a very elaborate and it should not include

irrelevant information in which the prospective customer is least interested. According to Biplab

S. Bose “For consumers sales letters, the sales letter should of two to three pages. Sales letters

selling industrial products should be somewhat shorter i.e. of one to three pages; but should

enclose product information, technical specification, and performance details.”30

The company must provide any easy method of purchasing goods. For this

purpose, along with the sales offer material like broucher, a blank order sheet must be

enclosed for the potential customer to fill in the details and place the order. Enclosing a blank

order sheet reinforces the purchase idea in the minds of customers.

Academics and industry researcher or working on a number of next generation

technologies that will make the mail even more versatile and powerful. Imagine receiving a mail

that shows us an image of a product and then switches to describe its features and benefits.

Memory spots can store information on a document or envelops. With this technology, a

photograph can interface with a computer to deliver an audio message from the person in the

picture. A company could attach a memory spot to an executive summary, so they need to

mail only a small portion of a report while the remainder could be transferred to a personal

computer. The face of mail is going to change dramatically as these technologies are refined

and developed. The mail is in a position to adopt high technology to become more

personalized.

Telemarketing

Telephone has become a common communication tool, because we have all grown up

having telephone at arm’s reach. Each of us has used it in our personal and business life to

deliver messages, ask questions, make arrangements & appointments, offer advice, initiate

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contact, or sell an idea or product. In short, telephone has been used as an individual means of

communication. Due to the dramatic advances in the telecommunication industry, businesses

have recognized and begun to utilize telephone as a powerful marketing medium.

Telemarketing’s phenomenal growth really began in the early 1960s. At that time, a small

number of companies were testing the medium, and for the most part their tests were limited to

lead generation for a company sales force. A dramatic impact on the industry occurred in the late

1960s when wide area telephone service was introduced. It provided flat monthly rates for fixed

number of hours based on geographical coverage. This service significantly reduced the cost of

both inbound(incoming) and outbound(outgoing) calling, opening up telephone

marketing(telemarketing) across the world.

As stated by Biplab S. Bose “telemarketing can be divided into inbound and

outbound operations. Inbound include the handling of incoming calls for sales inquiries.

Outbound telemarketing involves a company using the telephone to contact potential or existing

customers with a sales offer.”31 Many inbound telemarketing agencies have begun using

automated answering systems, in which callers give answers to a series of automated questions.

The outbound telemarketing is well accepted in many business-to-business selling situations. But

outbound telemarketing or telephone selling has a very bad image amongst the potential

customers. Such telephonic calls disturb an individual with a sales offer in which they have no

interest.

According to Prof. C. S. Rayudu “in order to recognize the individual needs of each of

our customers, we must interact regularly with our customers and we must capture and analyze

responses so that we can predict changes in behaviours and attitudes, thus allowing us to stay

ahead of the same. Automation is changing the nature, scope, and reach of telemarketing. More

companies, large and small, both service & product oriented, are more and more beginning to

include outbound telemarketing in their strategic marketing plans.”32

Telemarketing in Insurance

Telephone retailing appears to have a bright future in insurance. Today, direct marketing

through telephones is turning out to be the third largest and alternate channel for insurance

companies. In the UK & Australia, telemarketing and the internet are the dominant channel for

distributing non-life insurance products. Telemarketing is already significant for some

companies in Asia and there is rapidly growing interest in this channel. Insurance companies are

53

looking at in bound customer calls to sell insurance in many markets. Companies would either

run an advertising compaign inviting callers to phone in or they would attempt to cross-sell to

customers who had called for any other enquiry. For insurance companies, which have

traditionally been selling their products through agents, any other sales channel is described as an

alternate channel. Among these, bank insurance is the most dominant followed by telemarketing.

Media advertising

Direct mail & telemarketing cannot be relied in case of branded products that have a

good reputation in the market. Media advertising, in such cases, plays an important role in direct

marketing. Branded products are sold to a large number of customers and for this mass

communication, through advertising, are a cost effective measure of communicating details of

the product offer. Direct mail fails to appeal for the purchase of a branded product as compared

to the media advertising. It is a fact that a product has been advertised through high profile

channels can add to the credibility and desirability of a brand. Many financial services

companies run television advertisement to create awareness of the company’s distinctive

characteristics, similarly, newspaper advertisements too generate an immediate and direct

response. Direct mail may not hit the target market because, sometimes, the targeted consumers

may be out of station or cannot be contacted and so media advertising to the rescue of such

situations and communicate more effectively with the target market by choosing the timing and

duration of advertisement.

Catalog Marketing

Catalog is a printed sheet, that contains a list of all those products that a company is

wishing to sell directly to the consumers. Such a catalog, in addition to the names of products,

contains various attributes of these products such as price, colour, shape, utility, benefits, and

colourful product previews. Such catalogs help the customer at the time of placing orders.

Catalogues should contain all such information which is required by the potential customer to

decide whether to purchase or not.

The catalog should be factual and descriptive. It should preferably contain product

specifications along with a preview. As soon as a change has occurred in the product, such a

change is to be immediately reflected in the catalog. In other words, a catalog is to be updated

regularly. Catalog should have the new products first, or keep more interesting products on the

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cover pages or pages around the order form, why because, it is the tendency of customers to pay

more attention to the cover pages and the pages that are around the order form.

Some companies use catalog as a supplement to other forms of selling. A catalogue can

also be used in addition to personal selling or telemarketing. The salesperson may contact a

prospective customer and leave a catalog from which orders may be placed later. Mail catalogues

may be a follow up of this process. The catalog presents details of the product range that the

company holds in its retail store. Therefore, they can also be used to invite customers to visit

retail outlets. Customers can read the catalogue and purchase from the retail outlet. Catalogs can

be printed in magazines and newspapers. In addition to these, the electronic media can also be

used to advertise catalogs.

It is obvious that above and beyond the expanding role of catalogs as an effective direct

marketing tool, they were a vital cultural force. In the schools of rural communities, catalogues

were widely used as textbooks, and children began to dream of products they had never seen.

Later, at the beginning of 20th century, catalogs became a key factor in the distribution of radios

which helped to free families from their isolation. The postal service was a major factor in the

expansion of direct mail and catalog mail.

The Sears and Wards catalogs have been called ‘illustrated encyclopedias of social

history’. The products, these catalogs present, give a summary of state of technology, economics,

fashions, literature, lifestyles, and even the morality of the times. The policies Sears and Wards

pursued of presenting a great variety of products at a fair price with good service and customer

satisfaction guaranteed helped to establish catalogs as a reliable form of direct distribution for

millions of Americans.

According to Philip Kotler “The success of catalog business depends on the company’s

ability manage its customer lists carefully so that there is little duplication or bad debts, to

control its inventory carefully, to offer quality merchandise so that returns are low, and to project

a distinctive image. Some companies distinguish their catalogs by adding literary or information

features, sending swathes of materials, operating a special hot line to answer questions, sending

gifts to their best customers, and donating a percentage of the profits to good causes.”33

The catalogs are usually referred by the potential customers at the time of placing the

orders. While placing the orders, most of the potential customers are doubtful about the timely

delivery of goods, quality of goods, and security of the goods, when they are in transit. Once the

55

company fails to satisfy the customers, because of any reason, the company loses its reputation.

In the same context, Edward L. Nash states, “Catalog fulfillment is a highly specialized,

complex, intensely managed integration of people and systems and service. No matter how well

conceived your marketing plan, if it can’t get the merchandise to the customer quickly,

efficiently, and accurately, you’re likely to fail. Either operational inefficiency will prove too

costly, or poor service will drive your customers away.”34

Direct Response Marketing

Direct response marketers place advertisements in various media for the purpose of

direct purchase orders or enquiries directly from the prospective customers. Direct response

marketing can be done through television, print media and radio. The customers are requested

to respond to the advertisement by contacting the company, usually by using toll-free numbers. It

is also used to fix up appointments with companies for free product demonstrations according to

their convenience. Direct responses are initiated by the, and hence, conversion rates are higher as

compared to telemarketing and direct mail.

Advertisements in magazines and televisions can also invite customers to send their

orders. Direct to the company, without going to a store. In print advertisements, the headline is

the most important element. The headline should present the company’s strongest and most

distinct benefit. Good photographs of the product are also able to sell. Long copy photographs

sell more than short copy. Readers often skip from headline to coupon, to find out what the offer

is. Therefore, coupons should be like mini-ads, complete with brand name, promise, and

miniature photograph of the product.

Some television channels have programs only for selling the goods and services. Such

television channels are usually called as Home Shopping Network (HSN). These Home

Shopping Networks telecast for all the 24 hours of a day; programs for selling the goods and

services, these programs also offer bargain prices of various products such as dolls, cloth,

jewellery, etc. The potential customers can place orders directly using the given toll free

numbers. As stated by Edward L. Nash “Television certainly provides flexibility. There is no

other medium that can provide the direct response advertiser with as quick a turnaround in

getting on and off the air, or making immediate sales or not.”35

Door to door Marketing

56

Developments in information technology are allowing the controlled distribution of

promotional material to be undertaken more cost effectively. This method also allows delivering

product samples to the selected households. Door to door leaflet distribution is a form of printed

media, which can deliver a message to small group of prospective customers.

On line Marketing

Many large scale companies have developed their own web sites on internet that offer

information about its goods and services. Such web sites are made interactive and able to process

customer orders. The internet users tend to be high-income households which companies are

particularly keen to target. The use of internet is rapidly becoming more and more common that

tells the marketer to capture this for on line marketing. Many services like travel & financial

services usually bought through telephone and internet. The on line services offer an opportunity

to provide buyers with more information and a speeder response.

According to R. Nagraj and Prof. B. Bakkappa “the World Wide Web is poised to

become a standard medium for advertisers around the world and the Web advertising revenues

are projected to overtake magazines, cable, yellow pages, and radio advertising spending.”36 The

channels of information & communication are multiplying, both in terms of number & variety.

Direct access to up to date information is expanding very significantly, resulting in a trend

towards one to one interaction between buyers & sellers. In its simplest form, the process of

integrating all elements of the marketing communications mix across all customers contact

points to achieve greater brand coherence.”37

Unethical aspects of direct marketing

There is good relationship amongst direct marketers and their customers. This

relationship is one to one relationship. But sometimes an ethical strategy of few direct marketers

harms consumers leading to a setback to the entire industry. According to C.S.V.Murthy, in his

book on ‘BusinessEthics’, “Crooked direct marketers can be hard to catch: Direct marketing

customers often respond quickly, do not interact personally with seller and usually expect to wait

for the delivery. By the time buyers realize that they are cheated, the thieves are usually

somewhere else plotting new schemes. Some will give wrong telephone numbers, addresses,

unheard references, etc. to make the customer to check but in vain. This irritation, unfairness,

deception and fraud are very common in direct marketing.”38 Unfair practices or even outright

57

deception and fraud lead to increasingly negative consumer attitudes, lower response rates and

calls for more restrictive state and central regulations.

Direct marketing is the most controversial of advertising channels, particularly when

approaches are unsolicited. TV commercials & direct mail are common examples. Electronic

sparm and telemarketing push the borders of ethics and legality more strongly. Business ethics

has been an increasing concern among large companies, at least since 1990s. Major corporations

increasingly fear the damage to their image associated with unethical practices. Marketers have

been among the fastest to perceive the market’s performance for ethical companies, often

moving faster to take advantage of this shift in consumer tastes. This results in the expropriation

of ethics itself as a selling point or a component of a corporate image. Marketing ethics in the

area of applied ethics which deals with the moral principles behind the operation and regulation

of marketing. Some areas of marketing ethics overlap with media ethics.

Conclusion

The main pioneers of direct marketing are Aldus Manutius of Venice (known for the first

catalog in 16th century), Aaron Montgomery (known for seed & nursery catalog), William Lucas

(an English gardener, known for gardening catalog), Benjamin Franklin (an American, known

for a catalog of six hundred volumes), Washington, Jefferson, Eli Terry (a founder in the process

of direct selling), Richard Warren Sears (known for mail order business), etc. The direct

marketing is seen deeply rooted in the history of America. It is observed, during the review of

literature, that the direct marketing is facing a main problem of people joining, the process of

direct marketing, but not remaining active for a longer period or a lot of people leave and rejoin

after sometime.

The relational marketing is the sole of direct marketing, because it aims to create strong,

lasting relationship with the core group of customers. Relationship marketing and direct

marketing go hand in hand but direct marketing is based upon the concept of multi-level

marketing wherein a direct contact is established with the prospective customers through various

media of direct marketing viz. direct mail, telemarketing, media advertising, direct response

marketing, door to door marketing, and on line marketing. In direct marketing, a network of

distributors is established, and even if a distributor quits the network, no harm is done to the

down line distributors. The commission/compensation paid to the distributors is mainly based on

the quantum of sale, and a bonus on the sales of down line distributors.

58

Reference

1. Arun Kumar & N. Meenakshi, 2006, Marketing Management, Vikas Publishing House,

p-557

2. Biplab S. Bose, 2007, Marketing Management, first edition, Himalaya Publishing House,

p-823

3. P.R.Smith & Jonathan Taylor, 2005, The hand book of Marketing Communication,

Prentice-Hall of India, p-363

4. Biplab S. Bose, 2007, Marketing Management, first edition, Himalaya

Publishing House, p-822

5. Warren Keegan, 2004, Global Marketing Management, Prentice-Hall of India, 435

6. Rayburn D.Tousley, 1962, Marketing, New York, The Macmillan Company, p-304

7. Kotabe & Helsen, 2004, Global Marketing Management, third edition, WILEY, John

Wiley & Sons, p-444

8. Rayburn D.Tousley, 1962, Marketing, New York,The Macmillan

Company, p-308

9. Rayburn D.Tousley, 1962, Marketing, New York,The Macmillan

Company, p-309

10. Arun Kumar & N. Meenakshi, 2006, Marketing Management, Vikas


11. Dr. Atul Dayani, Feb .2003, Article on Relationship Marketing-a new

challenge, Indian Journal of Marketing, p-8

12. Dr. Suresh K. Chandha, May-June 2002, Article on Relationship

Marketing- Managing Customer Focus, Indian Journal of Marketing,

p-20

59

13. www.weikipedia, the free encyclopedia

14. Kohm, James A.(January 14,2004)(reorint).RE:Staff Advisory Opinion

Pyramid Scheme Analysis

(htt://www.mlmwatchdog.com/files/FTC_Ltter.pdf). Fedearal Trade

Commission.

15. www.investorsword.com, 2003, p-1

16. Wall Street Journal, March 15, 2007







20. Edward L. Nash, 1992, The Direct Marketing Handbook,

second edition, McGraw-Hill International Editions, p-137

21. P. R. Smith & Jonathan Taylor, 2005, The hand book of

Marketing Communication, Prentice-Hall of India, p-377















60

29. Warren Keegan, 2004, Global Marketing Management,Prentice-

Hall of India, p-435





32. Prof. C. S.Rayadu & S.Rajeshwari, July 2002,Tele-Shopping and Tele-

Marketing, Indian Journal of Marketing, p-14

33. Philip Kotler, 2005, Marketing Management 12e, Prentice-Hall of

India, p-609





36. R.. Nagraj & Prof. B. Bakkappa, July 2003, Article on Integrated

Marketing Communications in the digital age, Indian Journal of

Marketing, p. 3-4.

37. David Pickton and Amanda Broderick, 2001, article on Integrated

Marketing Communication, Pearson Education Limited, p-7

38. C.S.V. Murthy, 2006, Business Ethics, second revised edition, Mumbai,

Himalaya Publishing House, p-246.

61

Chapter III

WORKING PERFORMANCE OF AMWAY

Introduction

This chapter deals with the historical background and the origin of Amway since 1949,

vision as well as mission of Amway, international as well as national perspective of Amway,

achievements and developments which it has undergone, the rules of conduct for the

distributorship of Amway, in an elaborate manner. The text pertaining to these, is taken from

several sources such as web sites and the literature supplied by Amway itself in the Amway Kit.

History & Origin of Amway

The history of Amway begins with the long lasting friendship of two Americans named

Jay Van Andel and Richard DeVos. This friendship actually began with a business deal between

them, when Richard entered into an agreement with Jay for a ride to school for 25 cents a week.

Slowly they came closer to each other and became good friends. After this school friendship,

they joined military service, after some time they planned to start a business together. As a result

they worked together in a variety of small entrepreneurial ventures since their teen ages. From

these initial experiences they learned and shared many common values, interests, and aspirations.

In the year 1949, they were introduced to the Nutrilite Product Corporation, and the direct selling

method by Neil Maaskant, a cousin of Jay Van Andel. They were convinced that anyone who

was willing to work hard, could have a business of its own through direct selling method.

Nutilite was a direct sales company, based in California. Nutilite was founded by Dr. Carl

Rhenborg, developer of the first multivitamin, marketed in the United States. Nutilite products

corporation had organized a seminar, with an aim to introduce new distributors. Jay and Richard

had attended this seminar along with Neil Maaskant, and after the seminar Jay and Richard

entered into a contract with Nutilite and signed up to become distributors for Nutilite food

supplements in August, 1949. Immediately after becoming distributors they purchased a box of

food products and sold it the next day for $19.50, and kept quite for the next two weeks. Neil

Maaskant, who had introduced them to Nutrilite as sponsor, immediately noticed that they are

losing interests in the new business and so started motivating them by showing the range of

profits/commission. Meanwhile, one more seminar was organized by Nutrilite at Chicago, which

was also attended by Jay and Richard. After seeing promotional videos and listening to talks by

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company representatives and successful distributors, they once again decided to resume the

Nutilite business with fresh zeal & enthusiasm and rapidly proceeded to develop their new

business further. They had adopted key concepts of Nutrilite sales plan which states a low risk

business opportunity open virtually to anyone, no territorial or income limits, low initial

investment and the potential for new distributors to surpass the earnings of the individual who

introduced them into business, depending on their capabilities and on the time & efforts they are

willing to spend on their business. In 1949 only, Jay & Richard established a new company Ja-

Ri Corporation, abbreviated from their respective first names, for importing woolen goods from

South American countries. But after some time, they decided to drop this business too, and Ja-Ri

Corporation became their Nutrilite distributorship. In addition to profits on each product sold,

Nutrilite also offered commission on the sales of products by new distributors introduced to the

company. Today, this system of introducing new distributors by existing distributors is known as

multi-level marketing or network marketing.

By 1958, Jay and Richrd had increased the number of distributors to 5,000 and with an

aim to add few more products of other companies too, in April 1959 Jay & Richard, with some

of their up line distributors, formed ‘the American Way Association’. Under this name, their first

product was ‘Frisk’, a concentrated organic cleaner, which was designed by a scientist named

Ohio. Jay Van Andel and Richard DeVos purchased the patents rights to manufacture and

distribute Frisk, and changed the name of it to LOC (Liquid Organic Concentrate). After the

establishment of American Way Association, they established Amway Sales Corporation to

manufacture their own products and maintain sufficient stock of products to handle the sales and

marketing plan. Later, Amway Service Corporation was also established to handle insurance and

other benefits for distributors. In 1960, Jay & Richard purchased 50% shares of Atco

Manufacturing Corporation, which was the original manufacturer of LOC, and changed its name

to Amway Manufacturing Corporation. The year 1964 is a very significant year in the history of

Amway, why because in 1964 only, Amway Sales Corporation, Amway Services Corporation,

and Amway Manufacturing Corporation merged to form a single entity named “Amway

Corporation”. Amway is an abbreviation for “American Way”Amway bought control of Nutrilite

in 1972 and full ownership in 1994. Amway is a direct selling company that uses multi-level

marketing or network marketing to promote its products.1

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Vision and Mission

Amway is a global leader in direct selling. It has a wide spectrum with over three million

distributors, that are called as Independent Business Owners(IBOs) in more than 80 countries

and territories around the world. No other direct selling company has such a wide spread network

of independent business owners. People join this business for a variety of reasons. Some become

independent business owners simply to be able to buy products for their own personal use at a

reduced cost. Others join in order to sell the products directly to the consumers, thereby earning a

profit on each sale and additional financial benefits based on their sales volume. Business

builders not only sell products but they also sponsor others to join the business. They are

compensated for their own sales as well as the sales of those they sponsor, receiving incentive

bonuses that increase as their own sales force increases. All the distributors have the identical

opportunity to grow a successful business. Each distributor is rewarded in monetary terms in the

proportion of their efforts.

Its global vision is “to help or inspire people live better lives”. It also shares a

commitment with independent business owners(distributors) to succeed in building better

businesses that support better lives. Regarding its vision, Amway says “ours is a unique global

community and we take great pride in the principles, people, and products that support our

international work, enabling us to pay an important and positive role in so many people’s lives

around the world. At the heart of this global commitment is the One by One Campaign for

Children that helps disadvantaged children from around the world.

The IT vision of Amway is “Networked Century”. Amway’s long-time IT vision and the

development of relevant information system to make communication real-time, has enabled it to

implement business model. Efficient information system is the heart of Amway operations. The

objective of IT initiatives is to ensure that it has a strong heart to support other organs providing

real-time information any time, any place. Because of this IT vision, Amway India is using state-

of-the-art technologies to ensure that all bus information is available in real-time and all Amway

offices and distributors connected anytime, all the time. Information technology has played an

integral part in making Amway one of the biggest success stories in the direct marketing space in

the country. With 45 offices and 3.10 lakh active distributors, and third party contract

manufacturers spread across the country, contemplating operations without an effective

automated system was an unthinkable task for the company’s management.

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Amway’s mission is “to provide the best business Opportunity” and Quality products at

an affordable price. It is the American way to deliver the goods to meet the market demand, but

find a way to do it better and cheaper than its competitors. The philosophy of Amway is to

produce a quality product and deliver it through an inexpensive distribution channel, saving

consumers millions of dollars every year. Amway attributes its success to the basic philosophy of

delivering more for less. A major factor in keeping costs low is the fact that Amway makes its

own containers for each product it sells. And like any manufacturing operation, maximizing both

the production and quality of its containers is a critical variable in the low-cost equation.

International Perspective

A lot has changed since Amway’s founding in 1959. From a small, family-run US

business, the company has grown into an international group with activities across the Atlantic.

Amway Deutschiand GmbH is the largest of the European subsidiaries, through the management

of Amway’s Europe & South Africa region is spread across various countries. The commercial

manager works in the UK. Despite the distances involved, Amway’s management team used to

hold meetings once in a month to ensure optimal collaboration. Amway started by developing

and selling its own product line of high quality, highly concentrated home care products. In

1960s, Amway sales reached an impressive $500. While the business continued to grow rapidly

in the United States, Jay and Richard decided, in 1962, to expand it to Canada. Till the end of

1970, i.e. during a decade’s time, Amway US and Canada operations had a distributor network

of one lakh and turnover of 8.5 million dollars. Some 200 products were manufactured at

Amway’s extensive complex in Ada, Michigan where more than 700 people were employed.

Amway expanded to Australia in 1971, to Europe in 1973, to parts of asia in 1974, and to

Japan in 19779. By 1979 Ada World Headquarters had expanded to an amazing 2.5 million sq.ft.

(i.e. 230 thousand square meters) incorporating R & D, manufacturing, distribution, and

administration. By the end of 1980, Amway sales increased nearly ten times billion dollar mark

in 1981. It was further extended to Latin America in 1985. In 1989, it was recognized as a

corporate leader in promoting environmental awareness and education when it received the

prestigious United Nations Environmental Program Achievement Award. The It is ranked by

Forbes as one of the largest private companies in the United States 2 and by Deloitte as one of the

largest retailers in the world.3 1990s saw dramatic international expansion, which includes China

& Africa. In just first half of the decade, it doubled the number of its international affiliates.

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Annual sales tripled during the same period. By the end of 2000, more than three million sales

people in some 80 countries and territories were involved in the Amway business worldwide and

the estimated retail sales volumes reached five billion US dollars. Around the world, Amway’s

regional and country affiliates continued to support their distributors with the launch of e-

commerce sites that extended the Amway opportunities into cyberspace. The web based Amway

businesses around the globe, supported by local distribution and warehousing facilities, has

assured timely and accurate order processing and product delivery. Russia and Vietnam received

Amway affiliations in 2005 and 2008 respectively. In 2008, two-thirds of Amway’s 58

markets reported sales increases, including strong growth in Russia and China. It has reported

sales growth of 15%, reaching US 8.4 billion dollars for the year ending December 31, 2008.4

Indian Perspective

India got Amway’s affiliation in the year 1995 under the name ‘Amway India’. Amway

India is wholly owned subsidiary of Amway Corporation. Amway India commenced its

commercial operations in May 1998. The company is headquartered at New Delhi. Amway has

invested in excess of 35 million US dollars i.e. Rs. 151 crore. Amway India has 400 full time

employees. The company has provided income generating opportunities to over 4.5 lakh active

independents. It provides free and unlimited training to all its distributors. It has recorded a sales

turnover of over Rs. 800 crore by the end of 2007. It is a member of Indian Direct Selling

Association (IDSA). It is also a member of the Confederation of Indian Industries (CII). The

World Blind Union presented an award and citation. In just ten years of commercial operations,

Amway India has established a nation-wide presence in regional warehouses. The distribution

and home delivery network is set up across over three thousand locations. In India Amway has

45 offices and 3.10 lakh active distributor, apart from other distributors. It also has third party

manufacturers spread across the country.

Achievements and Developments

As a corporate leader in promoting environment awareness and education, Amway

received the prestigious United Nations Environment Programme Achievement Award in 1989.

It has also received a Corporate Citizenship Award on November 8, 2005, the United States

Chamber of Commerce award Alticor with the Corporate Citizenship Award in the category of

International Community Service for the One by One Campaign for children.

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In 1970s it reached the sales of more than $100 million at estimated retail and kept going

strong. The 1980s will be remembered for the first Billion Dollar year at estimated retail in 1980.

Building expansion at Amway world Headquarters continued at a fast speed. It has opened its

new cosmetics plant in Ada, Michigan.

As carefully planned by Rich and Jay, the second generation Van Andal and DeVos

families took the charge during the 1990s. The Policy Board was formed and Steve Van Andal

and Dick DeVos succeeded their fathers as chairman and president. Distributors witnessed a

similar trend, with the second generation of many distributor families taking an important

leadership roles.

Almost 50 years after Amway began, the Devos and Van Andal families created a new

century. A parent company, Alticor, was established with subsidiaries Amway. Since its

inception in 1959, Amway has gone 180+ billion dollar enterprise that produces everything from

household detergents to cookware and vitamins. With over 450 products and a global presence,

Amway has truly become the perfect embodiment American business.

Amway has realized the importance of information technology for the ease of easy access

and control as a whole. Amway India is fortunate enough to have IT professionals from its parent

company. It is using many software like the HUman RISource (HIRIS) software. This software

stores complete information of its employees. It facilitates features like mid-year appraisals,

annual appraisals and leave.

From five offices and a reach of 150 locations in May 1998, Amway India now has 45

offices catering to around 400 cities and towns across the country. It plans to increase the

number of offices as well as cities and towns. Such a large magnitude of Amway’s operations

required an efficient information system. All Amway warehouses, pick-up centers and offices

are connected online so that inventory planners have access to real time sales and inventory data.

Amway is now focusing on integrating the back-end operations of its supply chain into the

overall process. The vision is to have a fully integrated and seamless supply chain, whereby a

product sale at one end generates an order for raw material at the other end. The ERP system of

Amway India was developed in house. This system has been adequately customized to suit

Indian requirements. The main modules of the system include order management, inventory

management, financial management and bonus calculation, purchase and sales management, and

payroll system. Some of the modules are integrated with the global ERP system in order to track

67

the Indian part of the global entity. This system takes care of its distributor accounting in freight

and logistics issues too. Once a distributor acquires a customer, he has to ship the required

products to the customer’s location, which is tracked by the system. For instance, if the order

needs to be delivered on Patna, the system’s inventory management control ensures that stocks

are always available. In the event of a sale, the system does all the tracking and automatically

disburses the cheques to the recipients down the supply chain. It even credits money to their

individual accounts. The complete HR process, from recruitment to salaries, is online. The full

HR and payroll system, is a browser-friendly solution, which runs on ASP.

Its other systems include Complaint Management System(CMS), Interactive Voice

Response System(IVRS), Short Message System(SMS), and Disaster Recovery Management.

CMS is another in-house developed Lotus Domino-based package, integrated to the

backend. Once the request is logged, it is assigned to an appropriate assignee. A mail with details

of the complaint or request goes to the assignee. It has a three level escalation process. After the

call has been addressed, the knowledge management database, which generates a report stating

average resolution time taken per call. This system is aimed at analyzing performance with

regard to customer service in terms of time taken to resolve a complaint, and reasons for delay

that ultimately results in improved customer service response.

Interactive Voice Response System(IVRS), round the clock searches and provides

complete business information such as product information and promotions, addresses and

contract information and importantly tracks Amway’s reward points system. This service is used

as telephone system for any Amway distributor in India. However, currently national capital

region can access it as a local call. But the overwhelming response that the company has

received, has prompted it to soon extend the service to other locations through a service provider.

Through Short Message Service(SMS), Amway India leveraging on SMS to provide

critical information to its distributors anywhere on their mobile phones. Amway charges its

distributors a meager amount each month for this service. The business information messages are

delivered to the distributors automatically using the push technology, the top line is always

informed of the happenings down the line to provide the service, the company has tied up with

CellNext as service provider. CellNext has tied up with most cellular service providers to deliver

the service to almost all of Amway’s distributors. The package for this system has been

developed in house.

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Rules of Conduct

The Amway rules of conduct define and establish certain principles to be followed in the

development and maintenance of an Amway distributorship and the rights, duties, and

responsibilities of each Amway distributor. The company Amway and its distributors have a

binding contractual relationship. The terms & conditions of this relationship are set forth in the

Amway distributor application form(i.e. SA-88-ID). The code of conduct and rules of

distributorship are precisely written and printed in the form of a booklet which is called as an

‘Official Document’. This official document is handed over to each Amway distributor at the

time of entering into a contractual relationship as a ready reckner. These rules are amendable,

from time to time, as and when required. The proposed amendments are first kept before the

Amway Leadership for an open discussion, evaluation, and recommendations. But final decision

making authority with respect to any amendment rests with Amway. Amway, after finalizing the

amendments, notifies all such amendments to the distributors by publication in Amway’s in-

house news magazines such as AMAGRAM, NEWSGRAM, and Leadership Update.

Words & Phrases used in Rules of Conduct

1. Definitions of words & phrases used in rules of conduct for distributorship:

Amway means Amway India Enterprises a company registered under the Companies Act , 1956

having its registered office at No. 5,DDA Local Shopping Complex, Okhla Commercial

Complex, Phase II, New Delhi – 110020.

Amway Corporation means Amway corporation, 7575 Fulton Street East, Ada, Michigan

49355, USA.

Amway Business means the aggregated rights, duties, and privileges of a distributor to conduct

business with Amway, other distributors and third parties as provided in the Amway Business

Kit, including but not limited to the rules of conduct.

Amway Products means all goods and services, including literature and other support or

auxiliary materials, made available by Amway to distributors.

Amway sales & Marketing Plan means the plan provided in the Amway Business Kit detailing

Amway’s performance incentive systems, sponsoring procedures and guidelines, requirements

systems, procedures and policies regarding the presentation of Amway products, the Amway

69

business and the management of an Amway organization, as amended from time to time by

Amway and of which the rules are a part.

Amway Business Kit means the literature provided with the distributor application.

Business Support Materials (BSM) refers to any privately produced materials, in both written

and recorded form, and meetings which may be developed, produced, and distributed by

distributors in their business group, as well as for the purpose of attracting prospects in becoming

Amway distributors, which is regulated.

Business Group refers to that distributor and all his personally sponsored distributors, all those

distributors sponsored by his personally sponsored distributors and so on down to and including

those who have not sponsored anyone, but excluding any direct distributors in the organization

under him or any distributors in the business group of such direct distributors.

Business Year means a period beginning from September 1 and ending on August 31 of the

following calendar year.

Corporate Authorization Form means the form required to be filled in by proprietorship

concern, partnership or a company desiring to become a distributor, which provide information

about the business entity and the authorized signatories thereof.

Cross Group Selling means that a distributor selling products to a distributor in other lines of

sponsorship.

Direct Distributor means a distributor who has achieved a certain level of business activity as

prescribed by the Amway Sales and Marketing Plan.

Distributor means a person or entity that is introduced to the Amway business and is accepted

by Amway as a distributor. The term distributor includes the term Sponsor and Direct Distributor

except when the context requires otherwise. Distributor are independent business persons,

operating their own independent businesses, and have no employment, agency or similar

relationship with Amway.

Distributor Application means Form SA-880ID application detailing the terms and conditions

of distributorship that is required to be filled in and submitted by person desiring to become an

Amway distributor.

Foster Sponsor means a distributor who agrees to assist, train, and motivate an internationally

sponsored distributor as a member of his business group.

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Internationally Sponsored Distributor refers to any distributor introduced to Amway by

another distributor who resides outside of India, who is then sponsored into Amway and assigned

to a Foster Sponsor in India.

Line of Sponsorship shall include in an ascending manner the sponsor of a distributor, the

sponsor’s sponsor, and so forth and shall end at Amway.

Market means the territory of India and such additional territories as may be added by Amway

from time to time.

Membership Year is a calendar year commencing from January 1 and ending on December 31.

All distributorships, unless renewed during the renewal period, expire at the end of the year from

date of joining except for distributorship availed during September to December 31 of a calendar

year which expire on December 31 of the following year.

Renewal Period refers to the period September to December of each calendar year during which

the distributor is required to renew his distributorship with Amway for the following

membership year upon payment of normal fees. Provided however Amway shall be entitled at its

discretion to extend the renewal period to March of the following calendar year on such terms as

it may deem fit.

Rules of conduct shall mean these rules of conduct for distributors which can be changed or

modified by Amway from time to time, as provided in these rules.

Sponsor means a distributor who introduces to Amway an applicant for authorization as a

distributor who in turn becomes a distributor by virtue of Amway’s acceptance of his distributor

application.

2. Rules of becoming a distributor

Distributorship may be taken up in individual capacity, as sole proprietorship concerns or

partnership firms and companies. Distributor Application Form (SA-88-ID), supplied in the

Amway Business Kit, must be sent to the Amway’s offices as soon as it has been filled out

together with Corporate Authorization Form for proprietorship concern, partnership firm and

companies, if applicable. The opportunity to become a distributor is given to anyone irrespective

of race, sex, nationality, and religious or political beliefs. Following is the eligibility criteria for

becoming a distributor.

- A candidate willing to become a distributor must be at least 18 years of age.

71

- He/She must be of sound mind and must not be unable to manage business due to any

legal reasons.

- He/She must not have been suspended from his/her current profession or business by any

professional association, society, or institution.

- He/She must not be in jail and/or confined to any correctional institution of any kind.

Amway reserves the right to accept or reject any application to be a distributor without

having to give any explanation whatsoever. An application shall be accepted when Amway

enters the personal details of a distributor on its records and communicates its acceptance to the

distributor in any manner whatsoever whether by issue of an identification card or by sending an

Amagram or any other literature.

Distributor authorization shall expire at the end of 12 months from the date of joining,

with the exception of initial applications accepted between September1 and December 31, in

which case initial authorization shall expire at the end of the subsequent calendar year i.e.

December 31 of the following calendar year. In order to remain a distributor of Amway products,

beyond the membership period a distributor must annually renew his/her Amway distributorship

during the renewal period. If a distributor does not renew his/her Amway business within the

time limit established, i.e. during the renewal period or if Amway does not accept his/her

renewal application, his/her Amway business shall automatically expire.

Amway reserves the right to refuse any renewal request and can revoke any distributor’s

renewal application, if in its opinion, the distributor’s activities have not been in accordance with

the interests of Amway and/or the Amway distribution organization, or if the distributor did not

comply with any of the Amway rules of conduct during the 12 months preceding the period for

which renewal is sought.

A distributor can cancel his/her Amway business at any time sending a letter to Amway

with a copy to his/her sponsor and direct distributor. Similarly, a former distributor can request

to be authorized as a new distributor. In case of an internal partnership, the Amway

distributorship shall be only under the names of the individual partners and not under a business

name that the partnership might use for other transactions. A distributor may own and operate his

or her distributorship as a proprietary concern or registered partnership firm or limited liability

company, provided it complies with certain requirements and conditions.

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One of the advantages of building an Amway distributorship is that the owner may pass

it on to his or her heirs as part of his or her estate. In order to accomplish that objective, he or she

may wish to transfer the distributorship to a trust during his or her lifetime or arrange for it to be

transferred to a testamentary trust after his or her death. The later may be particularly desirable

where his or her surviving heirs may be minors who are disqualified by law from operating the

distributorship until they reach their majority. The trustee must be an individual, and the trustee

may also be an Amway distributor at the time the trust is created or takes effect. In order to

assure that the transfer of a distributorship to a trust may not result in unfavourable

consequences, Amway needs the following conditions to be fulfilled.

- The creator of the trust must have been a duly qualified and authorized distributor at the

time that the distributorship is transferred to the trust.

- Frequently the beneficiary of the trust will be the spouse, child, grandchild, parent, or

sibling of the Amway distributor or deceased distributor, whose distributorship is to be

transferred. However, the beneficiary of the trust may be any individual who is eligible to

become an authorized Amway distributor. A beneficiary cannot be a business entity,

existing corporation, charitable organization, non-profit organization, a foundation, or

any similar entity.

- The trust instrument must not permit the beneficiaries to assign any beneficial interest in

the trust.

- The trustee must sign and file an application and receive an Amway Distributorship

Authorization.

- An original signed copy of trust instrument must accompany the application, and the

trustee must promptly file with Amway any amendments or any documents which may

vary the terms of the trust.

- All trustees must execute on its behalf an irrevocable guarantee that the trustee will

perform all the obligations and responsibilities of a distributor.

- The term of the trust must not be perpetual and shall not continue beyond the date

necessary to protect the interests of those trust beneficiaried who are unable to act for

themselves legally, that is minor children or incompetent persons, or who, because of age

or inexperience, require assistance in the conduct of business affairs.

- The trust will conduct only the business of an Amway Distributorship and no other.

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Husband and Wife Distributorship

In Amway business, husband and wife always have to be together, even if one of then has

not signed as an applicant both are deemed to be Amway distributors. If both husband and wife

wish to become distributors, they must be sponsored together for a single distributorship.

Husbands and Wives may not sponsor each other. If one spouse is already a distributor, the other

spouse, upon electing to become a distributor, must join the same distributorship as his or her

spouse. A husband and wife shall operate their distributorship as a single entity irrespective of

whether both names are on the distributorship. Therefore, each is held accountable for the actions

of the other so far as the rules of conduct are concerned.

If two distributors, each of whom owns and operates a distributorship in different lines of

sponsorship (neither of which is a direct distributorship), get married to each other, one of these

distributors must also elect to surrender (by sale, transfer, or abandonment) his or her

distributorship and become a partner in his or her spouse’s distributorship.

If either member of the newly married couple has attained direct distributor status, then

the newly married couple may operate both distributorships, each of which will, however, be

operated in its original line of sponsorship. If the spouse surrendering a distributorship does so

by way of sale, such sale must be made in accordance with the provisions of these rules of

conduct. If the spouse surrendering a distributorship does so by simple abandoning it, the

sponsorship of the abandoned distributorship shall pass up the line of sponsorship to the next

sponsorship.

3. Responsibilities of all distributors

At all times, distributors must adhere strictly to the guidelines, systems, procedures and

policies mentioned in the literature accompanying the Amway business kit of which these rules

of conduct and Amway sales and marketing plan are a part and any amendment thereto affected

by Amway from time to time, provided or in any other means of communication prior to their

going into effect.

Cross Group Selling

A distributor in one line of sponsorship must buy all the products either directly from

Amway or from his/her sponsor. No distributor shall engage in cross group selling. In order to be

eligible for the various monetary and non-monetary benefits available through the Amway sales

In the light of 70% rule, the distributors are required to...

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