In organizing a direct selling business a DSO has to operate on a multiplier from cost price to RrP that is similar to, if not slightly higher than, successful mail order businesses. This will be explained in more detail in chapter 6. The difference, however, is that the bulk of the cost of making a sale is a variable cost.
These DSOs that use catalogues have much the same print costs, While almost 90 per cent of the cost of the Direct mail campaign is a fixed cost, with a DSO the fixed cost element can be as low as 10 per cent. The key to the system working is the higher response rate.
In theory, a DSO could operate profitably on a response rate of 2 per cent. In practice it would not work. The reason, quite simply, is that few direct sellers, working on commission, would find it in their interests to make sales of £20.00 to only one in 50 of their catalogue placements.
Low response rates can be made to work effectively in direct selling, but only where target orders values are around £100 or more and where full sales presentation is involved. This type of business will, again, be dealt with later. Direct selling can offer mail order businesses a highly effective way of building a strong house list of regular repeat customers. One British DSO that has pioneered this approach is the Children’s Warehouse which in 1996, won the DSA’ s New Business Award.
The Children’s Warehouse was founded in 1995, by Bernard Bunting, to market children’s designer clothes through a mail order catalogue. This DSO’s innovative approach was to offer customers an incentive to promote the catalogue to their friends, with rewards based on the volume of business achieved through a network of personal contacts – like themselves, mothers with young children.
These agents are not involved in product sales and distribution, as the resulting orders are fulfilled on a normal mail order basis. In this DSAO the agents are rewarded for their selling skills in promoting the catalogue and giving personal endorsements for quality and style of the merchandise.
In summary, the principal window of opportunity for DSOs is in the marketing of low-cost consumer goods in competition with conventional retailers and with mail order traders using established catalogues with strong house lists. Table 1.1 shows the average value of direct sold consumer goods transactions over the past six years.
The year -on-year variation is accounted by inflation changes in product mix and the changing fortunes of DSOs marketing big ticket products. The main point I am making is that average transactions values, achieved through direct sales, is low – under £20.00.
Reference: Direct Selling: Richard Berry