At the turn of the twentieth century the professional salesperson was still a comparatively young phenomenon, but it was growing swiftly—especially in America, with its nearly 100,000 traveling salesmen. In 1910, representatives from ten companies assembled in Binghamton, New York, to form a national trade group to help support and advocate for the direct selling profession, build the respectability of its public image, and articulate and champion a code of ethical business practices. Called the Agents Credit Association, the organization was later renamed the National Association of Agency Companies (in 1914), then the National Association of Agency and Mail Order Companies (1917), then the National Association of Direct Selling Associations (1925), and finally, in 1968, the Direct Selling Association.
Today the DSA boasts close to 200 member companies, and its sister organization, the World Federation of Direct Selling Associations (WFDSA), for which the DSA serves as secretariat (they share the same Washington., D.C. headquarters), serves national direct selling associations in sixty countries around the world.
For this issue we sat down with Joe Mariano, president of the DSA, to talk about our profession’s state of the union.
Conducting this interview had all sorts of historical overtones and was especially fun for me to do, because the last time I interviewed the president of the DSA for this publication, I was talking with Joe’s predecessor Neil Offen—and it was ten years ago. Naturally, I was most curious to get his take on how things have changed (and in some cases, not changed) in the past decade. — J.D.M.
When did you assume this office, and how long had you been associated with the DSA prior to that?
I’ve been representing the direct selling industry and the DSA for quite a while, as an attorney, lobbyist and advocate, and spokesmen. I had been working with Neil [Offen] for the past twenty-six years or so in various positions, up to and including executive vice president, when he retired in 2011 and I took over his position as president.
When I spoke with Neil ten years ago, direct selling stood at about $85 billion in annual sales and some 47 million people involved worldwide. What do the numbers look like today?
Much larger, depending upon how you measure it, and whether or not you include China. You can call it $150 billion in sales and 90 million salespeople. Despite ongoing challenges, including the intervening recession, things have gone quite well for us as an industry.
What have been the most significant changes you have seen in the last ten years?
Interestingly, many of the challenges facing direct selling ten years ago, and even twenty-five or thirty-five years ago, continue to face us today.
This is particularly on my mind right now because of a recent resurgence of some myths, misunderstandings, and misrepresentations about direct selling that we’ve been dealing with these last few months. These exact same issues could easily have been brought up in 1995, 1985, or even 1975.
Of course, some major things have changed. The industry overall has prospered significantly these past ten years, both in the U.S. and globally.
In 2011 we saw a growth of more than four percent over the previous year, and when the 2012 numbers are complete I’m hopeful they will reflect the same kind of growth, even in the United States, which is the most mature market for direct selling.
Issues we have been wrestling with, to some extent successfully, obviously include the incorporation of social media into direct selling and the need to appeal to a younger demographic.
Leading CEO panel at the 2012 DSA annual meeting.
Time to leave behind the idea that this is largely a baby boomer business?
Absolutely. Those companies that have been most successful, particularly in the last five to ten years, are generally those that are speaking to and appealing to a younger demographic.
So no, we’re not just for baby boomers. We’ve spent several years actively looking at what factors appeal to a younger demographic. What is it about the model that we can use to leverage greater interest, and what about the model has to change or become more flexible in order to appeal to that younger demographic?
Our analyses suggest that generation Y, generation X, and the millenials do not necessarily want to be tied into a single approach to selling.
In fact, they don’t even want to think of their activity as “selling.” They want to think of it as a social activity, and if they can leverage that using any number of platforms, whether it’s social media, personal contact, a traditional party plan, or person to person contact, then that’s what they’ll do.
Those companies that embrace that kind of flexible approach seem to be having greater success.
Do you see that more in newer companies?
To some extent, yes. The ability to integrate technology into your corporate culture right from the start seems to be a real advantage for companies that have begun over the past few years, as compared with those that have been around for longer and whose sales force may be older and more resistant or incapable of embracing technology quite as quickly.
The World Federation of Direct Selling Associations has begun using a tagline calling our profession “the original social network.”
So, yes, even given the challenges, we are well positioned to succeed and to continue succeeding in this new technological environment.
Like Mark Twain, reports of our demise have been greatly exaggerated?
Over the nearly thirty years I’ve been at the Association, there’ve been at least three times when various observers, even some within the business itself, have suggested that our days were over. And each time they’ve been proven wrong, primarily because of the flexibility of the model and its core fundamental strength.
This is not a party-plan business, or a business just for women, or just for baby boomers. It is a business based on service to and education of the consumer—and that won’t ever go out of style.
It is also a business that offers an opportunity—one that is being eagerly embraced now more than ever—which is one reason we’ve been able to prosper not only in the United States but throughout the globe.
Has the general public view, awareness, or understanding of what we do changed in the past ten years?
Yes and no. Every three to five years we conduct a public awareness tracking, and we’re seeing some things that remain generally consistent.
There is a consistently positive attitude toward direct selling among people who have had a specific, personal experience with direct selling. At the same time, there is also a fairly consistent skepticism about the industry overall.
Neil spoke about that same weird dichotomy between perception and experience. He cited a 1976 Lou Harris poll, which found that most people had an overwhelmingly negative view of direct selling overall, yet an almost universally positive experience of it personally!
It’s sort of like Congress: everybody seems to hate Congress, but love their own congressman. People who have had direct experience with direct selling love it—yet we haven’t made as much progress as we need to regarding general public attitudes about direct selling overall.
This is something the DSA has recently begun to address more actively.
Delivering the 2012 Technology Innovation award.
With Business Training award winners 2012.
Over the past seven years or so we’ve engaged in a concerted image enhancement effort. We’ve gone to targeted audiences, focusing on the demographic of women, ages twenty-five to forty-five, and demonstrated the value of direct selling.
Our aim is to break down resistance to the channel itself, so that companies can focus on their own opportunity and not have to worry, or at least not as much, about any initial resistance their target audience might have to direct selling in general.
What kinds of results have you had?
It’s mixed. We’ve made some progress, and the success of the industry at large suggests that we’ve done quite well in terms of breaking down those perceptions. But we’d still like to see more.
The DSA’s famous Code of Ethics and member company standards are something so many of my colleagues in the business know about and feel good about. How have those standards evolved over the years?
Twenty years ago, in 1992, there was no standard in the DSA code regarding inventory buy-back. We urged people to do it, but it wasn’t a requirement of membership. Today, it is.
In 1992 there was no specific language in the code protecting individual sellers, as well as consumers. Now there is.
There was no specific language regarding to earnings claims. Now you have to establish that any earnings representations you make are based on documented facts.
There are a variety of other provisions in the code, too, that are continually amended and added. It’s really a living document, meant to respond to the needs of the growing and changing marketplace.
What kind of impact do you see the Code of Ethics having on companies’ actual behavior?
Even though not every direct selling company is a member of the association, our standards have effectively become industry standards. They not only reflect our member companies’ behaviors but also influence the behaviors of even those companies not in the association.
We seek to maintain the standard of being the most consumer-oriented, most progressive industry and trade association in the country. We have to remember that as direct sellers, we are guests in our customers’ homes, so we have a higher level of obligation to make sure we’re doing things correctly. And the same holds true for protecting our salespeople.
Recently a large, established company was shut down by the FTC, and I noticed that in a DSA press release you pointed out that they were not a DSA member company. It made me realize again how much weight that simple question carries: “Are you a DSA member?”—because the path to DSA membership is not an easy one.
That’s quite true, it’s rigorous. It takes at least a year to become a full member, during which you’ve pledged yourself to abide by a code of standards that is administered by an independent party—and we hold you accountable if you don’t.
I would add this, though: DSA is not a law enforcement agency so, while we do our best to make sure our companies are in compliance with the law as we interpret it, regulators or other government officials may from time to time have a different view about a particular company or about the application of a certain standard of law. We maintain productive relationships with regulatory agencies (like the FTC) and Attorneys General in many states so we can both continue to understand their views on the law as well as ensure they hear our perspective.
As high as we set the bar, however, there’s still no foolproof way to ensure that we’ve identified every bad actor in the marketplace. That’s where the Code of Ethics comes into play. It’s both a mechanism for setting standards as well as maintaining them if an issue arises. The fact is, companies that don’t think they’ll be able to comply with our standards and withstand the rigor of our one-year period, typically don’t apply. And if they do apply, perhaps thinking that all they need to do is write a check, then when they go through review and are challenged by our legal staff, they typically pull out and never reapply. They don’t want to be embarrassed or challenged.
Earlier this year there was a brouhaha with a highly reputable, decades-old company, when a big hedge fund manager attacked it as a scam and bet a billion dollars it would crash—and then another, equally big, hedge fund manager disagreed with him and bet a billion it would succeed. With these two Wall Street giants duking it out, it was like a proxy battle of the forces of history around network marketing.
And that was a good example of how important it is for us to continue educating the financial community, the press, the regulators, and the public at large, so they aren’t confused and subject to the manipulation of people who attack our model and, in some cases, use that attack for their own financial purposes.
At the same time, to some extent this has to do with the nature of our business model. This business builds its reputation on word of mouth and person-to-person contact. For the most part, our companies don’t buy major advertising time or buy credibility by purchasing shelf space at a retail outlet.
In terms of public perception, these factors naturally put us at something of a disadvantage.
Many in the business are vaguely aware of the famous 1979 litigation of FTC v. Amway. Yet I suspect most of us don’t really know the nuts and bolts of what happened or what it means. Can you give us a clear sense of that 1979 ruling and what impact it has on us today?
It does have an impact, but it is often misinterpreted.
The fundamental rule laid down in that 1979 decision is this: If you’re a pyramid scheme you’re illegal and you’ll be prosecuted.
The definition of “pyramid scheme” is an operation where people pay to have the right to recruit others and be compensated for that recruitment. In a legitimate direct selling company, an individual may recruit other salespeople, but ultimately he or she is not compensated on the mere act of recruiting, but is compensated on the basis of product sales.
The FTC looked at Amway and said, “What is Amway doing right now that gives us evidence that they’re not inventory-loading people, that its people are in fact being compensated ultimately for sales and not merely for recruiting?”
It looked at the rules Amway had in place, which included inventory buy-back rules, a ten-customer rule (to receive certain bonuses you had to make at least one retail sale to at least ten customers each month), and a 70 percent rule (you had to retail at least 70 percent of product you bought)—and concluded that Amway was operating as a legitimate direct selling company and not a pyramid scheme.
Since then, people both inside and outside direct selling have therefore said, “The FTC says you have to have a ten-customer rule, a 70 percent rule, and a buy-back rule.” But that’s not the case—that’s a complete misunderstanding of what actually happened.
So the FTC wasn’t making a broad statement that you have to have those specific rules in place.
Not at all. Those were simply pieces of evidence the FTC cited, in that one case, that indicated that this specific company was not a pyramid scheme. Putting those specific rules in place doesn’t guarantee that you’re not a pyramid scheme, and not having those rules doesn’t make you a pyramid or mean that you’re out of compliance with the FTC.
People often say that to be a legally compliant direct selling company, you have to ensure that your people are selling at least 70 percent of their goods outside of the plan. But it’s simply not the case, and it has created a lot of unnecessary confusion. Neither the FTC or any other regulatory body has ever stated or required such a rule.
The key is to make sure that your compensation is based primarily on product sales, and to have mechanisms within your plan that ensure that.
With Salesforce Development award winners 2012.
With Product Innovation award winners 2012.
How are we doing at policing ourselves and holding ourselves to good standards?
I think we are generally doing a good job. Again, our self-regulatory program is not a foolproof system, but I believe it is helping eliminate much of the need for the kinds of government regulations and sanctions that might otherwise come into play.
What can we as individual distributors and direct sellers do toward that effort?
Recognize that in addition to being in business for yourself, you are also representing the entire profession. Treating our customers ethically and fairly is something most people do consistently. I have absolutely no doubt about that.
Still, it can sometimes be easy to fall into the trap of taking the quick way out—for example, making an earnings representation that might not be entirely correct, or being a little too aggressive in your sales and recruitment techniques.
It’s important to keep in mind that, while there may or may not be short-term gain in that kind of activity, in the long term it damages your business, your company, and the entire profession. Eventually it will come back to haunt you.
In the business culture at large, there seems to be an evolving greater sense of transparency, integrity, and consumer advocacy—in part because these days, if your company does something wrong, one disgruntled blog post can make the whole world aware of it. Isn’t that rising tide of good practices helping to promote a rising culture of professionalism in our business?
I actually think direct selling has been a leader in that direction, and that we are in fact responsible for some of that positive change.
We are a business that reaches into every corner of the community in a good and positive way. In 2012, 13 percent of American households—more than 1 in 8—included someone who was a direct seller. Extend that back ten or twenty years, and just think about how many households and individuals we’ve touched!
So, yes, I think direct selling itself has to take some credit for being the carriers of that message of fairness and ethics in business.
And I have to add that as much as we’ve been able to accomplish at the DSA, we are only a reflection of what goes on in direct selling around the world. To the extent that we’re successful, it’s as much due to the people throughout the profession as it is to our own efforts here at the association.
What do you see for the future of direct selling over the next ten years?
I see us becoming a much more significant force even than we are today. Right now we represent less than one percent of total retail, so we could double our entire annual sales and still be a relatively small percentage. Which means there is tremendous potential for growth.
To see the DSA’s code of ethics and more information on what the DSA does, go to www.dsa.org and its educational site, directselling411.com.
The Amway Safeguards Rule
The legal precedents underlying network marketing practices today are based on a piece of 1979 litigation, 93 F.T.C. 618: The Matter of Amway Corporation, Inc., et al., Vs. The Federal Trade Commission in Regard to Alleged Violation of the Federal Trade Commission Act, 1979.
Based on interviews with leading network marketing attorneys, along with review of their websites and published references, the central theme is that the “Amway Safeguards Rule” defined in that case law continues to be the prevailing set of legal standards that courts and regulatory agencies use to determine the legitimacy of network marketing company and distributor practices.
Distilling the court legalese into everyday language, these are standards of operational legal compliance that are straightforward for distributor application.
1. Products or Services. The company should offer a high quality product or service in which consumer satisfaction is guaranteed. It must have a real demand in the marketplace.
2. Price. The price of the product or service must be fair and competitive in the marketplace.
3. Investment Requirements. There should be no investment requirement at all, except a sales kit or demonstration material sold at company cost.
4. Purchase and Inventory Requirements. A legitimate marketing program should have no minimum purchase requirement nor inventory stocking for one to become a distributor or sales representative. Once in the business, however, ongoing activity or qualification requirements are typical of leading networking companies.
5. Use of Product. Products should be used by consumers and not end up in a garage or basement.
6. Sales Commissions. Sales commissions should not be paid for the mere act of sponsoring other distributors.
7. Buy-Back Policy. A legitimate network marketing company will agree for some reasonable period of time to buy back inventory and sales kit materials in resalable condition from distributors who cancel participation in the program.
8. Retail Sales. The focus of the marketing program should be to promote retail sales to nonparticipants. Many states and programs recognize that purchases for personal or family use in reasonable amounts by distributors are also retail sales. “Personal use” as a retail sale is still not universally accepted by courts and regulatory agencies, and validation of “personal use” is one of the important priorities of the industry and its trade associations.
9. Distributor Activities. Many of the new statutes regarding multilevel distribution companies require that distributors perform a bona fide, supervisory, distributive selling or soliciting function in moving the product to the consumer, i.e., that they have meaningful contact and communication with their downline sales organization.
10. Earnings Representations. The basic rule is that a legitimate marketing program should not make any earnings income representations unless those representations are based on a track record. Testimonials by individuals of their own experiences are not uncommon, however.
11. Training. A good network marketing program should offer solid training in sales and recruitment to its distributors.
Adapted with the author’s permission from Network Marketing: What You Should Know, Jeffrey Babener, Esq., 2003.