Management Challenges in Taiwan's MLM Industry: Strategies and Solutions

1. The management of MLM business in Taiwan • 1945: Nutrilite Corporation • 1997: direct selling industry = US$80.47 billion → 2.06% growth compared with 1996 • 31 million employees → +25% • competition

4. issues • Political, economic and social • Fraudulent pyramid schemes (since 1960) • April 1998: China suspended all MLM activities • bad image - europe: snow ball system - japan: silver rat, money rat, rat club

5. 1997: government regulatory agencies, MLM practitioners and media joined effort to change the image of MLM • Taiwan total sale turnover: NT$40.1 billion → - 1.8% (1996) • Taiwan average sale volume: NT$167.16 million → + 5.3% (1996) • Taiwan total number of distributors: 2.72 million → 12.56% of total population → N°3 in the world

6. Taiwan MLM industry in 1997 • Competition from both local and foreign firms • Eroded consumer loyalty • Changing consumer needs • - 3.36% in the number of new DS distributors • - 4.38% and – 2.52% decrease of orders and bonuses received by DS distributors • N°3 but the productivity of distributors decreased • Opportunities: domestic market liberation measures, globalization • Threats: more pressure  Innovative and flexible management approach

7. Research objective and method • The aim of this research is to provide information about the current management of DS distributors in Taiwan MLM industry. • Issues: • education and training • the incentive • communication • turnover • application of computer • public relation. • Method used: personal interview executives from 8 foreign and local MLM companies

8. Challenge: to develop an attractive package to cater all the needs of the DS distributor ►CEO of Nutri-Metrics International view: • Strong leadership in MLM business management • Effective management needs: • reward • recognition • ability to duplicate the company’s success formula • good relationship between distributors and the management • Constant training program

9. Network Marketing Magazine survey (1998): 60% of the respondents stayed less than 1 year after joining a MLM firm. • According to some studies in Britain and the US, people join MLM firm for: • extra income • achieving short term goals • beeing one’s boss • enjoying discount prices • winning praises from others • Study done with 4 US MLM firms: • self satifaction • accomplishment • flexible hours

10. Research findings and analysis • Open-ended question • 7 major areas: • training and education • bonus program and sales network structure design • inter-company communication • ways of handling high turnover • use of computer system and public relation • industry image and government regulatory • emerging future trends.

12. training and education • 2 functions: • motivate DS distributors • educate the distributor with the product • In 1997: Annual company conference: + 6.26% Training program: + 1.55% Opportunity meeting: +0.74% • Interviewed firms provide: Products knowledges Sale skills training Sales network management

13. bonus program and sales network structure design • MLM need to have a structure to meet the needs of both self-use consumers and distributors.

14. commission: retailing commission + leadership commission • Retailing commission = retail discount + monetary reward paid of the group sale volume • Leadership commission = compensation for setting up a large scale of down-lines → monetary reward = short term effect MLM firms want a new method to motivate distributors.

16. inter-company communication • Magazines • Newsletters • Counseling services

17. ways of handling high turnover • Companies interviewed are not concerned by this issue • Goals: - to offer quality products - to offer attractive packages

18. use of computer system and public relation • Computer allows to: • assess inventory sales • monitore sales progress • manage sales force • develop customer profiles. • In the public relation: • Print advertisement • Sponsoring large scale philantropic events

19. industry image and government regulatory • Negative image caused to the MLM industry • Fair Trade Commission should produce guidelines of regulation

20. future trends development • 4 of the interviewed firms want to attract married couples to join and start a « second spring ». • Position : « non-store retailers » • → provide superior products, carrer opportunities and « personal-touch » experience • Products of the future will be more sophisticated, leisure-oriented, environmental-friendly and educational. • Different structure of MLM firms and new management philosophy • Strategic alliances, internationalization and corporate diversification

21. Conclusion and suggestion • Macro-management level: MLM do efforts in: • Recruiting new members • Training with efficiency • Closer ties with distributors • Media. • Micro-management level: • High quality product • Good image • Management philosophy → expectation of the government To prepare to the competition of tomorow, MLM companies should adjust their offerings and change their structures.

22. Suggestion for short-term • MLM should focus their effort on consolidating their current network operation and enhancing the productivity of their sales forces: → develop closer ties with its distributors at all levels → develop « Service First » marketing strategy

23. Suggestion for long-term → be technology-driven and market-minded → consolidated internal resources and maximize operational efficiency → create synergy