Getting on the Right Side of Compliance in the Direct Sales Industry

If you are in the Direct Sales Industry, you are under constant scrutiny from public watchdog groups and federal and state regulators. How can you maintain control of your brand when you do business with a vast and enthusiastic – but often inexperienced – salesforce?  Success in this industry can put you and your sales force in the crosshairs of the FTC and State Attorney offices. So how can you stay on the right side of regulators, expand your business and protect the valuable relationships you’ve built with your distributors and customers?

Online compliance is a crucial part of your customer retention and growth strategy. Developing a complete compliance program gives you visibility into the sales activities of independent reps across multiple digital channels.

According to the World Federation of Direct Selling Associations there are over 100 million direct sellers worldwide. And that number is growing. The Direct Sales industry accounted for $184 billion in sales in 2015 and the industry is growing at 7.7%.

The Direct Sales industry has a unique business model that presents its own set of challenges. Unlike retailers in the local mall or manufacturers selling through big box stores, network marketing associates sell products and represent brands to customers who may have never heard of your products and services before. They are your sales force, marketing team and customer evangelists all rolled into one. Typically, they have had little or no professional sales experience.

These enthusiastic (often inexperienced) reps can promote your brand in every corner of the internet and you have little control over what is being communicated. Enthusiasm isn’t a bad thing – it has built business empires like Amway and Avon. However, there are serious risks with over-enthusiastic reps exaggerating health and wealth” claims for recruiting and sales purposes.

In order to build your brand consistency develop realistic customer expectations and keep clear of issues that will attract sanctions by regulators you need to keep over-enthusiastic distributors in check.

There are four important steps to achieve this.

1. Education

Kevin Thompson2 150x160Kevin Thomson of Thomson Burton PLLC has spoken of the importance of a professional educated sales culture: “Companies should never expect their sales people to immediately know what to do. They need to be taught….Solid education creates an expectation in the field and leads to a more professional sales culture.”

Education sets the toneâ it really is the first step in your compliance program. Proper education will reduce compliance headaches and problems in your downline.

Develop compliance training that is fun and accessible! Use multiple channels including interactive web sessions video monthly newsletters and of course include a training session at your quarterly or annual events.

Take the time to educate your distributors but don’t take it on faith that they’ll act in accordance with your guidelines.

2. Visibility

Before the internet life was simpler. It was easy to keep up with your reps – they were talking to customers in person and you could be fairly certain they weren’t taking out radio or TV ads to promote your product. They may have posted homemade signs or placed a classified ad in a local newspaper but that was the extent of their marketing.

Today online marketing means a single rep has the ability to reach millions of people with their message.  New social media channels are opening every day. The challenge is often deciding where to look next.

Just as your distributors are using technology to reach millions you can likewise use technology to monitor millions.  Using technology automates the scanning and collection of millions of data points to find those distributors who might be operating outside of the bounds of your agreement. Smart technology can track reps activity such as scanning new URLs to make sure that no brand-infringing domain names are being registered or monitoring global marketplaces to look for goods being sold through unauthorized channels.

3. Take Action

There are many ways for you to monitor what is being promoted online. Don’t overlook low-tech solutions such as a special hotline or email address for reporting compliance issues. You might be surprised after you take action on specific distributors – they can become your sheriffs in the field.

Monitor individual distributors. Pay a visit to local distributor meetings. The FTC and Attorney Generals deploy “secret shoppers” to find out what is being said – you should know before they do. Sending your own secret shoppers to distributor meetings is one way to track messages and audit materials that are being handed out.

4. Have an Escalation Strategy

While you should give your distributors the benefit of the doubt you must have a strategy in place to take appropriate action. An escalation path starts with a simple notification and communication about the guidelines they are violating. This should take care of 70% of your violations especially where people might not even realize they are out of compliance. Your education program should communicate specific examples paired with policy violation details.

A good next step is a personal follow up on the phone to communicate policy violations.  The last level of escalation should be reserved for frequent or large scale infringers who resisted any attempt to come into compliance with your rules. These distributors may require withholding of commission or other punitive actions to ensure they come into line.

There is no excuse for repeat offenses and appropriate action must be taken sooner rather than later.  Sometimes you need to make examples of people to show other distributors that you have zero tolerance.

Right now the Direct Selling industry is under a lot of scrutiny from the FTC and various Attorney Generals. If you don’t monitor your distributors and put in place a program to educate verify and enforce the right behavior someone else will do it for you.  Proper compliance will have a positive impact on the industry as a whole and elevate Direct Sales and Network Marketing in the eyes of consumers.

A combination of smart technology and a strong compliance program will help companies keep tabs on reps and improve the reputation of the industry.

To hear a recording of a recent webinar where this topic is discussed in more detail click here.