CPG vs Direct Sales

It’s a likely scenario. A company in the direct selling channel takes off. There’s initial success. Sales reps are exploding, products are selling, and it seems all the leaders and corporate staff are no less than genius. This is a rocket ship—destination: world domination. 

The executives and board see the growth and think, “We need to get more professional talent in here to manage this ship.” Executive searches begin, vetting is in full-swing, and a new C-suite from a traditional consumer packaged goods (CPG) background is in place. The day is saved… or so it seems. 

It makes sense, right? Someone with the right pedigree and brand experience from outside the channel should be able to jump right in and take a niche, DS product company to a multi-national cover story on all the business magazines. However, rarely has that actually happened. In fact, in many cases, the opposite is true and for good reason. There are some fundamental differences between a traditional retail model and direct sales. Often those differences end up frustrating the field, deteriorating trust, and eroding sales and growth. 

Fixed vs Variable Sales Channel

Usually when we talk CPG, we’re talking about a distribution network that is fixed—retail establishments have consumer traffic that drives purchases, manufacturers and brands spend on marketing and advertising to create brand awareness for those consumers, and the only sales force a CPG needs to invest in is an army of employed representatives who can work with buyers to get the mass distribution. If the reps aren’t performing, the company can invest in training, acquiring more talent, or spending more on product development or advertising. The reps always have that fear of being terminated driving them to perform. In some regards, it’s more formulaic. 

In the direct sales channel, however, the sales channel is constantly in motion; it’s variable. The field ebbs and flows with hopefully an upward, right trajectory. Sales reps are volunteers, usually working their side gig or plan B anywhere from a few minutes to a couple of hours a day. Sales normally isn’t their profession. They may come from healthcare, education or may not even be working in their profession, choosing rather to be home with the family. Because it’s work that happens in the part-part-time, it requires a real desire, belief, a strong “why” to really work their business.

Because this is a volunteer sales team, they can’t be fired. Unlike CPG, fear can’t be a motivating factor. Direct sales requires more of the soft skills and emotional intelligence to push performance. The strings to pull come down to inspiration, behavioral economics and gamification. Sales training does play a role, but performance is more closely aligned with incentives, recognition and programs. On top of that, mission and vision of the future of the brand and products are critical to keeping the field engaged and building. Believing they are part of a bigger movement for good, seeing how they benefit from that movement, and being rewarded every step of the way are all critical; whereas, sometimes these can be overlooked in a traditional CPG distribution model.

Product Proliferation

In CPG, many times more products to sell (more SKUs) means more revenue. There’s traffic going into retail establishments, if the brand can have a larger footprint in the stores, if they can maximize revenue per square foot of space, it makes sense that they’d have greater revenue. Hence, if they can grow a product line and expand into adjacent categories, they can steal marketshare from stale incumbents and naturally grow their business. 

In the direct sales channel, product proliferation can be negatively correlated with growth. The sales team in the channel requires a simple selling system… keyword SIMPLE. As the selling process becomes more complex (a la adding more products with more features and benefits that may be outside the core), it requires the rep to spend more time learning the products and understanding the unique selling proposition for each. There’s a reason pharmaceutical reps usually focus on one or two products. It allows for depth of knowledge, passion, and expertise to develop. And when you’re talking about an amateur sales rep who is working their business at most 1-5 hours a week, increasing the number of products simply takes more of their time in training. When work hours are fixed, more time in training means less time selling. In addition, the more complex, the less duplicable the business becomes. The simpler the business model, the greater the propensity for success with new representatives. 

Marketing Needs

It seems many CPGs focus marketing efforts on building the brand (which by all means is a perfect area to spend marketing resources) through paid advertising in magazines, TV, radio, and online. The more the consumer recognizes the brand, the more likely the brand aligns with their beliefs and values, the more likely the consumer is to become a loyalist. The CPG needs to spend their time focused on brand awareness to drive interest and conversion. The more brand awareness they drive, the greater the relationship they build with the end consumer, solidifying future revenues. It works. 

However, in the DS model, your distribution, your storefront is your sales team. They already have relationships with the potential customers. The sales team simply needs more of the tools to help them convert those customers. Yes, branding is important (even critical), but marketing pieces that focus on reasons to believe the products work are of utmost importance. The reps need before-and-afters, demonstrations, testimonials, samples, coupons, and guarantees to drive customer acquisition. They need proof that the product is as good as they say it is. They need sales materials. Yes, these are all a part of CPG, but they’re even more critical in the DS channel and should be prioritized over other marketing efforts. 

Relationships

Lastly, for some reason, it seems CPG traditionally has distrust for distributors or sales reps. It’s an adversarial relationship, a necessary evil. Annual sales planning meetings can become all-out fights complete with yelling and threats. When executives from CPG come to the DS channel, that disdain for the field seems to bleed over. There is lack of trust, sentiments of leaders being over compensated, and an us-against-them attitude. 

The DS channel, however, is built on trust with field leaders. As such, communication needs to be free and open. They should be part of the planning and vision. Rather than springing ideas on the field at launch, field leadership should be integral in the ideation, development and roll-out phases. Corporate executives should be open with limitations, obstacles, and needs. They should turn to their field partners for insight and ideas. 

There are many examples of DS companies who have struggled as they’ve brought on CPG executives. Everything from alienating the field, complicating the selling system, forgetting the needs of the sales teams, and eroding trust is a recipe for disaster. On the other hand, those executives who have high emotional intelligence, develop trust through open dialogue and having a vision/mission, focus on simplified selling, support the field, and exhibit the discipline to focus on the brand’s core strengths—these are the executives who succeed in direct sales. 

What do you think? What’s been your experience? Are there other differences between direct selling and CPG that should be added to this list? I’d love to hear your thoughts.