Introduction
Amway was founded in 1959 by two entrepreneurs Jay Van Andel and Richard DeVos. Amway is a direct selling company based in Ada, Michigan, United States. It is the world largest direct selling company and manufacturer that uses network marketing business model. The company is selling a range of products, mainly in fast moving consumer goods (FMCG) and also a range of other products. Its products lines include home care products, personal care products, jewellery, electronics, Nutrilite dietary supplements, water purifiers, air purifiers, insurance and cosmetics.
Figure 1: Logo of Amway Source: Amway.com
Figure 2: Jay Van Andel & Richard DeVos source: Amway.com
Figure 3: Multi level marketing source: stock image
Although Amway adapts its business model slightly different from market to market however the main marketing strategy still involve the combination of direct selling with a multi-level marketing strategy. Direct selling defined by Belch as “the direct personal presentation, demonstration, and sale of products and services to consumers, generally in their homes or at their jobs” (Belch 2006). Besides multi-level marketing also called in different ways by different scholars network marketing (Pratt, Rosa, José 2003) (Cahn, 2006), direct selling (Merilee, 1999), referral marketing (Higgs; Smith, 2007). The distributors under the company as an agent will get rewards for selling products and for sponsoring others who do the same. The bigger of the agent business grows will have the same affect on the rewards.
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According to the official website of Amway, it conducts business through a number of affiliated companies in more than ninety countries and territories around the world (Amway UK 2009). It is ranked by Forbes online source business, financial news and analysis as one of the largest private companies in the United States in the year of 2008 (Forbes 2008) and by Deloitte Touche Tohmatsu as one of the largest retailers in the world.
The vision of Amway Company is “we work each and every day to help people live better lives. We achieve our vision by helping people everywhere discover their potential and achieve their goals by offering better products and opportunities for the future, and by sharing generously with the global community” (Amway 2009). Amway business model is based on the Amway Business Owner Compensation Plan can be descript as a low-risk, low-cost business opportunity that is open to everyone (Amway 2009).
Following paragraphs will evaluate the key strategic factors that have generated success for this business and also being a successful entrepreneurial venture. The concept of entrepreneurship can be divided in to five divisions begin with entrepreneur traits, creativity, innovation, business planning and growth management (Davison, 2006). These five concepts are the characteristics of an entrepreneur and the business. Key strategic success factors is the combination from all division of the business, different areas of Amway will be discussed on how it is a successful business.
Key strategy success factors
There are differences to describe and displayed by entrepreneurs. According to Cunningham and Lischeron (1991) characteristics of an entrepreneur can be divided in to six schools of thought. The founders of Amway Jay Van Andel and Richard DeVos portray as the psychological characteristics school. The Psychological Characteristics School of entrepreneurship views entrepreneurs as individuals with unique values, beliefs, attitudes and needs which drive them and differentiate them from non-entrepreneurs (Cunningham and Lischeron, 1991). Two founders of Amway started the business by involve themselves in a similar multilevel marketing organisation Nutrilite Products Corporation as the distributors. Further on with the strong human network that they have and formed The American Way Association business to able them to expend their business and also look for additional products to market. When the business growths stronger there take over different companies and also have their own manufacturers. The business keeps on growing with the multilevel marketing system in different countries. They believe in the values that the business can bring to them and have the attitudes that driven them to become successful entrepreneurs.
The ability of creativity and innovation will become an advantages for entrepreneur in differentiate their business with others. Schumpeter (1934) mention that entrepreneurship is the realisation of new factor combinations also can be understood as innovation in business. He point out that it is about new products, new services, new raw material sources, new production methods, new markets, new forms of organization. Amway committed themselves into innovation and research. The company has produced more than 800 patents granted and more than 600 patents pending. Throughout the year Amway company has been recognized in their business performance that includes manufacturing excellence, environmental concern, and commitment to safety and health (Amway global, 2010).
Figure 4: Basic design school model, Mintzberg 2000
Figure 5: Products range
Figure 6 : Amway’s supply Chain
Business plan is the first stage for a business; basic design school model (Mintzberg 2000) is a great model to evaluate a business plan. In the initial stage of the model by looking into the external appraisal this is to examine the external elements influences the entrepreneur’s strategy option. There is a huge demand on the FMCG, commodities and also dietary supplements market that with the customer groups from all levels and ages. Although there are lot of big players in this sector, but with the unique multilevel marketing approach it became a strong competitive company.
Threats and opportunities in the environment is one of the important element is the Basic design school model. The threats and opportunities of Amway will be explained as an entrepreneurial point of view. Begin by presenting the first opportunity of the business; from a lager scope China and India are the two countries that with a large scale of market share. From a larger scale the opportunity that the company gains as China remains the core opportunity with the huge market. In the year 1998 Amway was one of the direct selling company that banned by government of China to operate in the country. However in December 2006 Amway was one of the first companies to receive a license to resume direct sales by china’s ministry of commerce. The rules and regulation that keep on changing by different countries will bring both threats and opportunities time by time. Second from a smaller scale based on recent economic recession has presented Amway with an opportunity to increase their income as its Independent Business Operators (IBOs) through their Amway sales at the same time it also provide an opportunity for individual to recruit new IBOs to join the business to be the same in this economic situation.
Besides opportunities there are also threats to be considered as an entrepreneur. In a weak economic with high unemployment there will be an increase in the recruitment in the new IBOs however this is still subject to weak retail sales. Somehow the IBOs may turn away from Amway when they are unable to generate sufficient revenue. The big players in the FMCG market such as P&G and L’Oreal consolidated share by acquisition over the review period, and the competitive environment for Amway became more aggressive. Besides With recent consolidation among standard distributed VDS brands. Amway is facing increasing competition from non-direct sellers (Euromonitor International, 2009).
The key success factors in the marketing of Amway that act as the most important method to generate the rapid grow of the company. In most of the countries with the Amway business, the company will provide support for it IBOs. Because of the nature of MLM, the number of IBOs of Amway will be multiplied in a short period of time. Through the support from the company, it will provide training and educating system about Amway business. The purpose is to persuade them to follow the philosophy regards to the method of performing in the business. Besides, there are also materials to support the business for example information in CD, books and events to promote the business and also as a motivation factor.
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The first point is about Amway have a group of loyalty consumer that are the group of distributors. IBOs of the company with the concept of building up their business and intend to buy and use the products themselves. The group of IBOs will be influenced to a great extent by the community as well as they are constantly encouraged to try the product in advance, before selling it with a better understanding and knowledge of the new products (Wotruba, 1990).
Second point a strong word of mouth created around the Amway community and this will influence friends and relative of the consumer, the IBOs expected to have the similar influences of sharing tastes and interests (Chen et al 1998). The recommendations from the opinion leader would be trusted and acceptable. Following with the judgments of the product, the quality of the product has been acknowledges to be with high standard. Specific support and training from the supplier and products manual builds positive perception and confident of the products. The price of the products is consider expensive, however the high prices are justified on the basis of quality and the usage which involves lower cost compare with products from other company with the similar function ability.
Aggressive on New products launch and promotions from time to time by the company has generated increase in sales for the company. The promotion will give the IBOs to push the products out to the market to gain the benefits from it. A new launch of products will provide the IBOs with new opportunity to introduce it to their customers.
One of the big different between the conventional business like P&G compare with Amway is, Amway did not need to spend huge among of money to invest in the distribution channels and the mass advertising. These give the company an advantage in the spread of advertising and marketing cost over the volume, this result in a lower unit cost and more competitive prices.
The strength of the company came from a strong presence in the emerging markets, notably China, Russia and India, Amway is well positioned to benefit from the strong growth anticipated in these markets over the 2008- 2013 period. (Euromonitor International, 2009)
On the other hand, the weakness of the company is because direct sales has a poor image in Western markets. Amway has been accused in the past of failing to support its IBOs. While the company has defended itself against these claims, damage has been done to its reputation.
Figure 7 : Logo of OneBYOne campaign
Figure 8: Logo of unicef
Amway practices a strong social responsibility and it recognise as being a good corporate citizen. Amway has a global campaign to help children named “OneBYOne”. The campaign illustrates the idea of making a difference in children’s lives one step at a time and it is part of an umbrella cause to improve the wellbeing of children worldwide (The Time 100, 2010).
In the European part Amway Europe has work together with the United Nations Children’s Fund (UNICEF), to support the global champion for children’s right. It recognises the importance of building good working relationships with UNICEF’s National Committees in each market in order to rollout fundraising programmes to Amway’s IBOs and their customers. (The Time 100, 2010)
Figure 9 : Economies of scale spreading costs in advertising
Figure 10 : Growth Stages Churchill and Lewis (1992)
Entrepreneur’s business growth can be explained into five stages of existence, survival, success, takeoff, and maturity (Churchill and Lewis, 1992). As a whole the Amway business is in a maturity stage, with the long history of the cooperation and also business worldwide. However because of the unique business approach, business will repeat the process of business growth in newly opened market. The consistency performance of the Amway business will lead the company to maintain in the business stability in the maturity stage.
Conclusion
After discussion, explanation and evaluation about the direct selling company from different perspectives in entrepreneurial, business, marketing and social responsibility. All these elements have sum up and became the key strategic factors that have generated success for the Amway Company. Entrepreneurship is a process that keeps on developing,x different challenges will come a head in the future and the entrepreneur will need to be prepared to face the challenges.
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