Well, hi everyone, and welcome back. In today's session, we are going to cover the topic of the direct selling channel. So what exactly is the direct selling channel? It's a form of retailing in which non-salaried, independent contractors or sales consultants sell to end users. In other words, individuals such as you and I. Sales can happen through online channels and often through party events that can take place and personal homes and workspaces or even online. What distinguishes these products sales is that they typically do not occur in brick and mortar stores or big box retail outlets. These sales consultants might also be referred to as sponsors, representatives and even distributors, because their sole channel function is not just selling. Sometimes they are asked to purchase and hold inventory. But importantly, many of them are expected to personally recruit to train down lines or additional individuals who will also sell. So sales consultants are sales leaders and executives who are not co located and whose income is solely based on their direct selling activities and that of their down lines. The direct selling industry is massive. In 2013, it was estimated that over 74% of US adults have purchased the product from a direct seller, and you might be one of those people. Direct selling firms span numerous industries, including home and family care goods, household durables, wellness and personal care products, clothing, accessories. And even leisure and educational services. Some of the most well known companies include Amway, Mary Kay, Rodan+Fields, and many more. Together, their sales represent more than $35 billion in the United States, or over $192 billion worldwide. In the US, the industry employs over six million individuals and plays a key role in providing economic opportunity to key demographic segments. In 2013, it was estimated that 80% of women earning annual incomes of over $100,000 were in direct sales. Now most consultants began selling on a part-time basis with nominal cost of entry. This makes direct selling a viable side gig for many individuals and for a few individuals of full time employment opportunity with a lot of autonomy. Whether full or part time sales consultant sell to more than 36 million customers who can purchase at wholesale prices but choose not to sell the products or services that they purchase. And apart from these, there are millions more customers who purchase from the firm at retail prices. Direct selling firms are also referred to as multilevel or network marketing organizations, and they have often been accused of being pyramid schemes. Now let's listen to the perspective of one expert, Dr Anne Coughlin, my co author on our channel book and professor at the Kellogg School at Northwestern University. [MUSIC] >> People are often confusing a direct selling company, a legitimate one from an illegal pyramid scheme. So it's helpful to kind of distinguish exactly what the differences are. A pyramid scheme or a company operating a pyramid scheme is running an operation, which has enrollees pay a fee, which is called consideration to pay a consideration for the right to earn money based on recruiting other people. And not primarily related to the generation of sales. By contrast, a legitimate direct selling company may well ask people to pay a consideration to join, so that's fine. But the right that they buy access to or gain access to by paying that consideration is the right to earn compensation, which is based primarily on sales to ultimate end users. That is sales of real products to ultimate end users. And so the difference really, really comes down to the idea of paying a consideration for the right to make money merely on recruiting other people without regard to them making sales. That would be a pyramid scheme. [MUSIC] >> So a pyramid scheme is not about generating product sales. Legitimate direct sales companies create commission earnings on actual product sales. Let me give you another professors perspective. [MUSIC] >> If I were advising consumers how to tell the difference between a pyramid scheme and a legitimate direct selling business opportunity. I would simply say that a pyramid scheme is based on revenue generation that is primarily or only based on recruiting someone else. But in a direct selling opportunity, the primary goal's to sell product or services depending on what that company is based on. There are people who have unrealistic expectations going in about the amount of work that's required to earn the income that they would help to achieve from this. If someone engages in direct selling and they're not able to sell product for whatever reason, they're not good at sales product's not good. They don't do the work, they don't have the social network to build the product. Then maybe that's why they come out of that saying, well, that was just a pyramid scheme. I think like a lot of other career opportunities, your ability to advance depends on what you put into it, obviously. >> So Dr Cude suggests that there are a lot of misperceptions about what a pyramid scheme is and perhaps to some unnecessary blaming that has contributed to a wide misperception about the direct selling channel. Let's now move on to a specific case study and unpack how these organizations go to market. I like the example of the Cocoa Exchange, which was started by Mars Inc, one of the largest chocolate companies in the world. Let's hear more about it, paying particular attention to the following aspects. The roles of various stakeholders, the importance of sustainability and the size of the corporate footprint left behind. [MUSIC] >> My name's John Wyckoff, I am the president of the Cocoa Exchange, which is a subsidiary of Mars incorporated, the world's largest chocolate company. The Cocoa Exchanges, part of Mars incorporated is a unique businesses, stand alone subsidiary that participates in the direct sales channel of distribution. Direct selling is essentially working through independent contractor Salesforce, which is all commission based to represent our products in the marketplace, to present them, to demonstrate them. And to attract people, to want to buy and also potentially to participate in selling the products as well. The products we offer are unique and exclusive set of chocolate products that you would not find in any other store. And that's critical to this channel of distribution, because if its products too available, people aren't going to engage in our sales force. But when they are the only place to find some of our unique and innovative and I got to say, very delicious chocolate products, then people want to engage with our sales force. And they get a chance to make money and we get a chance to continue to further the innovation of bringing great chocolate products to the market. [MUSIC] One of the most unique stakeholders I think we have is our stakeholders within our supply chain, particularly our our cocoa supply chain. So cocoa, which is at the heart of our great chocolate products is a very unique agricultural crop that we derive our chocolate from, and it has grown in very few places around the world. And the people that grow our cocoa generally are very small family farmers who sometimes struggle to make ends meet and to be able to provide for their families by the operations of their farm. And so probably our most unique stakeholder is our cocoa farmers, particularly those in West Africa where the majority of our cocoa is grown in the countries of the Ivory Coast and Ghana. And in particular beyond that, one of the key stakeholders are the female cocoa farmers. The vast majority of the work done on cocoa farms is done by the female members of the household, particularly the mother within the farm. And so our opportunity to engage with them more directly to help them to improve their yields, to improve their income and improve the prospects that not only will they find a thriving, economically sustainable livelihood by growing cocoa. But that they will pass that on to the next generation as well. And unless we can make that viable for them, it will be a challenge to our supply chain for years to come. And hence we've partnered with the CARE organization, an NGO that works directly in country with our female cocoa farmers in Africa with a village savings and loan program to help provide them with the financial means necessary for them to improve their farms. To expand their farms, to improve their incomes and ultimately then improve their lives. And when they're thriving, they produce more cocoa that helps our business to be able to produce great chocolate, which allows us at the Cocoa Exchange to give economic opportunities for women. Here in the United States our salesforce is 99% women and so gives them economic opportunities. And so we have this beautiful, virtuous cycle of stakeholders because if you remember the first stakeholder I talked about with our curator, Salesforce. The last one I talked about with our female cocoa farmers in West Africa and when they are both thriving, it's a beautiful, symbiotic relationship where the female cocoa farmers thrive. They produce great cocoa and more cocoa, which we translate into great chocolate products, which we give to our sales force to sell. They sell the products, they earn an income. And that gives us the financial resources to invest back into even helping further into our supply chain or female cocoa farmers. And you have this beautiful, virtuous cycle that really is what's really special about the Cocoa Exchange. [MUSIC] Sustainability in its totality is something that's central to the strategy of Mars going forward, because sustainability is not an initiative anymore, a separate initiative for a corporation. It has to be at the heart, especially a corporation of our size and a corporation that relies so much on agricultural output for sustainability, really to be at the heart of our corporate strategy if we're going to thrive as a business going forward. As it translates down into the Cocoa Exchange, particularly in the cocoa itself, one of the big revelations or realities, I guess, I would say, is that the demand for cocoa is increasing at a rate which we've not seen in a long time. Particularly because the developing markets throughout the world have gotten their first taste of chocolate, and many of them had never tasted chocolate before. And you and I both know that once you taste chocolate for the first time, you're hooked. Areas like China and India and other parts of developing world with very significant populations are driving the demand for chocolate in a way that hasn't been done before. And so that's driving the demand for cocoa beans. But the supply is still very limited to a pretty small area of the world is plus or minus 20 degrees around the Equator. And so when you have this imbalance between demand and supply, there's a big opportunity to not only create the environmental conditions for cocoa to thrive. But also the economic conditions for those that supply cocoa. One of the things that we realized early on is if we're going to improve the economic conditions in those cocoa growing regions, we needed to get resources to the women. Because there tend to be those that you get the best incremental benefit from investing in them, because the vast majority of what you invest in them will go into helping the farm, helping the family to thrive versus going to themselves. [MUSIC] The sustainability footprint of Mars is as big as the country of Panama. So just one company, as big as we are, has the sustainability impact of an entire country. And because of that, we know that it's our responsibility, therefore, to participate in the sustainability initiatives of the globe both from a sense again of responsibility. But also a sense of if we're going to thrive as a business, that's a necessity that we be part of that. The ability to attract people with our story is an elemental part of our growth model. [MUSIC] >> So that should give you a sense of how Mars uses a direct sales channel as its route to market for this set of products.