Self-Regulation as a Selling Mechanism

Tamara Shokareva
President
Russian Direct Selling Association (RDSA)

Direct selling (DS) is the marketing of consumer goods and services directly to consumers on a person-to-person basis, generally in their home or the home of others, at their workplace and other places away from permanent retail locations. It is a relatively new trade format that has been existing in Russia since the early 1990s when the largest multinational companies Avon, Mary Kay and Oriflame started business in Russia. Currently the total volume of retail sales of the 13 RDSA member companies exceeds 100 billion rubles ($3.28 billion) per year. Some 4.8 million Russians are involved in the direct selling business.

However, the direct selling situation was not always as brilliant as today. Direct selling companies encountered the problem of customers’ distrust of both the quality of goods and of the companies themselves. Customers who had learned through a series of painful incidents with financial pyramids in the 1990s unreasonably believed that the direct selling industry inherently patterned itself on illegal schemes.

That is why DS companies came to understand that the direct selling industry would not have any future without consumers’ trust. To gain this trust it was decided to introduce consumer protection standards that were higher than those required by Russian legislation.

It is well known that court procedures in Russia are rather expensive and time consuming. According to the Code of Ethics that has been adopted by the RDSA member companies, if a consumer has a problem with one of the RDSA member companies then he or she can submit a complaint to the RDSA Code Administrator and this complaint will be settled within a short period of time. The Code Administrator is not connected to any specific company, and it is free of charge to apply to the Code Administrator, whose verdicts are applicable to all RDSA members.

The following statistic shows that this consumer redress procedure works very well: there were 15,296 complaints in the trade area fixed in Moscow during the first six months of 2009. According to information from the Moscow Consumer Protection Society, the percentage of complaints against stationary retail trade facilities was 98.7 percent. The lowest number of complaints raised in Moscow was in the direct selling segment — only 25 complaints. Not a single complaint was filed against RDSA members. An absence of complaints against an association’s members speaks of the very high quality of the offered products. It is an important confirmation of the fact that the self-regulation instruments that the RDSA has at its disposal, such as the Code of Ethics and the complaints’ consideration procedure, are working and provide reliable protection to consumers.

The self-regulation of the direct selling industry protects not only ultimate consumers but also direct sellers by whom direct selling is performed. A direct seller has the right to return his initial investment if he or she decides to terminate relations with an RDSA member company. Any salable inventory that has been purchased within a year prior to the moment of agreement’s termination could be returned at 90 percent of its original cost.

I am sure that the self-regulation of the DS industry has had a most positive impact on sales dynamics under crisis conditions. According to the forecast of the association, the growth of retail sales of RDSA member companies would total 3-7 percent in 2009. It is notable that while other companies are reducing their staff, the number of direct sellers of RDSA member companies has increased by 9 percent. Tellingly, I rather doubt that the direct selling industry would have expanded so well during the crisis period if new ethical standards had not been implemented.