Amway-casestudy 2e596h

AMWAY: Amway is an abbreviation for "American Way" and was coined in 1959 by company founders, Jay Van Andel and Richard DeVos. Amway India, a wholly owned subsidiary of Amway Corporation, was established in August 1995 after approval by India's Foreign Investment Promotion Board (FIPB). Amway India commenced commercial operations on May 5, 1998 and is now the largest Direct Selling FMCG Company. The Company is headquartered at the National Capital Region of India - New Delhi. Amway India has 400 full time employees and has generated indirect employment for 1,650 persons at all the contract manufacturer locations. At present, Amway India offers over 105 products in four categories. They are Personal care category, Home Care category, Nutrition & wellness category and Cosmetics category. With the exception of Cosmetics range (Artistry*) and some products in Nutrition and Amwayllness category, all Amway India products and bottles are manufactured in India. William S Pinckney is the Managing Director and CEO, Amway India.

BLUNDERS MADE IN MARKETING MIX BY AMWAY IN INDIA  Amway did recognize the need for a special India-specific pricing strategy and there were just a few marginal cuts in the prices, which were still almost 20% higher than its competitors.  They roped in their Indian distributors through NRI’s living abroad. They were given introductory kits which included samples of the products, sales material, information on the products etc. But these kits were used by the distributors themselves rather than using them to promote its prospective consumers. Because of this volumes demanded after did not pick up.  The product quality was sometimes poor.  Problems like distributor attrition, a false '' image had customer dissatisfaction surfacing.  Sales people often used a 'hard sell' for their products, moreover the sales people were poorly trained and lacking in motivation.  Lack of networked banks, toll free phone lines and online shopping was another cause for Amway not doing well.  Since the sales depend entirely on the independent distributors , the company has to pay huge commission. This results in the increased cost of the product. Hence the products become expensive resulting in lower sales.  In a value conscious country like India, the expensive tag of Amway products is the singular reason for the lack of popularity of its products.  The Distribution Network was far from reach from common man. Amway used centralized marketing of all products worldwide never focused on the market in the smaller towns.  Distributors and sales team did not know the value of the products they were selling, this aspect was overlooked by the company.

 Defining your target market is one of the most important steps of the marketing process which was not done by Amway. The target market should include the customers who are qualified to purchase your product.  Since the company was almost never involved directly with the end-consumers it lacked in customer services with more complaining which lead to its downfall.  The company treated direct selling as 'just another' promotional tool, while it was mainly about motivation  Since Amway targeted only the upper section customers due to its brand image it was unable to push for sales resulting in higher attribution rate.

MARKETING MIX The marketing mix is probably the most famous marketing term. Its elements are the basic, tactical components of a marketing plan. The major marketing management decisions can be classified in one of the following four categories: 

Product



Price



Place



Promotion

These variables are known as the marketing mix or the 4 P's of marketing. They are the variables that marketing managers can control in order to best satisfy customers in the target market. The marketing mix is portrayed in the following diagram:

The firm attempts to generate a positive response in the target market by blending these four marketing mix variables in an optimal manner.

Product: The product is the physical product or service offered to the consumer. In the case of physical products, it also refers to any services or conveniences that are part of the offering.Product decisions include aspects such as function, appearance, packaging, service, warranty, etc.

Price: Pricing decisions should take into profit margins and the probable pricing response of competitors. Pricing includes not only the list price, but also discounts, financing, and other options such as leasing.

Place: Place (or placement) decisions are those associated with channels of distribution that serve as the means for getting the product to the target customers. The distribution system performs transactional, logistical, and facilitating functions. Distribution decisions include market coverage, channel member selection, logistics, and levels of service.

Promotion: Promotion decisions are those related to communicating and selling to potential consumers. Since these costs can be large in proportion to the product price, a break-even analysis should be performed when making promotion decisions. It is useful to know the value of a customer in order to determine whether additional customers are worth the cost of acquiring them. Promotion decisions involve advertising, public relations, media types, etc.

A Marketing Mix for Amway with specific reference to Product P of the 4 Ps. Amway was established in India in 1995 and commenced operation in 1998. Currently the company has 80 products in 4 categories. Amway operates in the following categories :

Personal Care

Home Care,

Nutrition and Wellness,

Cosmetics

To create the right marketing mix, businesses have to meet the following conditions: 1. The product has to have the right features - for example, it must look good and work well. 2. The price must be right. Consumer will need to buy in large numbers to produce a healthy profit. 3. The goods must be in the right place at the right time. Making sure that the goods arrive when and where they are wanted is an important operation. 4. The target group needs to be made aware of the existence and availability of the product through promotion. Successful promotion helps a firm to spread costs over a larger output. With reference to Product P : The product is the central point on which marketing energy must focus. Finding out how to make the product, setting up the production line, providing the finance and manufacturing the product are not the responsibility of the marketing function. However, it is concerned with what the product means to the customer. Marketing therefore plays a key role in determining such aspects as: (a) the appearance of the product - in line with the requirements of the market. (b) the function of the product - products must address the needs of customers as identified through market research. Considering the nascent stage of Direct Marketing Industry in India, Amway India has been reasonably successful. The success of Amway products is predominantly driven by the quality of the products. Amway India's products are mostly sourced from manufacturing units from India. It has outsourcing contracts with 5 major units in India. The products are sourced after strict quality checks.

Amway also faces this issue. The products of Amway are excellent but very expensive. For example, the Persona brand of soaps cost Rs 30 which is almost double the rate of an ordinary soap. Persona is one of the best soaps in of quality but price is definitely a dampener.

Another example is the range of cosmetics under the brands Attitude and Artistry . Artistry is targeted at the class and Attitude at the middleclass. But the price of these brands make the consumer think twice before buying it. Hence the ABOs have a tough time convincing the value proposition.. Among the 80 products, one of the best seller for Amway is the Nutrilite brand. Nutrilite is a nutraceautical supplement and this brand contributes around 50% of Amway's turnover. The brand virtually faces no competition so far. The Indian nutraceauticals market is estimated to be around Rs 1500 crore and is rapidly growing. Many Indian companies are eyeing this segment and has serious plans to enter this segment.

Amway has understood that doing business in India will require a new business model. The company has started to take steps in the right direction. It had tried to rationalize prices and bring in new value products. But to balance the price , cost, quality and higher commission is no easy task. Understanding the issues, Amway launched its first corporate branding initiative in India . The brand came out with a Television campaign highlighting the customer-centric approach . The products match Amway’s global quality standards. They carry a tamper-proof seal and a ‘100% Money Back Guarantee'. If not completely satisfied with the product, the consumer can return it for a refund. Amway encourages the return of its used product bottles for re-cycling and to prevent their misuse.

Market segmentation strategy and suggestion for “Place” : Market segmentation is the division of a market into different groups of customers with distinctly similar needs and product/service requirements. Or to put it another way, market segmentation is the division of a mass market into identifiable and distinct groups or segments, each of which have common characteristics and needs and display similar responses to marketing actions.

How a market is segmented is based on variables used for segmentation; behavioral, demographic, psychographic and geographical differences. 1. Behavioral Segmentation: Behavioral segmentation is based on the customer's needs and subsequent reaction to those needs or toward the purchase of intended products and/or services. 2. Demographic Segmentation: Demographic segmentation refers to a wide study of the potential customers. While marketing a product many variables like age, gender, education, income, size of the family, occupation, socioeconomic status, culture and religion, language and nationality are taken into . 3. Psychographic Segmentation: Segmenting people according to their lifestyles and values, and how they translate into consumption or purchases of products of services is what psychographic segmentation is all about. 4. Geographical Segmentation: Geographical segmentation is done by dividing people (markets) into different geographical locations. The country, state, or neighborhood, the king of gentry, climate, size of a place segmented into size of its age wise population, etc. all play a role in devising market strategies.

'Place' is concerned with various methods of transporting and storing goods, and then making them available for the customer. Getting the right product to the right place at the right time involves the distribution system. The choice of distribution method will depend on a variety of circumstances. It will be more convenient for some manufacturers to sell to wholesalers who then sell to retailers, while others will prefer to sell directly to retailers or customers. Amway is a 100 % direct marketing company . That means the consumers will not get any Amway products from shops. The products can be bought through ABO's. Hence the sales are driven by the efforts of ABOs. Since the company does not its brands, the only communication channel is through ABOs who visits households and make presentations. There are two tasks of a typical ABO : the first task is to sell Amway products and second task is to appoint new ABOs . Initially, a distribution system was set up that was parallel to what Amway uses in other countries. That means essentially home delivery of products that are ordered by customers either through the Internet or on telephone. The products are reached to the customers' doorsteps within 24 to 48 hours of the order being placed.Unlike other countries this strategy of organizational setup did not work well with India. Accordingly, there were just five offices, in the main metros, assumed to work as pick-up centers, with just a few consumers coming in to pick up products. In fact, they had factored that just 20 per cent of our sales would be through counter sales and 80 per cent would be through the home delivery route. It took just a couple of weeks to prove how wrong they were in assumptions. Amway discovered that people wanted to come into the stores, see the products, pick up and touch them before they purchased anything. Home delivery just didn't interest them. Moreover the distribution network along with all the products should have been available in all the markets even in smaller town.