Author | Xie Xuan
Edit | Fang Yu
Image source | Such as the new official Weibo
"In order to prove that the product is good, some people once ate the new soap in public at the propaganda meeting."
Liu Jie flipped through WeChat and found that when he left his job a few years ago, most of the former colleagues who were blocked by him were still selling Ruxin. In his view, sales at a lower level often opt out because of early difficulties. But for middle-level and high-level agents, once their own sales network is developed, the following teams and platforms will continue to provide supplements, "as long as there are people on the line." ”
The consumer industry is changing rapidly, and the controversy over the direct selling model seems to have been silent for a long time. However, with the re-fermentation of the epidemic in Hubei, Ruxin, a huge and long-established direct selling company, has once again entered the public eye.
According to local announcements, from the evening of February 21 to noon on February 22, new positive cases of new coronary pneumonia were found in Wuhan, Beijing and Qingdao. Tracing the source of these cases points to a training held by Ruxin in Wuhan.
While paying attention to the epidemic, concerns and controversies about new models have once again been put on the public agenda. People outside the industry will be surprised that Ruxin still has a large number of followers, and the former practitioners like Liu Jie in the industry are a different taste.
Liu Jie has used the company's internal reward points to redeem Ruxin products. The feeling given to him is that the product is decent to use, does not feel particularly good, but it is not bad, and is generally normal.
"But as the sales hierarchy continues to sink, the publicity of the product becomes more and more outrageous."
The shrinking Chinese market
As a world-renowned direct selling giant, Ruxin Group last attracted widespread attention, or in 2019, such as a 34-year-old direct salesman in the Beijing area of New China, heeded the advice of his "mentor", refused to seek medical treatment after a cold, relied on drinking Ruxin juice to "detoxify", and finally died tragically.
Such "outrageous" cases are not alone. Because of the credulity such as new health care products, it led to severe illness to do hemodialysis; after eating new products for four years, it changed from "lupus erythematosus" to uremia... In the relevant report of CCTV's "Today's Statement", "obsession" was used to describe Ruxin's users.
What really makes Liu Jie feel wrong is the new reward mechanism. As a member of the dealer management team of Ruxin Shanghai headquarters, Liu Jie is responsible for managing multiple dealer teams. Although it is clear in the public regulations, sales personnel can get the corresponding commission after achieving certain performance. But within the enterprise, there is another set of bonus systems that are not publicly available - when a person develops 5 levels of downline, he can get a 5% commission on all sales of the downline as a reward.
Encouraged by this mechanism, the main job of the team leader is to motivate team members to develop the downline. At the same time, the system does not allow cross-level communication, and if there is a problem, you can only ask for help from the direct line, and you cannot switch teams at will. "[The team leader] can eat them every month without having to do anything." Liu Jie said.
In the Opinions of the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security on Several Issues Concerning the Application of Law in Handling Criminal Cases of Organizing and Leading Pyramid Schemes, the following definitions are made of pyramid schemes:
In the name of business activities such as selling commodities and providing services, participants are required to obtain the qualification to join by paying fees or purchasing goods or services, and forming levels in a certain order, directly or indirectly using the number of development personnel as the basis for remuneration or rebates, inducing or coercing participants to continue to develop others to participate, defrauding property, and disrupting economic and social order, where the number of personnel participating in pyramid marketing activities within the organization is more than thirty and the level is above three levels, the organizers and leaders shall be investigated for criminal responsibility.
Although the internal reward mechanism is controversial, this does not affect Ruxin's position in the direct selling industry. According to the 2021 DSN Global 100 list released by direct selling magazine Direct Selling News, Ruxin ranked 6th among global direct selling companies with $2.5 billion in revenue.
As the new financial report shows, although the transaction volume of the Chinese market has always occupied the top spot, both the transaction volume and the proportion of performance are declining year by year.
In 2013, the Chinese market recorded a sales performance of US$1.363 billion, becoming the absolute head market of Ruxin with 43% of global sales. But this peak state is difficult to sustain, although ruxin's global sales have maintained an upward trend, and the performance of $731 million in 2021 has become the lowest proportion of sales and global sales since 2013.
In this process, a series of reports published by the People's Daily became a turning point for Ruxin's performance.
In 2013, Ruxin China, which stood at the peak of its development, not only set the peak of its performance in China, but also completed its innovation headquarters in Shanghai.
In 2014, People's Daily published three reports in succession: "How to Weave Lies as New", "How to See How "Ruxin" Captures People's Hearts", and ""Ruxin" Company Repeatedly Punished in the United States Stanford University Publicly Broke With It", which caused an uproar in the market.
The impact even rippled through the new U.S. market, causing its stock price to fall sharply.
Even so, China is still the main target of the new attack. For example, the president of New China solemnly said that in order to seize the trend of online transfer of consumption, Ruxin created a live purchase platform during the epidemic period, built a mini program for New Look and so on.
At the same time, Ruxin is also increasing its investment in China. At present, 41 experience stores, Greater China Innovation Headquarters Park, 9 warehouses and 2 factories have been built nationwide.
But the tone of public opinion can no longer be reversed.
Ruxin is not an isolated case, looking at the many overseas direct selling giants that have entered China, such as the new encounter, almost has become the development of each direct selling giant.
The history of overseas direct selling giants entering China: from prosperity to loneliness
In 1990, Avon entered the Guangzhou market in China. In an era when the market was still in obscurity, most Chinese women had a very limited understanding of cosmetics, and the products on the market were extremely simple.
The elegant "Miss Avon", who entered the market with her timely and articulate appearance, led the development trend of the entire Chinese skin care and beauty market for a while, and also ate the dividends of the enlightenment market.
In the first few years of Avon's entry into China, dozens of branches were opened almost every year. Its recruitment of direct sales personnel also reached 350,000 at one point. In 1997, Avon China's operating income exceeded RMB 1 billion.
At the same time, the huge market potential also attracts various giants to pour into China:
In April 1995, Amway (China) Commodity Co., Ltd. officially started operations;
In December 1995, Tupperware (China) Co., Ltd. was established and officially opened at the end of 1996.
In March 1996, Mary Kay China Branch was officially opened in Shanghai...
It was an era when pyramid schemes had not yet been defined as illegal.
In the English definition, there is no distinction between the concept of direct marketing and MLM, but it is divided into two types: single level and multi-level. When this model first entered China, whether it was single-level or multi-level, it was called pyramid schemes. Under the vacuum of policies and the enthusiasm of the market, overseas giants have ushered in a short honeymoon period.
At the same time, the "twin brother" of multi-level pyramid schemes, pyramid fraud (commonly known as the Rat Society), also began to appear. This kind of money fraud activity such as pulling people's heads and charging entry fees blossomed everywhere in China in the 1990s.
By 1997, the situation had become more and more serious, from the pyramid schemes with a scale of hundreds of thousands of people gathered in Tamsui, Guangdong and Xingsha, Hunan, to the various MLM companies that emerged in an endless stream and did not change soups and medicines... At the same time, a large number of pyramid scheme companies and mobile pyramid scheme refugees have also appeared throughout the country with money absconding.
As an "economic cult," pyramid schemes have become a high incidence of vicious incidents.
Such chaos has attracted the attention of regulatory authorities. From 1995 to 1996, the State Council and the former State Administration for Industry and Commerce issued circulars calling for the suspension of examination and approval and the liquidation of multi-level pyramid schemes. But the situation has not improved.
In April 1998, the State Council promulgated the Notice on Prohibiting Pyramid Selling Activities, adopting "one-size-fits-all" measures to comprehensively rectify the entire pyramid marketing industry, requiring legal direct selling companies to set up stores to sell goods and provide labor services.
Since then, "direct sales" has become the standard expression of this format. In this industry-wide transformation, the more successful are Avon and Amway.
Among them, Avon is the most "obedient", stopping direct sales, switching to specialty stores, counter-type operations, and starting retail; although Amway has opened stores, it still continues to implement "multi-level direct sales" in the form of salesmen.
In April 2005, in order to fulfill China's commitment to WTO accession to open up the direct selling industry, the Ministry of Commerce and the former State Administration for Industry and Commerce approved it to carry out direct sales pilots in Beijing, Tianjin and Guangdong. Avon became the only direct selling pilot company. In August 2005, the Regulations on the Administration of Direct Selling and the Regulations on the Prohibition of Pyramid Schemes were promulgated, and single-level direct selling became the only legal form of direct marketing in China.
On February 22, 2006, Avon obtained its first direct selling license, which also confused Avon about the choice of "retail or direct sales". After numerous business changes and coaching storms, in March 2020, Brazilian beauty group Natura & Co acquired Avon for $3.7 billion.
In July 2021, Avon (China) Co., Ltd., the first company in mainland China to obtain a direct sales license, disappeared on the official website of the Ministry of Commerce's direct selling industry management, and the original 90 direct selling enterprises became 89.
On the other hand, Amway, which has been firmly in the top position in the global direct selling industry, has also had to face a situation in which performance continues to decline. According to the "DSN Annual Global Top 100 Direct Selling List" released by Direct Selling News, Amway's operating income has gradually declined from $11.3 billion in 2013 to $8.5 billion in 2021.
Some people quit, some people went down, and some people fell.
At the end of 2018, the "pyramid scheme door" incident of licensed enterprise Quanjian broke out, triggering a shock in the industry; in 2019, the State Administration of Market Supervision and 13 departments launched a 100-day action to rectify the chaos in the health care market. The direct selling industry has also ushered in extremely stringent regulatory scrutiny.
On February 14, 2019, Gao Feng, spokesman of the Ministry of Commerce, said at a press conference that the Ministry of Commerce has suspended the approval and filing of matters related to direct selling.
On 30 September 2021, the State Administration for Market Regulation issued the Notice on The Issue of Verifying the Disguised Transfer of Direct Selling Business Licenses by Direct Selling Enterprises in the Form of Cooperation, requiring all provincial market supervision departments to conduct a thorough investigation and mapping of direct selling enterprises registered in their respective provinces (autonomous regions and municipalities), and sort out and investigate the contents of the investigation, including: the change of equity of direct selling enterprises and the establishment of holding subsidiaries since 2019; whether the partners and related parties of direct selling enterprises have affiliated direct selling enterprises, in the name of direct selling enterprises, Engage in direct selling activities with the help of direct sales license influence.
Although, as of the end of December 2018, the number of licensed direct sales staff still reached 3.347 million. But the tightening policy hand has become a huge obstacle to the direct selling giant's way forward.
As the new 2021 financial report, in the reminder of the risks associated with Chinese mainland operations:
- Our business in Chinese mainland is highly supervised by the government and we may be subject to fines or other penalties;
- Our business may be materially negatively affected if the Chinese mainland the way in which the direct selling regulations are modified, interpreted or enforced, resulting in a negative change in our business model or a series of penalties;
- If we are unable to obtain additional and necessary national and local government approvals in Chinese mainland, our ability to expand our operations Chinese mainland may be negatively impacted.
The back wave of the Yangtze River pushes the front wave
In 2020, Runmi Consulting founder Liu Run said in the article that he talked with the CEO of a multinational health product company in China about a topic: the nature, dilemma and future of the direct sales model.
- The model of micro-business is almost exactly the same as direct sales, with people as contacts and trust as weapons. The difference is that the offline network has been moved online. More efficient, spread more widely, and have deeper roots. The rise of micro-business has impacted the traditional direct sales model.
- So, why do companies that choose the direct sales model not learn from the practice of micro-business?
- This CEO friend told me: The response is slow, and I don't take micro-business too seriously.
- Well. But possibly, there are other reasons. Maybe not. Direct selling companies hold licenses and operate legally. And many micro-businesses walk on the gray border, and even use the method of pyramid schemes. A barefoot one is not afraid to wear shoes, and one does not dare to cross the thunder pool for half a step.
Annual salary of millions, overseas travel incentives, low threshold and fast hands-on, hierarchical distribution system... From business models to publicity and promotion, micro-businesses have almost developed on the shoulders of direct sales.
However, micro-merchants wearing the cloak of direct sales have their own "hot wheels".
China's 800 million people have WeChat, based on WeChat's ability to "connect everything", to achieve social sharing of goods, acquaintance recommendation and circle of friends display, so that everyone's circle of friends has the possibility of being brushed by micro-business.
Sitting on the dividends of the rise of social new media such as WeChat, "decentralized" micro-business channels, and almost zero-cost "viral" fission marketing models, "micro-business" has become a special symbol of the mobile Internet era. Statistics say that around 2015, the number of domestic micro-business practitioners has reached tens of millions.
There are many micro-business practitioners, representing the existence of some real needs. But any business model needs to be based on reasonable business logic, otherwise, technological progress will always allow the business model to find a new breakthrough and eventually return to the normal business track.
When the social App traffic dividend represented by WeChat gradually declines, the rise of short videos and the "low price" in the live broadcast room have made the advantages of micro-businesses decline rapidly.
"At present, these 2 industries are under strict supervision, the best outlet has passed, and there is little opportunity to re-establish a brand through this model." When talking about the development prospects of direct sales and micro-business, an industry insider who has worked in the field of direct sales and micro-business for more than ten years said.
Liu Run carefully put forward several suggestions to direct selling enterprises in the article: first, from deep transmission to wide transmission, from a tree to a network; second, from lifelong career to stage cooperation; third, from the integration of production and sales of products, to the separation of production and sales.
In his view, "the advantage of a direct selling company may not be the production of products, but its own sales network." ”
From superstition to rationality, from madness to calmness, such as the outbreak of the new crisis, it seems accidental, but it is inevitable, and the long-established business model of direct marketing should go in China? No one has yet been able to give a final answer.
*Note: Liu Jie is a pseudonym