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DIRECT SELLING: ITS LOCATION IN A FRANCHISE TYPOLOGY Stewart Brodie Professor John Stanworth INTERNATIONAL FRANCHISE
DIRECT SELLING: ITS LOCATION IN A FRANCHISE TYPOLOGY Stewart Brodie Professor John Stanworth INTERNATIONAL FRANCHISE

DIRECT SELLING:

ITS LOCATION IN A FRANCHISE TYPOLOGY

Stewart Brodie Professor John Stanworth

INTERNATIONAL FRANCHISE RESEARCH CENTRE

SPECIAL STUDIES SERIES No.14 FEBRUARY 1999

PUBLISHED BY THE FUTURE OF WORK RESEARCH GROUP ISBN 0 9533304 5 1

THE INTERNATIONAL FRANCHISE RESEARCH CENTRE (IFRC) 1993-2007

University of Westminster, London, UK.

"The International Franchise Research Centre (IFRC) is committed to improving the understanding of franchising. This is achieved by the publication of impartial research and by the encouragement of informed debate."

Franchising operates in a dynamic environ- ment, with new issues and challenges emerging, including: globalisation, coping with competition, disclosure, industry regulation, managing relations with franchisee associations, franchisee recruitment & market saturation.

Against this backdrop, the IFRC was established in 1993 by Professor John Stanworth (Director of the Future of Work Research Group at the University of Westminster), supported by Brian Smith (ex- BFA Chairman, franchisee, franchisor and author), and Chair of its Steering Group.

FOUNDER MEMBERS

Founder members and sponsors included:

Barclays Bank, the British Franchise Association (BFA), Dyno-Rod, Franchise Development Services Ltd., Lloyds Bank (now Lloyds Group), Mail Boxes Etc., Midland Bank (now HSBC), Prontaprint, Rosemary Conley Diet & Fitness Clubs, Royal Bank of Scotland, The Swinton Group, and Wragge & Co.

PUBLICATIONS

Their support enabled the IFRC to publish a number of reports, including its Special Studies Series Papers, journal articles, book chapters and conference papers.

Two IFRC papers received three awards over a period of 12 months (1996-97). The first being Business Format Franchising:

Innovation & Creativity or Replication & Conformity ?, which received the Best International Paper Award in 1996, from the Society of Franchising. This paper also received the Outstanding Paper of 1996 award from Franchising Research: An

International Journal (MCB University Press). Additionally, Franchise Growth And Failure In The U.S. And The U.K.: A Troubled Dreamworld Revisited received the Best International Paper Award in 1997, again from the Society of Franchising. This paper was later published in Franchising Research: An International Journal.

Close links were fostered with universities in Rome and Pisa (Italy), Haute Alsace (France) and Boston, Minneapolis and Texas (USA), with a view to research collaboration. Professor Pat Kaufmann of Atlanta, Georgia, addressed our inaugural annual strategy seminar, in 1994. Overseas speakers in subsequent years included Cheryl Babcock, Director of the Franchising Institute, University of St. Thomas, Minneapolis (1995), Professor Rajiv Dant, University of Boston (1996), Professor Francine Lafontaine, University of Michigan (1997), Professor Claude Nègre, University of Haute Alsace (1997), Colin McCosker, University of Southern Queensland (1998), Professor Frank Hoy, University of Texas at El Paso (1998), Professor Jack Nevin, University of Wisconsin-Madison (1999), Professor Tom Wotruba, San Diego State University (1999), Professor Bruce Walker, University of Missouri, (2000), and, Professor Wilke English, University of Mary Hardin-Baylor (2000).

IFRC members were active supporters of the International Society of Franchising, and hosted the ISoF 2005 conference in London.

The IFRC ceased its research activities in 2007, when John Stanworth took retirement.

Web versions of IFRC Special Studies Series Papers 1993-2001 (listed overleaf)

Many of the earlier papers have been re-set, to allow a successful conversion to Acrobat, and are now available online.

John Stanworth, Emeritus Professor, University of Westminster http://www.westminster.ac.uk/schools/ business

David Purdy, Visiting Fellow, Kingston University http://business.kingston.ac.uk/sbrc December 2010

LIABILITY DISCLAIMER

The information and analysis in each report is offered in good faith. However, neither the publishers, the project sponsors, nor the author/s, accept any liability for losses or damages which could arise for those who choose to act upon the information or analysis contained herein.

IFRC Special Studies Papers 1993-2001

Web versions published online December 2010, via http://www.scribd.com/:

1 The Blenheim/University of Westminster Franchise Survey:

Spring 1993, (Stanworth & Purdy),

1993

2 Improving Small Business Survival Rates via Franchising: The Role of the Banks in Europe, (Stanworth & Stern),

1993

3 Targeting Potential Franchisees:

Industry Sector Backgrounds and Declared Areas of Interest, (Purdy & Stanworth), 1994

4 The Impact of Franchising on the Development Prospects of Small & Medium-sized Enterprises (SMEs) in Europe, (Stanworth & Purdy), 1994

5 The Blenheim/University of Westminster Franchise Survey: A Comparison of UK and US Data, (Stanworth, Kaufmann & Purdy), 1995

6 Developing a Diagnostic Questionnaire as an Aid to Franchisee Selection, (Stanworth), 1995

7 Franchising as a Source of Technology-transfer to Developing Economies, (Stanworth, Price, Porter, Swabe & Gold), 1995

8 Aspects of Franchisee Recruitment, (Macmillan), 1996

9 Business Format Franchising:

Innovation & Creativity or Replication & Conformity ?, (Stanworth, Price, Purdy, Zafiris & Gandolfo), 1996

10 London: A Capital City For Franchisee Recruitment, (Mills, Stanworth & Purdy), 1997

11 The Effectiveness of Franchise Exhibitions in the United Kingdom, (Chapman, Mills & Stanworth), 1997

12 Franchising: Breaking Into European Union Markets, (Stirland, Stanworth, Purdy & Brodie), 1998

13 Succeeding As A Franchisor, (Stanworth & Purdy, published jointly with Business Link London Central),

1998

14 Direct Selling: Its Location in a Franchise Typology, (Brodie & Stanworth), 1999

15 Unravelling the Evidence on Franchise System Survivability, (Stanworth, Purdy, English & Willems), 1999

16 Survey: Professional Services For Franchising In The U.K., (Stanworth & Purdy), 2001

Direct Selling: Its Location in a Franchise Typology

Abstract

This paper creates a franchise typology linking 'work base' and 'franchise type' and then, having defined and described 'direct selling', argues that direct selling should be included in the franchise typology as a 'mini- franchise'. Support for this argument is sought from the seminal work of the UK Bolton Committee (1971) researchers in their classification of small firms where, it is suggested, both a direct seller and a franchisee would be considered as a 'satellite', that is, a small firm highly dependent upon a single larger firm for the major part of their economic activity. Comparisons and a summary of key characteristics of direct selling and franchising organisations are presented to defend the argument.

Authors

Stewart BRODIE, former chief executive and managing director of Tupperware and president of Mary Kay Cosmetics, and a past chairman of the UK Direct Selling Association, is studying for his Ph.D. at the University of Westminster, researching 'Self-Employment Dynamics of the Independent Contractor in the Direct Selling Industry'. (brodies@westminster.ac.uk)

Professor John STANWORTH is director of the Future of Work Research group at the University of Westminster. Additionally, he is director of the International Franchise Research Centre and the current Chair of the Society of Franchising. (stanwoj@westminster.ac.uk)

Direct Selling: Its Location in a Franchise Typology

Relationship of Direct Selling with Franchising

Franchising has been defined by Stanworth and Curran (1983) as:

'A business form essentially consisting of an organisation (the franchisor) with a market- tested business package centred on a product or service, entering into a continuing contractual relationship with franchisees, typically self- financed and independently owner-managed small firms, operating under the franchisor's trade name to produce and/or market goods and services according to a format specified by the franchisor.'

Based on this Stanworth and Curran definition of franchising and considering the description of direct selling which follows, it may be argued that direct selling can be located within a franchise typology (Figure I), as a 'mini- franchise'. The typology was created as a 2 x 2 matrix linking the 'work base' and 'franchise type' of the self-employed, independent contractor.

Figure 1 - A Franchise Typology

Service Franchises

Job Franchises

e.g., domestic milk delivery

Home based, self-employed without employees

Business Format Franchises

e.g., fast food and business services

Premises based, self-employed with employees, or corporate

Mini-Franchises

e.g., direct selling opportunities, such as Avon, Amway, Mary Kay Cosmetics and Tuppeware

Product Franchises

Product Franchises

e.g., petroleum and soft drink bottlers

The current literature on franchising tends to focus largely upon 'business format franchising', where, it is argued, there is a 'cloning' process of an established, and ideally fully-tested, complete, business system as a channel for the delivery of a service, or service-related business. However, in addition to business format franchising, our model locates what have been called 'first generation' franchises, or 'product' franchises which tend to be confined to the fields of car and petroleum distribution, soft drink bottlers and, particularly in the United Kingdom, tenanted 'pubs'. Additionally, it is suggested that the cells in this matrix are not necessarily mutually exclusive and may be viewed as ideal conceptual types.

The 'Direct Selling' Format

Direct selling has been defined by the World Federation of Direct Selling Associations (1997) as:

'the sale of a consumer product or service in a face-to-face manner, away from a fixed retail outlet'.

Thus, the direct sale will typically be made in the home, or at the potential customer's place of work. By using this definition it is also possible to differentiate between 'direct selling' and 'direct marketing', where 'direct marketing' implies that the initiation, at least, of the transaction is by the use of some form of media, for example, mail order catalogues, direct response, mail shots, advertisements, TV, electronic and tele-marketing, rather than by 'face-to-face' contact. Direct selling is characterised by the initiation of contact, demonstration and consummation of the sale by the direct salesperson. It could be argued that direct selling is one of the oldest distribution systems in the world, for it was farmers and craftsmen travelling around villages and towns offering and selling their products at customers' homes that prefaced the whole retail industry.

Today, direct sales are conducted by self-employed, independent contractors, typically female and typically part-time, usually trading under the 'banner', or logo, of a larger enterprise. On a world-wide basis, it is estimated that some 30 million individuals are now involved in direct selling, producing around $80 billion annual sales revenues (World Federation of Direct Selling Associations, 1998). Many of the well-known direct selling organisations, such as Avon Cosmetics, Amway, Mary Kay Cosmetics and Tupperware, are major, multi-national corporations with annual sales revenues measured in billions of dollars. As Biggart (1989) points out, direct selling organisations have achieved this financial status through:

'an unusual combination of organizational practices and management strategies

:

Considering the time and money that corporations spend attempting to recruit and select the best workers for a given position, it might be expected that, for their sales forces, direct selling organisations would be looking for extrovert, self-motivated and experienced personnel, who would be comfortable with presenting the products and services and asking for the order. However, most direct selling organisations operate virtually no recruiting criteria at all. Many who join have no prior selling experience and anyone willing to undertake direct selling is welcome. The approach is almost to 'give everyone a chance to fail'. Over recent years, direct selling organisations are thought to have benefited from the status erosion of certain professional groups, particularly those where there is a predominance of women, by recruiting these people into an additional, albeit often part-time, earnings opportunity.

Direct Selling Organisational Format

A direct selling company may be organised in one of two differing ways,

which basically reflect the remuneration plan for the self-employed, independent contractors who make up the sales forces of these companies.

A company operating a single-level format (SL) offers the new direct seller

the sole opportunity of making a retail profit by selling products on a person- to-person basis, or through 'party plan'. Here, the recruiting and training of new participants is undertaken by managers appointed by the company, and who may or may not be themselves self-employed and who may or may not be involved in making personal sales. By way of contrast, in a company using a multi-level marketing format (MLM), also known as network marketing, the new participant is immediately offered the opportunity of benefiting not only from their own personal sales but also from the sales of others they may recruit, directly and indirectly, into the business. Here, they will be paid over-ride commissions and bonuses based on the acceptance of their ongoing responsibility to train and motivate these recruits.

Direct Selling Operational Format

Whether using a single or multi-level format, direct selling companies normally operate on one of two principal sales methods, namely, 'person-to- person', or 'party-plan'. 'Person-to-person' occurs where the product is demonstrated and explained in private homes, or places of work, on an individual basis. It also includes the distribution of a catalogue, or brochure,

to a potential customer, thus providing the customer with the opportunity to

study the product range, before placing an order with the direct seller at a later call. 'Person-to person' methods are used by about 84% of direct selling companies in the UK (DSA, 1998) and 75% in the US (USDSA, 1998). Alternatively, 'party plan' format involves the direct seller demonstrating to a group of people, usually in the home of a customer who acts as, and is rewarded by the direct seller for being, the host(ess).

Small Company Typology

In their classification of small firms, the Bolton Committee researchers in the United Kingdom (Bolton, 1971) argued a typology based on the type of market a small company supplies and their relationship with larger firms and identified three groups. Firstly, 'marketeers', where the small company actually competes directly in the same, or similar, markets as larger companies. Secondly, 'specialists', where the small companies carried out functions which larger companies do not find it economic to undertake, although, as Stanworth and Purdy (1998) point out, they may include large companies among their customers. Lastly, 'satellites', where the smaller firm is highly dependent upon a single larger firm for the major part of its economic activity. It is argued that most franchise operations fall into this category. Equally, it is argued that, because of the dependence of the independent direct seller to the organisation with which they are associated

for the supply of goods and services, this category would also include the

vast majority of direct sellers. Perhaps, more correctly, because of the disparity in size between the direct selling organisation and the independent contractor, the direct seller should be considered as a 'mini-', or even 'micro-', franchisee of the larger company.

Comparisons between Direct Selling and Conventional Franchising

A comparative summary of key characteristics of direct selling and

franchising organisations is shown in Figure 2. Additionally, for the Society

of Franchising Conference, illustrative and explanatory notes on some of

these characteristics, with particular emphasis on the direct selling perspective, are presented below:

Entry Motivation

Typically, entrants to direct-selling begin on a part-time basis, to counteract a situation where their regular out-goings are not being met by their current income (Brodie, 1998), that is, 'economic push factors'. Additionally, it may

be argued that there are others who start because they are attracted by

diverse 'pull' attractions of self-employment (Granger, Stanworth and Stanworth, 1995), such as 'flexibility of work hours', 'my own business', 'meeting people', the attraction of the 'product' and, in some cases, the hope of large incomes. This can also be related to the two 'logics' of motivation

for an individual to set up business on their own discussed by Bogenhold and

Staber (1991), where they refer not only to the logic of 'economic necessity', but also to the logic of 'self-determination'. However, they argue that

individual motivation and the available options interact in complex ways for different individuals and groups of self-employed and are dependent on their economic activity status and that we should not attempt 'to argue for simple universal relationships'.

Figure 2 -Summary of Key Characteristics of Direct Selling and Conventional Franchising Organisations

I

Entry motivation Trading status Initial financial outlay Prior experience requirements Ease of Entry Work base Employees Territory exclusivity Contractual terms Length of contract GoodslSe~ices Initial training Career progression/Promotion

.

-

Ongoing training

Gender bias

Hours worked

Participant's lnwme

Marketing initiative

Transaction venue

Advertisina

-

Competing economic activities Regulation Rights on termination Eusiness disposal Parent company inwrne source

I FranchiseelFranchising

I

'Push' and 'Pull' Separate legal identity Typically substantial Typically none Financial and aptitude barriers to entry Retail outleVofficelhome Typically 'YES' Common Onerous Years - legally defined Tried and tested - aggressively marketed DaysNVeeks Limited to development of existing outlet, or acquisition of additional outlets Yes Typically male Typically full-time Sales linked Passive- usually buyer initiative Franchisee's retail outleu customer's office/home Contribution to advertising, which may be product or locality focused Discouraged US: Yes 1 UK: No Complex Saleable as going concern Up-front franchise fees/ Royalties1Advertising fees/ Use of approved suppliers

I Direct SellerlDirect Selling

I

'Push' and 'Pull' Labour only sub-contractor Typically minimal None Minimal barriers to entry Home Typically 'NO' Rare Simple MLM - annual renewal usually 1 Jan / SL - open-ended Tried and tested - aggressively marketed HourslDays Compensation plan - development of existing activity

Yes Typically female Typically part-time Sales linked Pro-active - seller initiative Customer's homelcustomer's office Company sponsored, usually prestige type

Not encouraged - not forbidden MLM - US: Yes IUK: Yes Simple, but detailed Rare Mark-up on sale of goods to direct sellers/ MLM - Nominal annual joining fee <: $50

Available research suggests that many individuals taking up a franchise have been previously unemployed. This is illustrated by the recent work of Nunn, Purdy, Stanworth and Hatcliffe (1998) who found that, within their sample of four established UK franchise systems, there was a significant redundancy 'push' factor. Interestingly, 79% of women, when choosing a franchise, said it was important that the franchise offered them domestic flexibility, whereas only 47% of men thought the same.

Trading Status

DSA member companies' salesforces are comprised of self-employed, independent contractors, who have been 'recruited', or 'sponsored' by others, who are already participants in the activity. Typically, direct selling organisations will only have agreementslcontracts with a named 'individual person' and not with a 'limited liability company'. These contracts confirm that there is no subordination, that is, that there is not a masterlservant relationship and that the independent contract is not an employee of the direct selling organisation and is recognised as being self-employed.

Barriers to Entry

There are minimal barriers to entry for most direct selling organisations. Direct selling organisations have, particularly over recent years, brought down the financial cost of entry. Most new independent contractors will be able to start up in business for under $100, or even at zero cost. Additionally, in many cases, direct selling organisations have promotional plans whereby new distributors can obtain demonstration products on advantageous terms, by using such methods as borrowing, renting, 'fast start' special discounts and extended trading terms.

Because of the ease of entry and the low initial financial outlay, it could be argued that, almost by definition, there may not be the participant 'organisational commitment' that one would expect from participants who have a more challenging entry system to their activity, that is, where there is a more rigorous selection programme and a much greater financial outlay, for example, conventional franchising.

Prior Experience Requirements

been

economically active at some earlier stage in their lives, there are no requirements made by any DSA member company.

Although

many

who

start

in

a

direct

selling

activity

will

have

In current research (Brodie, 1998), the figures for those 'having been economically active', at the time of taking up their current direct selling activity were:

All (n=722)

1

55%

Female

49%

Work Base

Virtually all direct sellers use their home as their work base. However, some of the full-time participants do use an office which, in some cases, for example, Vorwerk and Kirby, is made available by the direct selling organisations with which they are associated.

Territory Exclusivity

Whereas a single-level company, for example, Avon Cosmetics, may give a new representative 50 homes in one street and 50 homes in another as 'her' territory, multi-level marketing companies have no similar restrictions and all distributors may go wherever they want, within the UK, to market the product and the business opportunity.

Contractual Terms

Under the Trading Schemes Regulations, multi-level marketing companies must have a written and signed contract with each of the independent contractors associated with them. The content of these contracts is specified within the legfslation, including the wording and actual positioning of various statutory warnings about the possible dangers of entering into the agreement and also the rights on cancellation or termination of the contract. For some multi-level companies, these contracts run to over thirty clauses and all are careful to confirm the 'independent, self-employed' status of the participant. Additionally, all contracts must include the name and address of the direct selling companies, a description of their products and the role the participant will play, and, importantly, any payments the participant will have to make in the first year.

Length of Contract

Whereas single-level companies have 'open-ended' contracts, under the Trading Schemes Regulations, multi-level companies require all independent contra6tors to renew their contracts annually, usually on 1 January.

The range and value of UK Direct Selling relating to consumer goods shows

(DSA, 1998):

Figure 4 - Range and Proportional Value of UK Direct Selling

Per~~nal- cosmetics, fragrances, skincare,jewellery, ladies' and children's clothing and other personal items

Household - security, water treatment, energy saving, electrical, home decorative, furnishings, cookware, tableware, kitchenware, housewares, home and car cleaning and other household products Family - books, toys, games, audio, video, financial, other household products and business aids Services - telecoms and utilities 'Wellness' - nutritional, supplements, diet plans and other products Food - frozen and other foods

1

35%

23%

18%

13%

7%

4%

It can be argued that direct selling is in a strongly competitive market place, since all these products ranges are not unique to direct selling and are aggressively marketed in the normal retail outlets.

The range and value of the UK franchising sector (Stanworth, Purdy and Hatcliffe, 1998) shows:

Figure 5 - Range and Proportional Value of UK Conventional Franchising

Business Services

19%

Food Franchising

9%

Home Care Services "

8%

Initial Training

All direct selling companies have training programmes for their new salespeople. However, it is common, particularly in multi-level operations, for this to be 'delegated' to existing, successful, independent contractors. Thus, the person, who, having recruited or sponsored someone into this type of company, will be entitled to receive over-ride commissions, resulting from the retail sales activity of that new distributor, based on the understanding that they have accepted the ongoing responsibility for training and motivating that new participant. The time taken to train a new direct seller will be measured in terms of hours and days, rather than weeks.

Career ProgressionlPromotion

In all direct selling organisations, and particularly those organised with a multi-level compensation plan, there is a 'career plan' concept. The simplistic approach to this is that the greater the sales and recruiting success of the participant then the greater will be their rewards and the recognition they receive. The rewards will be in the form of increased commissions and bonuses paid out to them, based on the sales achieved by them and their 'team'. The recognition often comes in the form of 'titles', for example, supervisor, manager, director and, even, national executive sales director - all, in fact, courtesy titles but, nevertheless, eagerly sought by many direct sellers.

Ongoing Training

All direct selling companies have ongoing, non-compulsory, training programmes for their direct sellers. Sometimes these are company sponsored and sometimes they are organised and run by the senior independent contractors.

Gender Bias

The initial, major, growth in direct selling occurred in the 1950s in the US and in the 1960s in the UK, taking advantage of the high numbers of young mothers at home who were seeking additional interests in their life, away from housework and child-rearing activities and responsibilities. Many of the early direct selling companies focused on female orientated products to stimulate the growth of their sales forces.

Many of those companies are now market leaders and are still marketing ranges of goods which have been stereotyped as being in the female domain, for example, Tupperware with kitchen products and Mary Kay Cosmetics with skincare products.

There is still a predominance of females among direct salespeople. It is currently estimated (WFDSA, 1998) that over 80% of all direct sellers are female. However, statistics (Figure 3) taken from the DSA Annual Survey of Direct Selling (DSA, 1980-1996), shows a growth of male participation in the industry in recent years.

Figure 3 - Gender Percentage of UK Direct Sellers - 1980-1998

 

1

1980

1

1998

Male

1

5%

1

18%

Female

1

95%

1

66%

Partnerships

1

17%

This also shows an increase in male participation brought about by the increase in partnerships adopting a direct selling activity. Whereas these partnerships can also be malelmale and femalelfemale, indications (Brodie, 1998) are that probably 80% are malelfemale. A deeper analysis reveals that this is mainly a multi-level marketing phenomenon where at least one major company promotes strongly the concept of a 'partnership' distributorship.

Hours Worked

Whereas most franchise companies expect their franchisees to work full-time in their franchises, the Direct Selling Association suggests that 96% of all the self-employed direct sellers are part-time, that is, they spend less than 30 hours per week on their activity. More detailed data (Brodie, 1998) indicates that 74% of females and 47% of males work less 10 hours per week at their direct selling activity. The same study indicates that, although 40% of females and 45% of males saw this activity as their 'prime work', only 4% of females and 21% of males exceeded 30 hours per week. These data may be related back to the concepts of expected commitment as a result of 'ease of entry' and 'initial financial outlay'.

Participants' Income

Recent work by Grayson (1997) confirmed the distribution of incomes from a

sample of four major multi-level format companies operating in the UK. More

than 80% earn at a rate of less than £5,000 per annum.

shows that a small group, less than 4%, earn in excess of £25,000 per

annum.

some of them enjoy incomes well in excess off 100,000 per annum.

His study also

These are the 'professional', fully-committed, direct sellers and

Such

income figures are confirmed in private discussion with chief executives of

direct selling companies, who are obviously aware of the actual monthly values of individual commission cheques paid by their companies.

Marketing Initiative

Since most direct sellers use their own home as their work base, it may be argued that the independent contractor has to be more pro-active in taking

the marketing initiative to seek their potential customers.

the business relationship, they will probably not have the ability to advertise their activity. Certainly, they will not have a 'high street' or 'yellow pages' visibility to attract custom. In direct selling, the initiation and consummation of the sale is usually made in person, that is, face-to-face, as opposed to the use of media, for example, mail order catalogue, telephone, letter, coupon response, mail order and TV advertising.

Again, because of

Transaction Venue

Direct selling can also imply that the physical distance between buyer and seller is reduced. Ideally, the seller, as the pro-active party, seeks to optimise his potential for a sale by relieving the buyer of the obligation to travel to find the seller. Classically, the buyer's home thus becomes the transaction venue.

There is a spectrum of potential transaction venues including private homes, places of work, the street, trade fairs, exhibitions, production factories, shops and supermarkets. This spectrum also covers the range from pure direct selling to classic retailing.

Competing Economic Activities

Since they are dealing with self-employed, independent contractors, it is difficult for direct selling companies to 'forbid' these people to associate

themselves with other direct selling companies.

direct selling companies is that participants only get involved with one company, however, current research (Brodie, 1998) suggests that 13% of the female and 15% of the .male respondents are currently working with more than one direct selling company. This is in contrast to most business-format franchises where, typically, the legal contract would include a 'non- competition' clause.

The training and ethos of

Regulation

In the UK, the wording of the 'Trading Schemes Act - 1996' and its related 'Trading Schemes Regulations - 1997', originally introduced to outlaw 'money circulation' schemes, ensured that, whereas all single-level direct selling companies and the majority of franchise operations were excluded, all companies involved in multi-level marketing were covered by the legislation.

Rights during the first 14 days after Signing the Contract

In the UK, within the first seven (7) days after a contract is signed, the participant may not be legally billed for more than £200 in total. This is to prevent the naive participant from becoming too committed until they have tested the market. Such concepts as post-dated cheques and standing orders do not get round this limit! If the participant regrets joining the scheme, they have the right to cancel the contract and return any products for a full refund.

Rights on Termination (after 14 days)

Again, in the UK, under the Trading Schemes Regulations, participants may terminate their contract at any time by giving 14 days written notice. Giving such notice releases the participant from all obligations to the direct selling companies which are set out in the contract, with one possible exception. This exception allows the company to protect their business by keeping in force any contract which stops the participant competing with that company, for example, by setting up, or participating in a rival scheme. This has not yet been tested in law and it is argued that it is doubtful if it will stand up in court. On termination of the contract, by either party, the participant may return any goods purchased during the preceding ninety (90) days for, typically, a 90% refund.

Business Disposal

In contrast to most conventional franchises, on termination, by either party, the vast majority of direct sellers effectively have no business of which to dispose. However, particularly in multi-level marketing, a minority do have a saleable business and the process involved is usually the subject of special clauses in the contract. Most direct selling organisations demand that their agreement to the new 'owner' has been sought and obtained.

Parent Company Income

The parent company income comes mainly from the sale of goods to the independent contractors. A smaller, but nevertheless substantial, income derives from the annual joining, or renewal, fee paid by all participants. As an example, a multi-level format company may receive $35 per annum from 100,000 distributors, giving an additional $3,500,000 sales revenue. In return for the $35 fee the company will maintain the distributor's name and address on their computer generated, active, mailing list and send them a regular, possibly monthly, newsletter.

Conclusions

Typically, franchisees are male, work full-time under onerous contractual terms from the franchisor, have undergone comprehensive training, have overcome financial and aptitude barriers to entry and have employees. By way of contrast, direct sellers, typically, are female, part-time, have a simple contract with the direct selling organisation, are given minimal training, have minimal financial and aptitude barriers to entry and have no employees. However, it is argued that there are enough similarities for direct selling to be included in a franchise typology, as shown in Figure 1, and the principal areas of contrast are identified in Figure 2.

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Bogenhold, D.

employment', Work, Emplovment & Societv, Vol. 5, No. 2

and

Staber,

U.

(1991), 'The

decline

and

rise of

self-

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Brodie, A.S. (1995), 'Sales Force Turnover in Direct Sellina Oraanisations in the United Kinadom and France', University of Keele, UK (MA dissertation)

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-

Web Site on: http://www.franchise.org

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