Amway Australasia director of sales and marketing Greg Bowman is frequently quoted as saying the company saves about $3 on every order captured through its new generation Web site. The same articles usually go on to describe how Amway - the largest direct seller in the Australian region - is taking about 40 per cent of its orders online, amounting to 50,000 to 60,000 orders a month.
On the face of it, you'd think Amway would be shovelling in the profits from its e-commerce initiatives. Not a bit of it. Because what those articles almost never explain is that just about every cent of the savings so engendered gets ploughed back into Amway's investment in e-commerce. As Bowman puts it, that's the money Amway needs to invest just to swim in the e-commerce mainstream. "Everybody is caught up in the modern-day drama of being on the Web," Bowman says. "The reality is that it's very expensive if you're going to do it properly."
There's the problem. To Bowman's mind, far too many companies are focused on the notion of getting into the e-commerce game whatever it costs, their eyes foolishly fixed on a largely illusory promise of cost savings. He warns any so tempted to think again. "There are some cost savings; but I would say that overall today we and a lot of companies like us, I think, are yet to see a lot of revenue driven from being in the e-commerce arena."
No organisation should make the move onto the e-commerce playing field until it is sure it makes business sense for the company and purchasing sense for the customer, Bowman says. On the other hand, there are far less tangible benefits than hoped-for cost savings, which perhaps receive less focus while being infinitely more worthwhile. In fact, there's now a level of cohesion between all sections of Amway's Australian business - especially the marketing, IT and business relations teams - that would have been unthinkable not so long ago. Amway has also used its move into e-commerce as the catalyst for developing a radical new business model. In short, e-commerce is helping Amway mature into a more together, focused and strategic organisation.
It's questions like the weighing of the cost benefits to be had from e-commerce that are forging brand new alliances between the separate business units that make up Amway. Such partnerships would never have been possible BW (Before the Web). At Amway, the push into e-commerce has signalled the end of the corporate turf wars. "For us, it has certainly brought our marketing team, our IT team and what we call our business relations team together," Bowman says.
Amway is like other organisations that have forged potent new cross-functional alliances focused on e-commerce projects. It is finding that such collaborative efforts not only help overcome internal reservations about Web-driven initiatives but also help the company stay firmly focused on the end product. That in turn has allowed much quicker rollout of e-business offerings and opened the way to improved customer service.
Bowman says the new alliances being created amongst internal business units, as Amway strives to build the most effective e-commerce strategy, are the best thing that could have happened to the company.
It would be fair to say that until Amway's push into e-commerce, the IT group had virtually no understanding of the business it was in. That ignorance wasn't helped by the fact that the group didn't even work within hailing distance of the business units it was meant to serve. Now the IT people understand Amway's business raison d'être as well as anybody in the company, are much more intimately involved in the organisation's day-to-day operations, and work closely with marketing to ensure the Web site can be quickly altered to reflect changing business conditions. A section of the IT department even sits in marketing.
Since Amway partnered with IBM to develop both its e-commerce ventures to date, even the IBM staff who have been working with the company since 1998 fully understand the business. "That's helped us build a site that not only provides good marketing of products over the Internet, it also provides good data for our business owners over the Internet," Bowman says.
Meanwhile, both IT and marketing work closely with Amway distributors and their customers, while the finance people can quote you chapter and verse of Amway's e-commerce strategy. They have to be able to, because theirs is the vital role of continually checking that the Amway e-commerce strategy makes purchasing sense for the consumer and financial sense for the company itself.
"That's the partnership that you must have with your finance department in the interest of understanding where your limitations might be from a capital expenditure point of view, and what you're ongoing expenses are going to be to keep yourself up to date," Bowman says. Finally, sales and marketing has a new focus on what makes a customer, as well as how best to serve them.
On the face of it, Amway's original but highly controversial business model was ideally suited to e-commerce. The model features a multilevel sales approach and relies on the generation of almost evangelical fervour by participants. Under that model, self-employed distributors made their money by recruiting both new customers and new reps, relying heavily on personal relationships to pitch the proprietary merchandise. Selling was basically paper-based, relying heavily on regular distribution of catalogues. Operating since 1959, the model worked much the same way in the 70 countries and territories in which Amway operates around the world. However, some distributors inevitably came under attack for perceived dubious business practices, particularly in Asia. So after 40 years of growth, Amway had hit a wall, with worldwide sales down almost 30 per cent in just two years. Despite the problems internationally, Amway in Australia has an annual turnover of more than $170 million and a network of 100,000 home-based distributors for its health, home and beauty products. It remains the largest direct-selling company in the Australian region. In March 1998, the company launched its first Internet site, reflecting its traditional business model. Dubbed Elvis (Electronic Link Via Internet Services), the password-only site was immediately embraced by the Internet-literate portion of its 89,000 country-wide distributors. It offered a full range of business services, including an online product catalogue, product ordering, business news. tracking and communications with the company, and the automation of administrative tasks like change of address details.
The Elvis system cost the company about $500,000 and enjoyed considerable early success. Just five months into its operation, online sales had reached about $1 million a month, growing at 25 to 50 per cent a month. In July that year alone, total monthly sales came to $15.9 million, compared to Amway Australasia's total 1997 revenue of $157 million. With figures like that, not to mention those savings of $3 on every order, you'd think Amway might have been content to sit on its laurels.
Bowman frankly admits, however, that as a first generation e-commerce site - and Amway's first foray into an e-commerce environment - and despite all the kudos it received on the strength of those qualities, Elvis was frankly "not a very good site, at least in comparison to where we are today". Even a good e-commerce site has a lifespan of only a couple of years, Bowman says. After that it will inevitably need updating with more advanced technology. "The analogy I use is: how long is your laptop really good for on your desk? Probably no more than two years," Bowman says.
Amway was not content to just relaunch the site on updated technology. Instead, in April this year, the company launched an entirely new generation e-commerce venture. This entailed a radically new business model which was better suited to a Web-enabled world and at the same time dramatically increased the opportunities for people to order its products. "If you're going to spend hundreds of millions of dollars a year on product development, why should you limit who can purchase your products?" Bowman asks.
That new business model is known internally as IMC (where the "I" stands for Independent Business Owner [IBO], the "M" stands for a new Member classification, and "C" stands for Client). It was introduced in the US in September 1999, with the launch of a separate business called Quickstart at www.quickstart.com. Bowman says quickstart.com has been a fantastically successful site.
Australia was one of the first affiliates to introduce the IMC into the international market, on April 10, 2000. The strategy was focused on its new Web site, at www.a2k.com.au, which is open to all. Under the model, the new generation Web site has become both a shopping site and business tool for the company's independent business owners, and there's a new class of Amway buyer entirely. Featuring a range of products ranging from food to fashion, health products to home cleaning, cosmetics to kitchenware, the site is designed as a multifunction commerce platform for Amway's Australian distributors and customers. In keeping with Amway's commitment to quality, there's a promise of direct delivery within seven days and a 90-day satisfaction guarantee.
But the site goes far beyond offering Amway's products alone. Instead, it makes available a broad range of products and services. These include a range of IBM computer products, Blue Star Office Supplies, flowers through the Petals Network, AFS Financial Services products, and RM Williams product through Boots On-line.
Reflecting the dramatically overhauled business model, there are three separate ways to log into the site: as client, member or independent business owner, each offering different rewards and benefits. "In the past, the only way you could actually purchase Amway products was to become an Amway distributor," Bowman says. "Now you have more of a choice: you can either become a client - that's a customer - or you can become a member. The member offer has been very successful, and that's something that for 29 years we didn't have."
There is no cost to register as a client and all client purchases are made at retail prices. However, members pay a registration fee then buy Amway products at wholesale prices. Independent business owners also pay a registration fee; in return they get a business pack and access to a much broader range of services and benefits, including access to a virtual office and a bonus system.
"If you go into a2k and put in your client number, you see a2k from a client perspective," Bowman says. "You see client pricing, you see what we want you to see as a client.
"If you go in as a member, it's almost like you get a different channel. You see different pricing and you don't see anything to do with the business opportunity. "But if you go in as an Independent Business Owner, you now have access to what we call the Virtual Office. And inside that Virtual Office is all the information on your particular business, available in real time."
IBOs accessing the virtual office can learn how much product they've managed to move in particular lines and the status of their orders, extract statistics on their bonus to date, and even discover how many people have been sponsored into their group that month.They can also view up-to-date information on the effect of the GST on their business operations and details of upcoming training meetings, as well as being able to access a range of marketing materials. The Amway business model includes incentives for certain levels of performance. IBOs can go online and view their current level and the previous 12 months' performance, assessing trends and overall business performance.
Bowman says achieving the level of detail available in the virtual office required close cooperation between Amway's distribution, operations, business relations, finance marketing and IT people. It has also required a strong focus on security. Amway has worked closely with IBM to achieve the most secure site possible.
The Secure Sockets Layer (SSL) technology employed on the site is the industry standard for encryption used by reputable electronic commerce sites in Australia. SSL ensures that users of the "a2k" site can have as safe and secure a shopping experience as can be reasonably provided. As an additional security feature, the a2k site has also been developed to ensure that shoppers who don't wish to enter their credit card details each time they make a purchase can opt to provide their credit card details once only. Those details are then securely stored for future use, thereby further reducing the already unlikely risk of hackers gaining access to their personal information.
Bowman says the company tries to stay on the leading edge as far as protecting the site goes. "You know, we're asking more than 100,000 Australians who are independent Amway business owners to go into a2k and purchase their products. "It does cost money to build a site that has proper security in it; but we've built the trust up with our IBOs and they have responded by placing more than 40 per cent of their orders through the a2k site."
Bowman says few other companies have historically been able to offer clients business opportunities for such a low amount of capital outlay. Now he believes Amway's competitive edge is even greater. "It costs about $110 to get into the Amway business. For that $110 you are provided a Web site and an online virtual office that a lot of other companies - big companies with big franchises and very expensive franchises - don't provide at this time.
"It's a significant investment from Amway Australia on behalf of the average Australian who wants to own their own business and get into business with Amway Australia. We say to them: Look, we've made an investment in e-commerce for two reasons. One: if you show our business plan and our products to a prospect, we don't want you to ever be disadvantaged by not having a successful mainstream Web site. Two: if you're going to own a business, you should have information about your business on hand 24 hours a day whenever you want to access it'."
To achieve that, Bowman says, Amway's marketing team had a lot of work to do to bring itself up to speed with marketing over the Internet. The company has addressed that in several ways. For a start, there is no real "owner" of the "a2k" Web site. Instead, the message the company consistently pushes is that everyone owns the site and everyone has to take some level of responsibility for it.
"That's something that we had to drive into everybody on our team," he says. "It wasn't something where you could just say: Well, I put together my products in our paper catalogue, why can't we just reproduce that and put it on the Web site?'"We hired a good Internet producer and some good designers. That Internet producer came in and right away said: Look, marketing over the Internet is much different than marketing through a catalogue. We need to start to learn that together'."
Bowman says he was recently asked whether Amway will ever be a total e-commerce company. Of course it won't, he says. "From an Amway perspective, I think the biggest challenge is that we maintain a balance between e-commerce and making sure our business maintains a personal level to it.
"Sure, you can get caught up in the notion that we're an e-commerce company and that's how we do business. That may work for some other companies. It will probably never work for our company in totality," he says.