Defining Direct selling

Direct selling is a growing sector in Italy: in 2019, it registered an unparalleled 51% growth in terms of quantity of products distributed by the 265 active companies. Direct selling is increasingly growing also, and mainly thanks to the, important daily activity of the key figures in this market, i.e. direct doorto-door salesmen (so-called incaricati). The relationship between the company and the salesmen determines the success of a direct selling initiative. The basic element is a good product, which is recognizable and appealing in the market.

However, the product alone is not enough to achieve success in a network marketing initiative. As the word network suggests, there is the need for people to have excellent relationship skills, which are essential to reach exceptional synergies as they are useful both for the company and the product to be distributed, as well as for a better management of an organization made up of salesmen.

A good salesman can not only highlight the qualities of a product, but also advise the selling company on how that product can be adapted – or better adapted – to the reference market, make suggestions on other products to be distributed, on marketing policies to be implemented, etc. Most of all, a good salesman is able to coordinate in the best possible way the work of a complex organization made up of individuals, who, when duly incentivized according to their personal characteristics and aims, can act in a coordinate way to reach a common objective.

When both abilities combine, success is achieved. However, direct selling is also an insidious market, as it is still affected by distrust due to companies that in the past operated through fraudulent mechanism known as pyramid sale schemes.

How to distinguish direct selling from pyramid schemes?

Direct selling is a kind of retail sale activity that is carried out by collecting purchase orders made at the place where the customer is located.

This activity is performed by salesmen, who promote the collection of purchase orders from end customers, whether under an employment contract with the selling company or not. While revenues from direct selling depend on the direct or indirect intermediation of the company’s products and services, revenues in pyramid schemes depend on the recruitment of new individuals, who are who are required often to make a high initial initial investment in order to access the system or to purchase materials, goods, or services.

In a pyramidal structure, revenues come from the mere recruitment of other people, without the need to sell goods or services (even though these sales are performed to try and hide the pyramid scheme): this sale scheme is prohibited in Italy pursuant to law n. 173 dated 17 August 2005 concerning direct door-to-door selling activities and the safeguard of consumers from pyramid schemes.

The above law provides serious penalties: except for the fact that this would constitute a more serious crime (e.g. fraud), anyone who promotes or realizes or simply takes part in this kind of activities is punished either with detention from six months up to a year, or with a penalty from € 100,000 to € 600,000. Moreover, pyramid schemes are a misleading commercial practice pursuant to art. 23, para. 1, letter p. of the Italian Code of Consumption, for which the Italian Competition Authority (Autorità Garante della Concorrenza ed il Mercato) can also inflict fines and/or disqualification provisions.

How to take the best opportunities?

The success of direct selling in Italy is related to the organizational flexibility it provides. Traditional marketing strategies, characterized by a high competition, are no more effective. Therefore, alternative strategies and new sales channels are needed in order to help companies involving the customer effectively.

For this reason, besides their flexibility and capability to adapt to the context without incurring fixed costs (which are instead required to build a traditional sales network), door-to-door direct selling schemes have registered a considerable success and increasing growth mainly for those companies that were able to use and adapt these systems to their own advantage.

However, there are still uncertainties on the specific relevant regulation and on the interpretations by the Italian Competition Authority and therefore general commercial rules are usually taken as the reference regulation, thus implying some risks. In this context, the support of an expert and qualified advisor who knows how to build compensation plans and how to lead you through the complex specific tax, social security, and regulatory provisions of this sector is crucial to prevent risks and organize the direct selling activity efficiently and effectively.

At Grant Thornton, we have an over tenyears’ experience in this sector and we can assist you with the review of compensation plans and policies and procedures, with a seamless and integrated management of selling/purchasing cycles, with the maximization of the efficiency of your Group, with the management of the organization according to the sector’s best practices, with regulatory, tax, and procedural compliance (e.g. Privacy, Health Claims, legislative decree no. 231/2011) through specialists that will work in team to ensure our clients an integrated and interdisciplinary approach.