APRIL 20, 2011
JOHN A. DEIGHTON
Designs by Kate:
The Power of Direct Sales
For every failure, there's an alternative course of action. You just have to find it. When you come to a roadblock, take a detour.1
— Mary Kay Ash, Founder, Mary Kay
In November 2010, Kate Creevey, CEO and founder of Designs by Kate, Inc. (“DBK”), sat down with her management team to review the quarterly sales numbers. DBK, which sold women’s jewelry via the direct-sale methods pioneered by Tupperware, had enjoyed rapid sales growth since its founding five years earlier. This growth was achieved despite unfavorable economic conditions and slow growth for the retail industry overall.
However, Creevey was concerned that DBK’s top-line growth trajectory had slowed recently. Juanita Thomas, head of Sales at DBK, noted that this slowdown seemed to have been driven by a slowdown in the rate at which new sales representatives were transitioning to “leader” status and beginning to build their own sales teams. The willingness of sales representatives to build their own teams was central to DBK’s business model. Sales growth had been driven primarily by growth in the number of sales representatives, and more than 90% of DBK sales representatives had been recruited by existing sales representatives. Additionally, sales representatives who became team leaders tended to stay with the company longer and were more productive sales people. A detailed commission structure had been put in place to encourage sales representatives to build and to actively manage their own sales teams (see Exhibit 1a.)
In response to this trend, Thomas polled sales representatives about their thoughts on becoming team leaders and moving up the DBK sales ladder. This feedback included two clear messages which disturbed Creevey and her team. First, many representatives thought the financial rewards offered for “leading” were not worth the trouble it took to earn them. These women had become DBK sales representatives because they wanted to work on their own and didn’t want the hassle that they perceived was involved in building a team. Second, many believed that recruiting friends or
HBS Professor John A. Deighton and writer Sarah Abbott prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copyright © 2011 Harvard Business School Publishing. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business Publishing. Harvard Business Publishing is an affiliate of Harvard Business School.
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colleagues to become sales representatives was likely to lead to a reduction in their own sales volume (on which they earned much greater commission levels) given that there was overlap between their social networks. As one sales rep commented, “Why would I ever encourage a friend to be a DBK sales rep? That’s just giving away my...