1) The key elements of Scentsy\'s marketing strategy are, a) A successful direct

Question

1) The key elements of Scentsy's marketing strategy are,

a) A successful direct selling based business model

b) It has developed many new products so as to maintain an appropriate product mix to serve its core customers.

c) Extension of brand with new line of products.

d) It has adopted strategies relevant to Entrepreneurship, direct selling, multi-level marketing, product life cycle, product innovation, product mix, ethical marketing and corporate philanthropy towards the society.

e) It has adopted targeting as one of the marketing strategy.

2) Scentsy products are sold through direct selling, which occurs when products are marketed or sold outside of a fixed retail location. This model requires much less capital than selling through retail channels. The parties are appealing to Scentsy, not least because the face-to-face interactions that occur at parties between the seller and the prospect, as well as the interactions between the prospects themselves, create a more intimate, friendly environment that fits well with the product offered by it. It has some challenges also like brand fatigue, commoditization and dynamic social trends. It has offered many independent affiliates with it in minimum investment which helps in the growth of its business. Above all this method is good way to reach the target customers and serve them with better products offerings.

3) Scentsy has achieved almost 94 percent of its sales from the trademark wickless candle product. It has expanded into handbags and jewellery as well as kitchenware and fondue.

While adopting these new product lines, it has decided to use an individual branding strategy. Its handbag and jewellery line were sold under the brand name Grace Adele, while its kitchenware is sold under the brand name Velata. The main advantage of individual branding is that the image of one brand would not necessarily extend to the Scentsy brand name. These brands would also be managed under the Scentsy Family parent organization. It has many challenges in connection with the product mix. It must have to introduce new products so as to attract more number of customers for its established brand name.

Explanation / Answer

Case 18 Scentsy, Inc: A Successful Direct Selling Business Model*

Synopsis: Scentsy was born out of a chance meeting between a near-bankrupt entrepreneur and an upstart wickless candle company. Now, over a decade later, Scentsy is the 38th largest direct selling firm in the world with over $2.2 billion in sales since its founding. Scentsy uses a direct selling party plan business model to distribute a variety of household goods such as scented wax and candle warmers, room sprays, soaps, laundry products, hand sanitizers, and bath/body products. After an incredible growth run, Scentsy is showing signs of product maturity, declining revenues, and increasing competition. To move forward, Scentsy must develop new products, maintain an appropriate product mix to serve its core customers, and find new growth opportunities.

Themes: Entrepreneurship, direct selling, multi-level marketing, product life cycle, product

innovation, product mix, ethical marketing, philanthropy

Scentsy is a direct seller of scented candle-warmers based in Meridian, Idaho. It is the 38th largest global direct selling firm in the world, with revenues of $419 million and more than 200,000 independent consultants in the United States, Europe, and Australia. Independent consultants use a party plan direct selling model that involves throwing a Scentsy “party” to display samples and product catalogs. Today Scentsy is positioned as a home and personal products company. The diversity of products includes decorative ceramic warmers and scented wax, room sprays, fresheners, soaps, laundry products, and hand sanitizers. A number of bath and body products include shower products, lotions, perfumes, and care products. The company has even sold chocolates and cheese and has expanded into the Scentsy Commons Kitchen, operated by Guckenheimer to offer ready-made dinners and daily sack lunches. Scentsy will continue to offer new products to maintain sales growth and serve the needs of consumers.

Scentsy owes its success to a chance meeting between Orville Thompson and two entrepreneurs at a home show. Orville and his wife Heidi were close to bankruptcy after a failed business venture. At the show, Orville came across a booth selling wickless candles that uses a low-watt bulb to melt the scented wax. The candle warmers gave off a pleasant fragrance without the worries of a fire. Unlike candles, they could be kept on all day. Orville was quick to recognize the product’s promising possibilities and purchased the inventory from the products’ creators. The Thompsons decided to adopt a direct selling/party plan because it offered a strong distribution channel at lower costs. The Thompsons utilized independent consultants who would sell Scentsy products as their own business and receive commissions and bonuses based on their sales. The trademark wickless candle products were a hit, exceeding $2.2 billion in its first decade of existence.

Background

While Scentsy owes its widespread success to the business acumen of Orville and Heidi Thompson, the creation of Scentsy is credited to entrepreneurs Kara Egan and her sister Colette Gunnell. The team of women founded Scentsy in Salt Lake City in July 2003. The product became immensely popular—so popular, in fact, that the sisters had trouble keeping up with demand. The sisters had developed a product that consumers liked but had not developed a marketing strategy to reach mass markets.

A year later Orville Thompson was selling video game controllers at a home show in Salt Lake City when he came across the sisters’ products. Thompson was an entrepreneur in the truest sense of the word. As a child he had convinced his dad to let him purchase his own sheep flock, which he successfully bred and sold at auctions and to farmers. After marrying, Thompson worked with his mother-in-law to sell a car wax formula at fairs and trade shows. This led Orville and his wife Heidi to start their own business, Event Sales, which sold car wax, video controllers, and shammies.

After the failure of a car wax infomercial, the Thompsons were nearing bankruptcy. When Orville attended the home show in Salt Lake City, he had no money in the company account to pay for a booth so he made a deal with the show’s promoter to pay them at the end of the show for what he earned from selling the video controllers. His booth was across from Egan and Gunnell. Their scented wickless candle products caught his eye. Orville recognized the uniqueness of the product and felt like with the right business model, it would become a major success. Heidi found that the scent of the bars created an emotional experience that elicited feelings and memories. The Thompsons decided to take a risk and bought out the entire remaining inventory from Scentsy’s owners with limited financial resources and ability to acquire loans.

Soon the Thompsons were $700,000 in debt and were borrowing money from friends and family to pay the royalty payments to Scentsy’s original owners. They started to run their business from their Idaho sheep farm. Selecting a method of distribution was a top priority for the Thompsons, leading them to research different types of business models. Heidi was attracted by the Direct Selling Association’s (DSA) Code of Business Ethics and attended one of their national meetings. Impressed with how the DSA supports its members, the couple decided to adopt a direct selling party plan.

The adoption of a party plan was advantageous for many reasons. The nature of the product itself is experiential; therefore, the personal touch inherent in direct selling fits well with the scented wickless candles. With a party plan, consultants can host Scentsy parties in their homes, creating a comfortable and authentic environment where they can share their experiences with the product. Additionally, a direct selling model allows for independent consultants to operate their own businesses selling Scentsy products, providing them with the flexibility and the entrepreneurial drive to run their businesses as they see fit. This also eliminated the need for Orville and Heidi to pay salaries or taxes for employees.

The Thompsons’ first selling party only generated sales of $75. However, their second was more successful, with sales reaching $1,000. Consumers were drawn to the product. Not only did it elicit the scented fragrance of a candle, but also because the wax was melted with a light bulb they could keep their candle warmers on all day without a fire hazard. Scentsy’s revenue grew 2,904 percent over a 3-year period to more than $550 million. Over a decade these sales have exceeded $2.2 billion.

It did not take long for Scentsy to outgrow its headquarters on the Thompsons’ Idaho farm. After moving to several different sites and outgrowing them, today Scentsy has an $88 million headquarters situated on a 73-acre property. As for the original co-founders of Scentsy, both work as independent distributors of their own companies selling Scentsy products. Together with her husband, Kara Egan manages a team of approximately 42,000 consultants with group wholesale volume (GWV) of about $5 million per month.

Scentsy’s Business Model

Scentsy’s signature product is its flameless candle warmers and scented wax. Each candle warmer uses a low-watt light bulb to melt the wax and costs approximately $35 to $40. Scentsy also sells accessory items that go with certain product lines, such as $7 frames for its Silhouette Collection and $10 shadow inserts for its Shadow Selection.

Scentsy sells more than 80 fragrances, including French Lavender, Clean Breeze, Peony Petals, Rosemary Mint, Simply Vanilla, and Sunkissed Citrus. Scentsy also has a seasonal line. For instance, autumn and winter fragrances include Autumn Sunset, Cozy Fireplace, and Clove & Cinnamon. If these fragrances seem too feminine, Scentsy offers a line of fragrances targeting men, including Route 66, Vanilla Suede, Atlas Cedar, Shaka, and Business Casual. On a smaller scale, Scentsy offers plug-in warmers for approximately $20.

While its candle warmers and scented wax are the most popular of Scentsy’s products, the company has since expanded into other areas. Its products for the home include its signature candle warmers and wax, room sprays, fresheners, laundry care, soaps and sanitizer, and Scentsy Buddies. Buddies are small stuffed animals in which consumers can insert Scent Paks to make them smell good when squeezed. Scentsy also offers a line of bath and body products including Shower & Bath, Lotion, Perfume, and Lips & Head. Its on-the-go line includes products for the car, purse, and pocket.

The Multilevel Direct Selling Party Plan Strategy

Scentsy products are sold through independent consultants using what is commonly referred to as a party plan. Selling through party plans involves direct selling, which occurs when products are marketed or sold outside of a fixed retail location. There are many reasons that parties are appealing to Scentsy, not least because the face-to-face interactions that occur at parties between the seller and the prospect, as well as the interactions between the prospects themselves, create a more intimate, friendly environment that fits well with the product.

While parties are extremely beneficial to independent consultants, they also appeal to fans of Scentsy that do not want to take on direct selling as a job. For instance, parties are popular among Scentsy lovers who want discounts. Consumers who have a successful party can receive up to four products at half-price and earn 15 percent product credit equal to the party’s sales ($1,000 in sales or more). Those interested in hosting a party can contact their nearest consultant through the Scentsy website. The consultant will help the host schedule a date for the party and work out the details. Consumers also have the option to host a party online.

The party plan faces three major challenges. Brand fatigue occurs when the novelty has worn off. Commoditization can be a challenge when competition increases and similar products enter the market, especially mass-produced products. Finally, generational adaptations can result from changing social trends as a new generation like Millennials enter the market. Millennials, for example, may have similar values but communicate and socialize differently than those from the previous generations. On the other hand, parties continue to provide a fun social environment for interested buyers, and new technology such as social media has made organizing parties easier.

To assist with party planning, the Scentsy website offers an online Party Planner that enables hosts to send out invitations and track RSVPs easily. Scentsy also offers what is akin to an awards program for party hosts who spread the word. If a Scentsy party host convinces one of his or her guests to host a party, the initial host receives another half-priced item from Scentsy simply for attending. This incentive encourages Scentsy hosts to spread the word to their friends and family.

In addition to attending a party, interested consumers can contact an independent consultant through Scentsy’s website. Independent consultants are also commonly found manning booths at fairs or other events. Scentsy’s corporate headquarters and its thousands of independent consultants are adept at using digital media sites to promote products and encourage word-of-mouth marketing. Digital media sites are increasingly being used to build up a direct seller’s social network of contacts. Scentsy’s main website features links to its corporate blog, Facebook page, Twitter page, Pinterest boards, Instagram photos, and YouTube channel. This is in addition to the numerous personal website and social media pages of its independent consultants. Some orders and reorders take place online or by phone. For example, some consultants offer online shopping through Scentsy approved sites.

A major benefit of direct selling is that it requires much less capital than selling through retail channels. Direct sellers of Scentsy’s products essentially act as entrepreneurs running their own businesses, which frees Scentsy from having to pay taxes and employee benefits. Although selling Scentsy products is a good investment for those who desire to make a career out of it, many independent distributors are not full-time direct sellers. Reasons for becoming an independent distributor include making extra money on the side, selling as a hobby, and even receiving discounts on Scentsy products, which they may buy on a regular basis. Therefore, not everyone will achieve career success as a Scentsy independent consultant. Like any job direct selling takes skills and hard work. Many consultants enjoy the social interaction and meeting others through the party plan. Some want to learn more about running a business themselves and are able to gauge their aptitude and potential for success at party events.

As a direct selling company, Scentsy has adopted a multilevel marketing compensation model. Under this model, an independent distributor receives commissions on what he or she sells as well as commissions from the sales of their recruits. This encourages independent distributors to build their own networks of recruits that become part of the Scentsy family. It is important to note that commissions are based entirely upon product sales. An independent distributor does not receive a commission simply for recruiting someone and he or she is never allowed to coerce or force others to buy a product they really do not want. Often the more people a distributor recruits, the higher the commissions they will receive on sales. These commissions act as an inducement to direct sellers to recruit others into the network, but it in no way compels them to do so. Direct sellers still receive commissions on their own sales whether or not they seek to actively recruit others.

Scentsy encourages independent consultants to relay orders to the company rather than holding their own inventory. It is not uncommon for Scentsy independent consultants to only hold as much inventory as they need to do product demonstrations. In this way, Scentsy has been able to provide inventory so independent consultants can operate with a limited investment. There are almost no financial barriers to becoming a Scentsy independent consultant.

Becoming an Independent Consultant

Entrepreneurs interested in becoming independent consultants can pay $99 for a starter kit. The starter kit includes more than 80 scent testers, demonstration products including candle warmers, catalogs and order forms, and business materials. Scentsy provides support for new independent consultants with a personal website that is free for the first 3 months (consultants must pay $10 afterward if they wish to continue), sales training, an online workstation to help run the business, and phone support.

Independent consultants start off on the first level, which is called an Escential Consultant. These consultants earn 20 percent of commissions on their personal retail volume (PRV). PRV is a system that is convertible to currency; currently, 1 PRV equals $1. Consultants that reach a PRV of 1,000+ monthly receive 25 percent commission on sales. Consultants increase their commission by recruiting other successful consultants. There are eight titles a consultant can have as he or she continues to rise to higher levels and starts generating commissions based not only on PRV, but also on GWV and team wholesale volume (TWV). The highest rank a consultant can receive is the title of SuperStar director. In a month, SuperStar directors earn 500 PRV, 80,000 GWV, 10,000 TWV, as well as three Active Frontline Consultants and four First-Generation Directors. At this stage, the entrepreneur has become a sales manager, with an emphasis on managing a sales force rather than personally selling products.

High-performing independent consultants are also rewarded with trips to places such as the Bahamas and Greece. Scentsy tries to emphasize that becoming an independent consultant can be both profitable and rewarding as they give entrepreneurs the chance to be their own boss.

Membership in the DSA

From the onset, the DSA had impressed Heidi Thompson. After attending one of their workshops, she and her husband Orville opted to adopt a direct selling business model and join the DSA. DSA is a national trade association of direct sellers and comprises approximately 200 companies. The purpose of DSA is to protect their members, consumers, and the businesspeople who sell member products.

As a proud member of the DSA, the company must adhere to the DSA Code of Ethics. As members of the DSA, direct sellers must undergo a yearlong screening process to ensure the credibility and trustworthiness of their operations. Scentsy realizes that in order to be successful, it must be a company that consumers can trust. It emphasizes values such as truth in advertising, ethical recruiting practices, accurate financial statements, support and accountability, and consumer protection.

In 2013, Scentsy won the DSA Ethos Award, meant to recognize the highest ideals of excellence in the direct selling industry. Scentsy won the award for its social media program Backstage Pass, launched at its Scentsy Family Convention. Backstage used the digital media tools of Instagram, Facebook, Pinterest, and Twitter both before and during the convention to gather online feedback from attendees and Scentsy enthusiasts. Scentsy’s purpose was to create community engagement with its brand and company. The company achieved this goal with 15 million Facebook and 20.8 million Twitter impressions.

Scentsy Family Foundation

Scentsy considers the value of its community stakeholders through the Scentsy Family Foundation. Scentsy claims that its most cherished value is generosity, and the Scentsy Family Foundation is meant to make this value manifest. The foundation has three primary ways it contributes to communities: scholarships, direct giving, and sales of cause-related products.

Scentsy scholarships are a way that the company gives back to its consultants. Every year it contributes a certain number of $2,000 scholarships to provide higher education opportunities to qualifying children of Scentsy consultants and employees. Those who are interested can download and submit a scholarship application online.

Scentsy also provides donations to family-oriented charitable organizations and invites stakeholders to get directly involved in the process. On the Scentsy Foundation website, customers, organizations, consultants, and vendors are invited to submit requests for program donations or sponsorships for family-oriented charitable organizations in their area. The foundation will then review the request and see whether it meets its areas of focus. Scentsy has four areas of emphasis for its charitable contributions: arts, health, youth programs, and self-sufficiency. Organizations that Scentsy has supported include March of Dimes March for Babies, Big Brothers/Big Sisters Magical Moments, and Life’s Kitchen.

Finally, the Scentsy Foundation also releases limited-edition products to support specific causes. During the holiday season, it released its Ribbons of Hope candle warmer. The warmer features a pink ribbon, and Scentsy donates $7 from each warmer sold to the National Breast Cancer Foundation. In Canada, $8 for every warmer sold is contributed to Rethink Breast Cancer. In the summer of 2014, Scentsy released its Charitable Cause Buddy Roosevelt the Rabbit to support nonprofit organizations in the United States and Canada. In the United States, $6.50 of each Roosevelt the Rabbit sale went to support the March of Dimes campaign to help mothers have healthy, full-term pregnancies. In Canada, Scentsy donated $7.50 from each product sold to the Starlight Children’s Foundation. It also contributes to academia. Its Campus Collection candle warmers feature the logo and school colors of 32 universities. Part of the proceeds from this collection is donated to the universities—Scentsy has donated more than $2.1 million thus far. Scentsy has successfully integrated cause-related marketing and philanthropic contributions into its operational strategy.

Challenges and the Search for New Products

Despite Scentsy’s incredible rate of growth, recent years have seen a decline in sales. Sales declined in 2013, demonstrating that Scentsy’s products are likely entering the maturity stage. From 2004 to 2008, Scentsy experienced a high rate of growth at 267 percent. However, Orville Thompson recognized that such growth was not sustainable and the company would have to investigate new products. In the United States, sales of Scentsy products have basically peaked, and even expansion into Australia and Europe has not been able to make up for the shortfall. Competition in the fragrance candle industry has also increased from such rivals as Yankee Candle. Yankee Candle has retail stores nationally as well as online shopping with aggressive price promotions. Yankee Candle sells wickless candles and traditional candles. The company competes with an efficient distribution strategy of store shopping as well as an online website. Yankee Candle has the advantage of reaching consumers who walk by a store and learn about its products while in a shopping center.

Scentsy expanded its fragrance line by adopting body, laundry, and spray products. However, these have not been as successful as Scentsy’s trademark wickless candle product, which continued to consist of approximately 94 percent of Scentsy sales. The company was faced with the decision of which new product lines to adopt. Products that were too far from the Scentsy core product might not be successful. More recently, it decided to expand into handbags and jewelry as well as kitchenware and fondue.

In adopting these new product lines, Scentsy decided to use an individual branding strategy. Its handbag and jewelry line were sold under the brand name Grace Adele, while its kitchenware is sold under the brand name Velata. The advantage of individual branding is that the image of one brand would not necessarily extend to the Scentsy brand name. These brands would also be managed under the Scentsy Family parent organization.

Grace Adele and Velata were launched in 2012. Grace Adele was launched with the concept of providing customers with a customized fashion experience. Customers would pick the color of the bag they wanted, choose the bag, and style it. Velata initially focused on fondue. Its purpose was to make great-tasting fondue a simple process to make. The brand later expanded into other forms of kitchenware and food products including ready-made dinners. Both brands were sold utilizing the direct selling/party plan.

Although Scentsy hoped these brands would jumpstart growth, their fragrance line continues to make up the majority of Scentsy’s sales. In 2014, the Grace Adele brand was discontinued. Most people continue to associate Scentsy with fragrances, and it is proving challenging to expand into other product lines even under individualized branding. On the other hand, Scentsy is a trusted brand name with more than 200,000 independent consultants. Customer loyalty is high, and independent consultants believe in the product. The challenge is to find the right product mix to serve a target market of household consumers who enjoy the party plan method of buying.

Conclusion

Scentsy is one of the most successful small businesses to be launched in the last 12 years, according to its Inc. 500 ranking. The company appeals to a target market that appreciates the uniqueness and fashion elements of its safe, scented wickless electric candles. The marketing strategy based on direct selling appears to be the ideal distribution and promotion method to reach this target market. Scentsy uses a multilevel direct selling structure utilizing the party plan model for customer contact. The creative use of social media and independent consultant websites has extended sales beyond the face-to-face direct selling party plan. There is no doubt that the party plan sales method matches the product and target market. With a variety of Scentsy products, guests at party plan events exchange information on decorating and the use of household products.

While the success of Scentsy has been great, as with all businesses, challenges exist. There is a need to create innovative new products to maintain sales growth. These new products need to fit with the firm’s strengths and tap into opportunities that exist in the marketplace. Therefore, it appears that household products that appeal to the current target market and are appropriate for the direct selling party plan marketing strategy provide the best opportunities. Threats to new products relate to competition and changing social and economic trends. For example, Electric Wax at Amazon.com includes many competitors selling scented wickless electric wax candle products. Flameless and electric candles can also be found on many online websites. Yankee Candle is an example of a retail store and online shopping competitor.

International expansion provides opportunities to increase sales. Careful selection of new markets will require understanding the acceptance of the direct selling party plan distribution strategy as well as cultural competition with the product. Many countries in Asia embrace purchases through direct selling. The local culture and acceptable price points will determine the opportunity for product expansion.

The challenge for Scentsy is to balance its strengths and rapid sales growth with a sustainable product mix that can help achieve sales objectives. Scentsy needs to be less dependent on its successful scented wickless candle product line and find new product lines appropriate for its target market. A major strength is the leadership of Orville and Heidi Thompson and their ability to manage the growth of their company. Their high integrity and involvement in contributing and giving back to their stakeholders is a strong asset.

Questions:

1) What are the key elements of Scentsy's marketing strategy that help create market success?

2) Evaluate Scentsy's direct selling multilevel party plan method of distribution for reaching its target market.

3) How can Scentsy expand its product mix to sustain sales growth? What product lines provide the greatest opportunity for growth?

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