Stephen Ellison
It’s hard to go wrong in a business where some of your best customers are also your best salespeople.
Just ask Usana Health Sciences Inc. (NasdaqGS:USNA), a nutritional products maker based in Salt Lake City. Usana has built a global following through its direct-selling model, which contracts thousands of independent sales associates, most of whom began as Usana customers.
For those commissioned associates, direct selling is a thriving industry totaling $30.8 billion in the United States and about $112 billion worldwide last year, according to the Direct Selling Association. But the numbers don’t necessarily translate well for all consumer product companies, and those designated as direct sellers tend to come and go, the DSA says.
Usana arrived in 1992 and hasn’t gone anywhere but up. Annual revenue has more than doubled in the past five years, eclipsing $420 million in 2007. Usana credits a trusted product line and a proven marketing strategy for its continued success.
The company made three significant announcements at its annual convention on Aug. 28: a new energy drink product called Rev3; expansion into the Philippines; and new compensation incentives for associates.
Spurred by a challenge from CEO David Wentz, Usana scientists came up with an alternative to the sugary, “crash-and-burn” energy drinks common in today’s market. The resulting Rev3 is a green-tea based drink that contains an advanced formula of antioxidants as well as Usana’s patented olive-fruit extract, Olivol.
“This is a product that will appeal to a wide audience,” Wentz said in a statement.
During the company’s earnings conference call on Oct. 15, Usana chief operating officer Fred Cooper said a growing number of gen-X and gen-Y associates trying to build their businesses have been clamoring for an energy drink to sell.
“Rev3 is a fun product to talk about,” he said. “It’s a way to open doors to people, an ice-breaker. We see this as an opportunity with this (younger) demographic to gain a significant market share.”
The Philippines represents Usana’s 14th global market, and Cooper said the country’s $500 million direct-selling industry makes it “very promising for us.”
The two incentive programs are designed not only to increase sales volume but also to boost enrollment of new associates. One program is geared toward spiking competition among Usana’s top-selling associates. The other is a matching bonus where existing associates who enroll new business builders, referred to as “platinum pacesetters,” can earn up to 100% matching commissions produced by their recruits.
Usana is coming off a disappointing third quarter in which net income dropped 28.6 % year over year to $8.14 million, or $0.50 a share, and revenue increased less than 1% to $107.2 million. Analysts had expected earnings of $0.60 a share on revenue of $112 million. The company said decreased sales in North America, higher base commission payouts and expenses related to litigation contributed to the dip in net income.
Usana shares jumped nearly 10% to $44.22 a day after the earnings report, perhaps on the company’s fourth-quarter guidance. The company expects record sales of $114 million to $120 million and EPS of $0.64 and $0.70 for the period, above analysts’ average earnings forecast of $0.64 a share.
With that optimism, a new product to pitch and incentives for its salespeople to order more and spread the word, Usana can’t go wrong.
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