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A THESIS ON

“A study of the consumers buying behavior for


cosmetics marketed through network marketing
in comparison to store based products in
Mumbai’s Western Suburbs.”
Table of Content

1 Acknowledgement 3
2 Certificate of Merit 4
3 Declaration 5
4 Introduction 6
5 Objective of Study 7
6 Description of the Problem 8
7 Significance of the study 9
8 Justification of the study 10
9 Research Methodology 11
10 Schedule 12
11 Literature Review 13
11.1 India’s double digit growth in cosmetic and toiletries market 15
11.2 Retail Revolution 20
11.3 Network Marketing aspect 22
12 Analysis of Literature Review 29
13 Analysis and findings 30
14 Hypothesis 43
15 Conclusion 45
16 Limitations 47
17 Reference 48
18 Appendices 49

2
Introduction

The Indian economy is on a high growth drive, which means that purchasing power and
willingness to spend are on the rise. More Indian women in age group 25 to 45 are also in the
HNI (high net worth individuals) category. With increasing globalization, the young Indian
woman has realized the importance of always looking good. All this has translated into a
demand for high-quality and high-end skin care and color cosmetics. This awareness has been
developing throughout the past five to six years, and industry experts believe that 2006 was
the year when the Indian skin care and cosmetics market attained a certain level of maturity.
Both skin care and color cosmetics have seen steady growth throughout the past five years.
Color cosmetics have been growing at a steady rate of more than 30% annually. According to
the latest Euro monitor report on the Indian cosmetics and toiletries market, the color
cosmetics market stands at $113.4 million and skin care at $346.9 million.

In India today, the increasing number of women in age group 22 to 45 are becoming
independent, have disposable income and the decision-making power to buy what they want.
This emerging category has caught the attention of leading global luxury brands, with most in
the process of either setting up or expanding their presence in the market.

Indian cosmetic Industry comprises of skin care, hair care, color cosmetics, fragrances and
oral care categories. The range of cosmetic and beauty products in India has widened
tremendously. This has brought forward new methods of marketing in the cosmetic industry.
Store based retailing of cosmetics is an age old practice the recent trend of cosmetic sale is
network marketing. Companies like Avon, Amway, Oriflame are popular brands that are sold
only through network marketing and not sold in retail based stores.

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Objective of study

The objective to study the “consumers buying behavior for cosmetics marketed through
network marketing in comparison to store based products in Mumbai’s Western Suburbs” is
to find out

1) The popularity of network marketing under the cosmetics arena

2) The reach of network marketing

3) Brand awareness of cosmetics sold under network marketing

4) Consumer preference

5) Consumer’s buying decision is based on convenience or brand preference

4
Description of problem

The scope of study is limited due to the following reasons:

1) Time constraint- since the time span for the thesis is only three months an in depth
study and analysis will become a little difficult.

2) Sample size- the sample size of the study is only 100 which do not give a
comprehensive result. Many important samples may not be considered at all. The
conclusion of the study may not result to an accurate outcome due to the sample size
being small.

3) Bound to only western suburbs of Mumbai- the other limitation of the study is it is
limited to only the western suburbs of Mumbai which constitutes of a different set of
samples. The buying behavior of an individual varies from place to place. It is
considered that the area between Bandra to Churchgate has an affluent set of families
hence their buying behavior towards cosmetics would be different from the samples
that stay beyond Bandra.

4) Awareness- the sample taken and the conclusion drawn can be led to only one side if
there is lack of awareness about cosmetics being marketed through network markets.

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Significance of the study

The research conducted would help me

1) Understand the consumers buying behavior

2) What the consumer is looking out for while purchasing a cosmetic

3) How much impact does a brand have on their purchase decision

4) Does price play an important role in guiding their purchase decision

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Justification of the study

The previous research done for cosmetic markets are

1) The impact of recession on the cosmetic industry

2) The growth of the Indian cosmetic industry

3) The impact of brand awareness on consumer buying decision for cosmetics.

No study has been done to find out the consumer buying behavior towards two types of
marketing adopted by a cosmetic brand. The study would also help to find out the
consumer preference and their buying behavior towards store based or network marketed
cosmetics, this would help the network marketers to adopt strategies that could attract
more customers to buy their products and vice a versa.

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Research Methodology

The primary data would be collected from females comprising of:

1) Working women

2) House wives

3) College going girls

4) Youngsters using cosmetics

The secondary data would be collected from:

1) Books

2) Magazines/ Project report

3) Internet

4) Articles

The total sample size would be 100 respondents

The questionnaire’s response format would be close ended questions. With a mix of question
types varying from ranking, multiple choice to checklist questions. The attitude of the
respondents would be measured by itemized category scales.

Hypothesis –

The null hypothesis would be: “50% of the total respondents buy their cosmetics from
stores”

The alternative hypothesis would be: “More than 50% of the respondents buy their cosmetics
from stores.”

The statistical tool used for the research would be Sign Test.

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Schedule

Duration in weeks/
Activity days

Review of Literature 3rd – 15th August, 2009


16th August- 5th
Research Design September,2009

Presentation of literature review and Research 10th august – 7th


design September,2009

Data Collection 6th -19th September,2009

Interim Evaluation 9th – 18th September,2009


20th September- 3rd
Data Analysis October,2009

Findings of Study 4th- 24th October,2009


25th October- 7th
Report Writing November,2009

Final Evaluation 3rd -12th November,2009

Buffer 8th- 11th November,2009

Total 13 weeks

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Literature Review

The Indian Cosmetic Industry research would help get some knowledge about the buying
patterns of the Indian Consumers.

Indian cosmetics and toiletries market is valued at $950 million. The key growth drivers for
the cosmetics and toiletries market in India are rapid urbanization, increase in disposable
incomes, and changes in peoples taste

Cosmetics
The cosmetics market can be segregated into talcum powder, colour cosmetics (lip, eye,
face, and nail care products), deodorants, and perfumes. The cosmetics market has been
growing at the rate of 15-20% for the last few years. The sector has witnessed growth
mainly from medium and low priced category that accounts for 90% of the cosmetic market.
Talcum powder is one of the most popular cosmetic products in India. Its market is valued at
Rs 3.5 billions and is growing at the rate of 12% per annum. Its penetration level is 45.4%
and 25.2% in urban and rural areas respectively. Ponds dominates talcum powder market with
a market share of 70%, followed by Johnson & Johnson with a market share of 15%.

Colour cosmetics are the fastest growing segment, valued at $60 million. The major products
in colour cosmetics market are foundation, compacts, eye make-up, lipsticks, nail enamels,
blush-on, etc. Lipsticks and Nail Enamel account for 65% of the Color cosmetic segment.
The nail polish segment is valued at Rs. 1.25 billions followed by the lipstick market at Rs 7
millions. All the categories in this segment are growing at around 25-30%.

Gone are the days when cosmetics were viewed as expensive and self-indulgent items.
Greater access to television, increased advertisement, growing awareness of western world,
and greater product choice and availability have resulted in growing demand for cosmetic
products in India.

However, the penetration level of cosmetics and toiletries product is still very low in India.
The per capita expenditure on cosmetic products in India is approximately $0.68 cents
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compared to $36.65 in other Asian countries. The penetration level of international cosmetics
brand in India is also low. International brands account for only 20% of the cosmetics market.
This low level of market penetration can be perceived as an opportunity for major players in
FMCG sector.

Toiletries
The toiletries market is quiet developed and it is dominated by large Indian companies and
MNCs. High advertising expenditures, high entry barriers, and a high rate of new product
launches characterize this segment. Shower and Bath products have the major share in the
toiletries market. The toiletries market can be segregated into: The premium niche- i.e. High
brand conscious. It caters to the urban higher class. The less price sensitive niche it caters to
the middle and lower middle class.

These products are not limited to women as their usage is now extended to men also. Men
also use body sprays, colognes and other toiletries products. The men's personal care market
is valued at $165 millions. Gillette is the largest player in this segment. Other major players
in this segment are HLL, Godrej, and J.L. Morison and HLL.

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Another report states “India : Double-digit growth in cosmetics & toiletries market”
September 7, 2007

Indian consumers are also moving away from traditional talcum powder toward more
modern deodorants and antiperspirants. Marketers are now expected to rise to the occasion
with innovative products and revamped pricing strategies to help garner a significant share
of this segment of the market.

Sales grow hand-in-hand with income


Rising incomes have proved to be the major growth driver for sales of cosmetics and
toiletries. Investment in infrastructure by the government and in various industries by
private sector companies has ensured that incomes have risen faster than ever before.
Armed with greater disposable income, consumers have been able to spend freely on
cosmetics and toiletries. Higher income urban consumers have indulged in niche products,
such as fragrances, skin care and colour cosmetics, while lower income and rural
consumers have increased purchases of basic products, such as oral hygiene, bath and
shower products and hair care.
Change in consumer lifestyles and aspirations spur growth
2008 witnessed consumer lifestyles changing significantly. Indians, who have long been
perceived to be more savers than spenders, increasingly loosened their purse strings and
started to “live for today”. This changing mindset led to consumers pampering themselves
and spending more on cosmetics and toiletries. Modernisation of the country has also led
to changing aspirations, where the need to be considered good looking, well-groomed and
stylish has taken on newfound importance. Urban men have become aware of personal
grooming and are seeking out relevant products. An increasing number of women joining
the workforce has given an impetus to sales of colour cosmetics, skin care and fragrances.
Modern retail expands footprint
The distribution model of cosmetics and toiletries has undergone small but significant
changes in recent years. While independent small grocers – or the so-called “kirana” stores
– still account for the largest share of sales, an increasing number of consumers are buying
their products from supermarkets/hypermarkets. With modern retail expanding in India at
a breakneck speed, the number of department stores and supermarkets/ hypermarkets in
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cities has increased greatly, thereby improving accessibility for middle-income and lower
income consumers. These outlets attract consumers by offering lower prices and a wider
range of products. With rising demand for colour cosmetics and skin care, beauty
specialist retailers have improved their presence and account for an increasing share of
sales. In addition, direct selling companies, such as Avon, Amway and Oriflame, have
renewed their efforts to penetrate the Indian market by launching more products and
expanding their sales forces.
Strong growth expected
Growth in cosmetics and toiletries is expected to be robust over the forecast period in
constant value terms. The continued rise in incomes is expected to play a major role in
driving growth. While urban consumers will remain the main engines of growth, rural
consumers are expected increasingly to contribute to rising volume sales of basic
necessities, such as hair care and oral hygiene. Improved distribution chains in rural areas
will give rural consumers better access to cosmetics and toiletries. At the same time, urban
consumers are expected to trade-up to more value-added products, such as those that are
considered “masstige” or even premium

THE COSMETICS market in India is valued at Rs 712 crore and is expected to reach Rs
1,514 crore by 2012.

The MARKET CONSISTS of eye and facial makeup products, talcum powders, lipsticks
and nail enamels. The FACIAL MAKEUP market in India is valued at Rs 97 crore and is
expected to reach Rs 200 crore by 2012. The LIPSTICK market in the country is valued at
Rs 296 crore. The TALCUM POWDER market is valued at Rs 236 crore and is expected
to reach Rs 495 crore by 2012.

The Indian cosmetic industry has witnessed rapid growth in the last couple of years
growing at a CAGR of around 7.5% for the period 2006-2008. With improving purchasing
power and increasing fashion consciousness, the industry is expected to maintain the
growth momentum (with marginal slowdown due to the economic slowdown) during the
forecast period 2009-2012. It is expected to grow at a CAGR of 7%
Both electronic and print media are playing an important role in spreading awareness
about cosmetic products and developing fashion consciousness among the Indian

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consumers. With the introduction of satellite television and a number of television
channels along with the internet, the Indian consumers are constantly being updated about
new cosmetic products, translating into the desire to purchase them. Additionally the
flourishing Indian fashion/film industry is fueling growth in the industry by making
Indians to realize the importance of having good looks and appearance.
Despite the massive surge in the popularity of cosmetic products, our report finds that the
average consumer spending on cosmetic products in India is much lesser than any part of
the world. This implies that the Indian cosmetic industry has an even greater potential for
growth in future than the present. At present, most of the cosmetics manufacturers in India
cater to the domestic market but they are gradually establishing their footholds in the
overseas markets: for example Indian herbal cosmetics have a tremendous demand in the
international market.
However the manufactures should not forget that the Indian domestic market is price
sensitive and they need to work out innovative strategies to establish a foothold here, the
report added. Our report also provides an in depth analysis of present and future prospects
of the Indian cosmetic industry. It thoroughly evaluates the industry with focus on current
and future market positions of important segments and respective key players.

The future prospects :

The Rs 4,580-crore Indian cosmetic market is all set to sport a new look. Several
established domestic as well as foreign personal care majors have chalked out big plans
across categories to meet the needs of the burgeoning consumer base in the country.
For instance, Britain-based personal care products retailer The Body Shop has drawn up a
fresh strategy, including aggressive discounts and unveiling new stores to tap the Indian
market.
The company, a 100-per cent subsidiary of French cosmetics giant L’Oreal, has plans to
add new Indian cities to its footprint across the country.
The Indian cosmetic market that comprises skin care, hair care, colour cosmetics,
fragrances and oral care categories is primarily dominated by major players such as
Hindustan Unilever Ltd (HUL), Procter & Gamble (P& G), Emami, Godrej, Himalaya and
Dabur.
Products from famous foreign brands like L’Oreal, Estée Lauder, too, have started making

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their presence felt in the Indian market.
Even Dabur India Ltd has recently announced its foray into skin care after its acquisition
of Fem Care Pharma. The company has recently launched a new brand Dabur Uveda
based on Ayurveda.
The company's executive vice president (personal care), Vikas Mittal, said, "Skin care is
one segment where Dabur has not had a sizeable presence. We plan to scale this up fast. It
is a key focus area for Dabur India this fiscal. Initially, the products would be made
available in all leading stores in Delhi, Mumbai, Pune and Nagpur."
Cosmetic brand Color bar Cosmetics is also planning to launch its skin care products by
the end of 2009. "We would launch our skin care range for both men and women by the
end of 2009. The wellness products market in the men's segment is growing at a fast rate
and we want to tap it," said Samir Modi, managing director, Color bar Cosmetics.
Apart from skin care, the Rs 500-crore colour cosmetics market in India is also widening
its base. Color bar Cosmetics is targeting to become an Rs 200-crore firm within the next
three years by foraying into exclusive retail business.
The company is planning to expand its business through its exclusive retail stores. It
considers setting up four outlets in Delhi, National Capital Region (NCR) and Mumbai by
the end of this year and 10 exclusive outlets by 2011. For this, the company would invest
around Rs 10-15 crore. It currently has as many as 650 shops-in-shop points of sales.
"The market for colour cosmetics is growing in India. Colour cosmetics have a small
market, primarily used by women. However, India still lags behind other European nations
where colour cosmetics are used in a big way. Even men form a major part of it," said
Modi.
According to him, Color bar Cosmetics has a current market share of six per cent. "Our
aim is to increase it to 8-10 per cent this year," added Modi.
Color bar sources its products from Italy, France, Germany and Greece while its research
and development (R& D) facility is in Mumbai. However, the company does not plan to
have a manufacturing facility in India.
The prices of its products range between Rs 90 and Rs 875. "We are at the lower end of
the prestige segment and top-end of the mass. Our pricing has given us a competitive
advantage," Modi said.
Various factors such as higher disposable income and influence of latest western fashion
trends have majorly contributed to the growth of the industry, despite the impact of the

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economic slowdown in India. These factors have also provided a solid platform to the
colour cosmetics market to grow, he added.

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Let us now consider certain research done on the store based retailers who sell cosmetic:
RetailRevolution
There is an obvious excitement in the Indian retail sector. Reliance and Aditya Birla Group,
big business houses, are entering the retail sector, while existing names such as Shopper’s
Stop, Lifestyle, Pyramid and Pantaloon are restructuring their business strategies to foster
growth in the Indian cosmetics and toiletries market.
Besides expanding the floor area of their shop-in-shop concept, the retail companies are also
tying up with the big beauty brands to promote stand-alone branded beauty stores. For
instance, Shoppers Stop, one of the leading names in the retail sector, has set up the stand-
alone store for MAC Cosmetics in Mumbai. According to Alexis Szabo, regional director for
the Middle East, India, Africa and Turkey, MAC Cosmetics, the company has a backstage
partnership with retailer Shoppers Stop, as the right space is very important. MAC plans to
open a second boutique in Mumbai followed by Delhi and Bangalore. The company plans to
have five stand-alone stores in India in the next three years.
According to sources, Shoppers Stop is in the process of re-evaluating its strategy to ensure
the best blend of beauty brands and how they can be showcased to consumers to translate
footfalls into actual transactions. While expanding its area for department stores, the
company also is collaborating with major beauty brands to develop stand-alone stores for
them. It is now ready to create brand stores for Clinique and Lancôme when the companies
decide to enter the market. Despite the steep import duties on cosmetics, up to 110% on
luxury brands, Shoppers Stop is positioning itself strategically to push brands such as MAC,
Clarins, Shiseido, YSL and Elizabeth Arden in the Indian market. It is known from sources
that the company is already seeing a return on its investments on the luxury brands.
In fact existing luxury brands such as YSL Beauté, which has been refreshing its push in the
area, is keen on strengthening its position as a prestige brand and aims to be available in all
the growing locations across the country. Meanwhile, latest entrant Givenchy is aiming at 50
shop-in-shop outlets and at least two brand stores here in the first year of its presence in the
market. It will retail through major retailers such as Lifestyle, Shoppers Stop and Pantaloons
across the country.
The Indian cosmetic Industry has witnessed rapid growth in the last couple of years, growing
at a CAGR of around 7.5% between 2006 and 2008. With improving purchasing power and
increasing fashion consciousness, the industry is expected to maintain the growth momentum
(with marginal slowdown due to economic slowdown) during our forecast period (2009-

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2012). It is projected to grow at a CAGR of around 7% during the forecast period, says
"Indian Cosmetic Sector Analysis (2009-2012)", a recent research report by RNCOS,
Both electronic as well as print media are playing an important role in spreading awareness
about cosmetic products and developing fashion consciousness among the Indian consumers.
With the introduction of satellite television and a number of television channels as well as the
Internet, the Indian consumers are constantly being updated about new cosmetic products,
translating into the desire to purchase them. Additionally, the flourishing Indian fashion/film
industry is fueling growth in the industry by making Indians to realize the importance of
having good looks and appearances.
Despite the massive surge in the popularity of cosmetic products, our report finds that the
average consumer spending on cosmetic products in India is much lesser than any other part
of the world. This implies that the Indian cosmetic industry has an even greater potential for
growth in future than present.
At present, most of cosmetics manufacturers in India cater to the domestic market but they
are gradually establishing their footholds in overseas markets. In recent years, the Indian
cosmetic manufactures have received orders from overseas markets; for example - Indian
herbal cosmetic products have a tremendous demand in the international market.
However, manufactures should not forget that the Indian domestic market is price sensitive
and they need to work out innovative strategies to establish a foothold here, the report added.
Our report also provides an in-depth analysis of present and future prospects of the Indian
cosmetics industry. It thoroughly evaluates the industry, with focus on current and future
market position of important segments and respective key players. The report helps the
clients to examine the factors critical for the success of the industry and enables them to
understand the existing and future opportunities and challenges lying in the industry.

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Hindustan Unilever still leads, but faces increasing competition
Hindustan Unilever continues to remain the leader in terms of value sales of cosmetics and
toiletries. The company benefits from having the widest product range and, as a result, is able
to satisfy a good portion of the daily needs of consumers. Having a strong distribution
network also gives the company an edge over its peers. However, the company has come
under increasing pressure from smaller rivals, such as Dabur, Emami and L’Oréal, which
have adopted aggressive expansion policies and have consequently eaten into Hindustan
Unilever’s value share.

The network marketing aspect:


One explanation for why friends may share product information or mirror one another’s
purchase behavior comes from social exchange theory. Although personal relationships are
often considered to be less mercenary and materialistic than commercial relationships, social
exchange theory emphasizes that individuals in both types of relationships are equally
concerned about the equitable exchange of resources, both tangible and intangible. In other
words, the benefits an individual obtains in social relationships are contingent upon the
benefits he or she provides in return (Emerson 1990, p. 32). Social exchange theory also
argues that individuals use implicit heuristics to keep track of what they get from a
relationship in relation to what they give (Thibault and Kelley 1959). They tend not to
examine situations in which friends are buying products from friends – situations in which
embeddedness should be particularly strong. One notable exception is Frenzen and Davis
(1990), who examine social relationships between buyers and sellers in a direct-selling
marketplace. Building from Mauss (1967) and Simmel (1971), they argue that the closer a
buyer is to a seller, the more social capital he or she can earn from the same 3 transaction.
Frenzen and Davis (1990) further hypothesize that economic action can be either weakly or
strongly embedded in social relations. In strongly embedded markets, the closeness of buyer
and seller is expected to increase both the likelihood and the volume of purchase. That is, the
closer John is to Mary, the more he will spend at Mary’s store. In weakly embedded markets,
the closeness of buyer and seller is expected to increase only the likelihood of purchase. If
John is close to Mary, he may buy something, but not necessarily something expensive.
Frenzen and Davis (1990) supported the existence of a weakly embedded market, but not a
strongly embedded one. Buyers who were close to sellers were indeed more likely to make a
purchase, but not a larger purchase. This finding suggests that, at least in some markets, there

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is a limit to the extent to which an individual (or a business) might leverage existing social
relationships for greater sales. It also suggests some potential limits to the amount of practical
insight that a social exchange perspective may offer in relation to economic exchange
Direct selling is an approach to distribution that uses salespeople to sell and supply consumer
goods to private individuals outside of conventional retail channels (Berry 1997, p. xxi).
Frenzen and Davis (1990) examined one approach to direct selling but there are many other
kinds. One way to distinguish between kinds of direct selling organizations is by how much
the organization encourages its salespeople to recruit other individuals to sell products. Some
direct-selling companies do not encourage this at all, and therefore operate much in the same
way that conventional sales companies do. Other direct-selling companies – such as those
examined by
Frenzen and Davis (1990) – offer gentle encouragement. In these companies, hostesses at a
sales event are rewarded with product incentives if their invitees become sellers hosting
parties of their own. Still other direct-selling companies are more extensive and specific in
rewarding those who recruit other salespeople. These companies allow individuals to earn not
just product incentives, but actual monetary commissions on the products sold by their
recruits – and on the products sold by their recruits’ recruits, and so on for many levels.
Companies that offer extensive rewards for recruiting are often called “multilevel marketing”
or “network marketing” organizations because their salespeople benefit from the network of
productive sales levels they build. In contrast, companies that offer little or gentle
encouragement are called “single-level” sales organizations.

Another report:
YOU have rightly said there was a flurry in the late '90s as the world majors in direct selling -
Amway, Tupperware, Oriflame and Avon - all of them simultaneously came into the Indian
market. The homegrown Modicare too was started with much fanfare on the worldwide
multi-level marketing (MLM) principles of direct selling.
MLM or direct selling has proved successful for high involvement products, requiring a high
degree of personal selling or demonstration and in-depth product knowledge on the part of
the sellers. Avon pioneered the concept of organized personal selling through its `Avon
Calling' women who became popular as friendly and trained beauticians. They helped you
with your make-up, with personal guidance on the best shades and type of products to be
used.

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All direct selling players, however, aren't based on the MLM system. The Avon concept does
not demand one to recruit more agents and it has a strong product focus. In an MLM
structure, the focus is more on creating a chain down the line which allows you to accumulate
points and the earnings are made not just on your sales and recruitment of agents but even on
the sales made by your network/chain of recruits.
Needless to say, the Indian market has been a different experience for all the direct sellers.
After a favorable launch which created the required market excitement, most of the MLM
players have been faced with low motivation levels of agents. While recruitment per se is
high, as an agent gets attracted to the dreams which are sold to him by the successful
distributors, the returns aren't likely to happen in the short term. Indeed, most distributors or
agents get quickly disinterested in the complete system as the initial cheques are much lower
than their expectations.
The low growth has prompted players to change their stance for the Indian market. Amway
actually launched a complete series of marketing initiatives where they have tried to generate
product usage amongst the distributor and the customer base. It has also launched a print
campaign to tide over the credibility issues related to MLM. Tupperware has created product
kiosks in large departmental stores to create better product awareness and demonstrate its
range.
Believe me, there are a lot of people who make millions through this system and retire early.
But then it has been clearly proved that a certain profile of people with specific leadership
skills create excellent network marketers. Somehow the urge to recruit randomly without
developing the appropriate profile of strong networkers and the overemphasis on `making
millions' through recruitment and not through product sales has led to low sales and low
recruitment.
An MLM system has its own advantages for the manufacturer and conventional distribution
organizations have seriously evaluated using it as a system for generating additional sales. It
helps a new player in quick market entry - avoids the time and cost incurred in setting up a
conventional sales and distribution structure, has low overheads and payrolls typically, almost
the entire sales organization is external to the company structure and actually allows the
product to be differentiated on the basis of its distribution system.
One must not forget in all this that India has had its own MLM system of chit funds, popular
and successful right across the country!

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Lets us now study company wise direct selling strategies:

Companies like Mary Kay, Avon and Amway are direct-selling companies. This means that
they use various methods to reach consumers directly, rather than emphasizing in-store
purchases or the online variety. (Although Mary Kay in particular does allow you to purchase
product online, it's not shipped from a warehouse, but is shipped directly to you by one of
their sales reps, called an Independent Beauty Consultant.)

I actually sold Avon while I was on dialysis and for a brief period as a summer job while I
was in college. At that time, Avon was structured a bit differently from Mary Kay and
Tupperware, in that Avon expected reps to sell door-to-door in something called territories.
Selling Avon in other ways - likes through a store or at a flea market - was strictly prohibited
by the powers that be. They have since changed their policies somewhat, by allowing reps to
pass sales brochures around their place of employment (if they have a day job and the boss
lets them), where this activity was prohibited at one point because reps didn't sell in a
physical territory with boundaries, which involved going from house to house soliciting
business from homeowners.

I was actually expected to sell product to consumers directly, and I liked selling the
collectibles most of all. (At one time, Avon was famous for its collectible fragrance-filled
decanters; every so often, they'd come out with new designs, especially during the Christmas
buying season. These products were absolutely lovely, and I still have some of them today.)
The commission one earned varied from product to product; a product one was expected to
sell like crazy might get you a 20% commission, while an expensive collectible might earn
you a commission as high as 50%.

Even Avon had to change its direct-selling strategy when it became obvious that virtually
everyone in the beauty industry was going after the upscale market. They still do emphasize
direct sales; advertising for products like Anew advises viewers to "ask your representative"
about the product. Mary Kay and Tupperware no longer advertise that extensively. And, as I
said, Avon is getting away from the whole concept of territories, loosening the rules so that
reps can sell in the break room at work in addition to going door-to-door in physical

22
territories with boundaries. And higher-ups are starting to get commissions on products sold
by Avon reps.

Times have changed since companies like Mary Kay and Tupperware were started. Fewer
women - the target market for most goods sold directly in the home - are home all day. Those
of us who are home all day are so busy with other commitments - taking the kids to school
and to their various activities, volunteer work, writing at home, and in my case, medical
appointments - that we are less likely to have the time to arrange parties. Let's face it: it's a
complex endeavor to be a hostess for a Mary Kay skin care class, or a Tupperware party.
Hostesses send out the invitations for the party, and they are encouraged to send as many
invitations as possible out. Hostesses have to make sure their houses are presentable, or at
least arrange for a meeting space that's clean and presentable, so that they can have
someplace decent to host the party. Do we really have time any more to invite all our friends
over for what amounts to a sales pitch? I think that if we want to see our friends badly
enough, we will simply arrange for a birthday or other get-together, just to enjoy their
company without ruining the relationship over high-pressure sales tactics.

And many women prefer to shop in-person. In other words, in the minds of some, there is
simply no substitute for going to a brick-and-mortar store. It may be on the way home from
work, soccer practice, or the doctor's appointment. Cosmetics and durable plastic containers -
as well as candles and candle accessories (which are sold on a direct-to-consumer basis by
PartyLite) - can be found at such stores with ease.

That brings me to my next point, the issue of price. Go to a brick-and-mortar store like Target
or Ulta3, and you'll find even the high-end cosmetics to be far more reasonably priced than
those sold through Mary Kay. What they sell in their Look Book (their direct-to-consumer
catalog) gives the Independent Beauty Consultants a 50% markup. And direct-sales cosmetic
companies in particular are increasingly going after the upscale consumer; that's what Avon
did since I stopped selling for that company. They wanted to get away from their working-
class image ("my grandmother/aunt/mom/neighbor was an Avon lady") and sell the high-end
cosmetics to wealthy women with money to burn. The problem is that with the markups
given to sales reps for these cosmetics, the prices they have to charge consumers (to account
for the expenses of the sales reps and so forth) are much higher than what consumers pay for

23
similar products even at a high-end brick-and-mortar store.

And when it comes to cosmetics, people have definite preferences. Mary Kay and other
direct-sales cosmetics companies would like you to believe that the product flies off the
shelves without your having to say word #1, but the truth is that some people just don't like
the stuff, preferring to purchase other brands of makeup. (Mineral-based makeup
formulations seem to be particularly popular on Pink Truth.)

I've mentioned in other AC articles that little or no training is offered Independent Beauty
Consultants or other low-level members of the sales force. At least it isn't useful training of
the sort women at this level actually need. Also, I've mentioned in previous articles that the
opportunity is presented to everyone as being "for everyone," as if women were still stuck in
the mid-1960s, with little opportunity for professional advancement except through the MLM
or other direct-sales companies. Mary Kay Ash, who founded Mary Kay Cosmetics,
genuinely believed that she was offering women an opportunity to get ahead in the business
world, and I'm sure she believed that to the day she died, despite the fact that women were
earning MBAs and getting ahead in conventional business jobs (as well as in the professions,
like law and medicine) by the time she passed away.

There are more opportunities out there in Real World Land for women. We do not need direct
sales opportunities - like those provided by Avon and Mary Kay - in order to get ahead. The
products they sell, often advertised heavily to an upscale crowd, are often more reasonably
priced elsewhere, provided by distributors with a more efficient delivery system. Besides, it's
hard to find people at home to have them arrange for parties, or to have them take a look at an
Avon sales brochure. And the product line has changed so much - particularly at Avon - that I
just don't want to get involved with selling something I'd feel disappointed in or didn't believe
in.

Swedish direct selling major Oriflame Cosmetics has decided to reverse its localized India
strategy which focused on development of low-priced products to reach out to the price
sensitive Indian consumer.

24
In a fresh revamp of its domestic operations, Oriflame — through its 100 per cent subsidiary
Oriflame India — now plans to phase out its entire locally produced range of 350 products,
and substitute these with an imported global product range consisting of over 450 products.
The new model being spearheaded by Oriflamme’s new Asia regional marketing manager
Mattias Borjesson, significantly, will take the company’s total imports to about 90 per cent
from the current 10 per cent.
The company’s facility based in Noida, meanwhile, will shift from being a supplier to four
Asian countries like Indonesia, Thailand, Sri Lanka and Vietnam to be a global supply centre
and will export to 58 countries where Oriflame has a presence, Mr. Borjesson told FE. The
manufacturing unit was acquired by the company for Rs 36 crore a few years ago.
Giving reasons for taking a U-turn in its India strategy, Mr. Borjesson said that the aim was to
align the Indian product range with the global range. "Indian consumer is getting less price
sensitive and more quality sensitive," he said.
Additionally, the initiative is part of Oriflamme’s new branding project. "As we grew and
expanded in various countries, our expression and strategy were scattered in various
countries. There was a need to consolidate the platform for the future and to build unified
brand image," he said.
India direct selling industry observers, however, believe that the company despite its 8-years
stay in the country has been finding it a tough game to penetrate and grow as per projections.
While the company is tight lipped about the volume of business it has done so far from India,
the parent company in its latest annual report acknowledges the hardships it has faced in the
Indian market.

25
Analysis of Literature Review

 In spite of the economic slowdown experts believe that it will grow at a CAGR of 7%.
There are also statements like the industry does not cover the entire population
making a scope for further growth.

 The review also brings light to the fact that the Indian consumers are price sensitive
and hence the cosmetic manufacturers cannot charge exuberant prices for the same.

 Since the thesis focuses on a comparative study of cosmetics sold through two
channels that is network marketing and store’s the review helps understand the growth
of the retail industry which have leased cosmetic stores and also the growth of the
networking channel ever since it entered India.

 The growing popularity of brands like Avon and Oriflame as against the Indian
brands.

26
Analysis and Findings

The objective of the study was to find out the popularity of network marketing under the
cosmetics arena, the reach of network marketing, brand awareness of cosmetics sold under
network marketing, consumer preference , consumer’s buying decision is based on
convenience or brand preference.

Hence the first question was to find out the consumer brand preference which dealt with
rating the brand that appealed to them the most. Ratings were given to the brands based on
their preference 1 being the highest. For analysis purpose one the top three ranks have been
considered since there were quiet a few respondents who have given only three ranks hence
to minimize the error the first three ranks would help to know the most popular brand. The
result is as follows

Table 1
As seen above Lakme has scored the highest as 39 respondents have ranked it number one followed
by LOreal that has been ranked 1 by 15 respondents. Hence Lakme leads by 24 respondents, Avon is
the third brand that is most preferred by the respondents. Maybelline and Garnier are equally
preferred by 10 respondents as their best brand. A graph on the brands ranked first will help
understand the rankings better.

As seen above color bar and Himalaya are two brands that we can say are least preferred or
are not as popular as the other brands. Not a single respondent has selected these two brands
as their most preferred brand.
If rank 2 were to be considered Lakme still continues to lead with 15 respondents choosing it
as the second most preferred brand. Amway and LOreal are choosen by 12 respondents each
as their second most preferred brand. Lets observe the second ranking in a bar chart.
27
As observed in the bar graph above colorbar is preferred by 2 respondents as their second
most preferred brand but Himalaya on the other hand still has no brand preference.
Garnier becomes the most preferred brand under the third rank followed by Lakme with 11
respondents. Himalaya is chosen by 6 respondents as their third most preferred brand. The
bar chart for rank 3 is as follows:

Hence conclusion can be drawn that consumers prefer Lakme among all the other popular
brands of cosmetics.

28
The question 2 of the questionnaire dealt with what was the guiding factor of consumers
while purchasing a cosmetic. This question would help to find what the consumer is looking
out for while purchasing a cosmetic, how much impact does a brand have on the consumers
purchase decision, and does the price play an important role in guiding their purchase
decision. The question asked was
What do you look for while buying a cosmetic? The outcome was as follows

Quality Price Brand Convenience Advertisement


What
respondents
look for while
buying 64 22 30 8 4
Cosmetics
(Actual)
Table 2
There were quiet a few respondents who had marked more than one as their guiding force in
purchasing the cosmetics hence the outcome does not add up to the total sample size of 100
respondents. 64 consumers look for quality while purchasing a cosmetic followed by 30
looking for Brand and 22 looking for the price and 8 for convenience and a mere 4
respondents out of the total sample of 100 purchase a cosmetic because of the advertisement.
The pie diagram of the above

The diagram helps to conclude that quality is one of the most important factor that a
consumer looks for while purchasing a cosmetic. Brand has a lower impact than the quality.
The percentage of customers buying cosmetics can be seen in the following pie diagram

29
Hence 50% of the total 100 respondents purchase cosmetic based on the quality.
It helps draw conclusion that more than the brand it is the quality that matters to the
customers. Brand and price are secondary aspects. Price is the third component of their
purchase decision making brand more important than the price.

30
The third question dealt with the awareness of cosmetics being sold under network
marketing the results are:

Aware Not Aware

Awareness of Network
84 16
Marketing

Table 3
Out of the total respondents 84 are aware that cosmetics are sold through network marketing
and 16 of the respondents are not even aware of this channel. We can say that 84% of the total
samples are aware of cosmetics being sold under network marketing.

31
The fourth question found how many out of the total respondents have bought cosmetics from this
channel. 44 out of the total respondents have purchased cosmetics from Avon, Amway or Oriflame.

Not
Bought
Bought

No of
44 56
Respondents

Table 4

We can also say that out of 84 respondents who are aware of the channel only 44 have bought
from it. Hence 52.38% of the total respondents who are aware have bought cosmetics from
Avon, Amway or Oriflame.

32
The fifth question gives the direct answer to the thesis topic “A study of the consumers
buying behavior for cosmetics marketed through network marketing in comparison to
store based products in Mumbai’s Western Suburbs” as to where do the respondents buy their
cosmetics from. The outcome of this question was:

Network Marketing
Store
Channel

No of Respondents Buying
82 18
Cosmetic from

Table 5
82 respondents buy their cosmetics from store and 18 buy from network marketing channel.
Depicting that 82% of the total sample prefers store.

Therefore conclusion can be drawn that store based cosmetics are more popular than those
sold through network marketing.

33
The sixth question was your cosmetics assortment consist more of?
 Personal care products
 Facial products

Personal care products Facial products

No of Respondents whose
66 34
Cosmetic Assortment consist of

Table 6
66 respondents buy cosmetics for personal care and 34 respondents buy facial products.
Personal care products are more popular when compared to facial products.

34
Seventh question inquired whether the respondents buy cosmetics for gifting purpose.

Do Buy Do not Buy

No of Respondents who buy


44 56
cosmetics for gifting purpose

Table 7
44 respondents do buy cosmetics for gifting purpose.

Out of these 44 respondents how many buy from store and network marketing was the next
question the outcome of which was:

Network
Store
Marketing
Cosmetics for gifts are bought from 32 12
Table 8
35
Here also we can see that store based cosmetics are more popular for cosmetics that are
purchased for gifts.

36
The ninth question was
Given below are few characteristics of cosmetics being sold in store’s. Please give each
characteristic some points based on your assessment, such that the points range from 1 to 10. (1
being the lowest and 10 being the highest).

Characteristics of cosmetics available in a store Number of points


Conveniently located
Enough range of products
Sales person
Price
Wide variety under one brand
Table 9

Since the points are out of 10 and the sample size is of 100 respondents each attribute would
be rated from 1000 points.

Wide
Characteristics of Enough
Conveniently Sales variety
cosmetics being range of Price
located person under one
sold in stores products
brand

Score out of 1000 752 790 536 763 784


Table 10

Hence according to the respondent’s assessment conclusion can be drawn is that they are of
the view that a store has a wide range of products which they can feel and touch and
sometimes even when they are not in a need of that particular cosmetic they might indulge in
impulsive buying.

37
The tenth question was:
If you purchase cosmetics through network marketing given below are few characteristics.
Please give each characteristic some points based on your assessment, such that the points range
from 1 to 10. (1 being the lowest and 10 being the highest).

Characteristics of cosmetics available in


Number of points
network marketing
Convenient
Enough range of products
Selling agent
Price
Table 11
Here the score of each attribute is considered out of 660 because there were 34 respondents
who did not fill in the section because they have not bought any cosmetics from network
marketing.

Characteristics of
cosmetics being Enough range of
Convenient Selling agent Price
sold through products
Network Marketing
Score out of 660 538 528 479 560
Table 12
Hence price scores the highest that is 560 out of 660 stating that the respondents who have
bought cosmetics from this channel feel that the price that they paid for the product was fair.
The next attribute is convenient which scores 538 out of 660 showing that the customers of
network marketing find it a convenient medium of shopping. According to the respondents
the range of products sold through network marketing score 528 and the selling agent gets
479 out of 660.

38
The eleventh question was:
Given below is a scale that indicates points from 10 to 1, you have to indicate a point that
describes your satisfaction on the overall service of network marketer. 10 being the best

10 9 8 7 6 5 4 3 2 1
The number of respondents who attempted this question was 66 and the total score or the level
of satisfaction is 474 out of 660.

Network
Marketing

Level of
474
satisfaction
Table 13

The last question was:


Given below is a scale that indicates points from 10 to 1, you have to indicate a point that
describes your satisfaction on the overall experience of store and the cosmetics they offer. 10
being the best

10 9 8 7 6 5 4 3 2 1

The result of this question was

Store

Level of satisfaction 798

Table 14

That is the satisfaction of customers/ respondents of cosmetics that are sold through stores is
798 out of 1000.

39
Hypothesis
Sign test

There were 82 respondents who purchase their cosmetics from Store and 18 who purchase
cosmetics from Network Marketing making it 82 and 18% respectively.

Setting up the hypothesis

Null hypothesis: Ho: P = O.5 (50 % of customers buy cosmetics from Store.)

Alternate hypothesis: H1: P ≥0.5 (More than 50 % customers buy cosmetics from Store.)

Where, P customers who buy cosmetics from Stores

No. of (+) sign = 82

1) Calculation of P (+) & q (-):

No. of respondents who buy cosmetics from Store =P (+) = 82/100 = 0.82

No. respondents who do not buy their cosmetics from Store =q (-) = 18/100 = 0.18

1) Standard deviation= σp = √ pq/n = √ 0.5 * 0.5/100 = √ 0.0025 = 0.05

z = p – 0.5/ σp = 0.82 - 0.5/0.05 = 6.4

Significance level (α) = 5%

40
From the above diagram, it is seen that the null hypothesis is rejected because

The z value (6.4) lays outside the acceptance region i.e. +1.64, hence the null hypothesis that
states that 50% of respondents buy cosmetics from store is rejected and the alternate
hypothesis which states that more than 50% respondents buy their cosmetics from Stores.

41
Conclusion
The conclusions that can be drawn from the study are:

1) Lakme appears to be the most popular brand among the respondents of western
suburbs of Mumbai. LOreal, Garnier and Avon are few other brands that are preferred
by the samples. Brands like Color bar and Himalaya are still not very popular among
the respondents.

2) While purchasing a cosmetic the respondent’s choice is based on the quality of the
cosmetic. Which we can say forms the guiding force behind purchasing a particular
brand. The next characteristic is Brand followed by price convenience and
advertisement. Hence we can say that advertisement does not have a large impact on
the purchase of cosmetic. Yes brand and price do play an important role. If we were to
find out the impact was more the brand or the price in the study it shows the brand has
more weight age in comparison to the price.

3) The brand awareness aspect of cosmetics of network marketing under this study is
84% as 16 respondents are not even aware of a channel known as network marketing.
Out of the 84 respondents the numbers of respondents who have actually bought
cosmetics are 44 which shows that 52% of them have actually bought and used
cosmetics among these also there are a few respondents who buy from network
marketing only for gifting purpose. Hence the popularity of network marketed
cosmetics is not very high in the western suburbs of Mumbai.

4) 82% of the samples buy cosmetics from stores making it very popular. On probing the
samples it was found they prefer buying from stores because they can touch, feel and
see the product before purchasing and get immediate delivery which is not possible
under network marketing.

5) The objective of the study was also to find what the consumers look for while
purchasing cosmetics convenience or brand but as seen in the research study its not
convenience that a customer looks for but the quality. While doing the analysis of
individual characteristics of store and network marketing based on convenience the
rating that stress got based on convenience were high depicting that even if the
customer has to go buy the cosmetic in a store they find it convenient.

42
6) Only 44 of the total respondents buy cosmetics for gifting purpose and among them
also 32 buy it from stores and 12 buy from the network marketing channel. Shows
that stores are not only popular for personal use but also for gifting purpose. This
again is because of immediate delivery and tangibility.

7) The sales person of the stores does not have that big an impact on the purchase of
cosmetics. However if it is compared to network marketing the selling agent almost
influence their purchase. This may be due to the rapport that these agents share with
their customers.

8) Te level of satisfaction when measured on the likert scale store got a score of 798 out
of 1000 and network marketing got 474 out of 660 making it 79.8% for store and
71.82% for network marketing. The customers are more satisfied with stores than
with network marketing. These parameters can again be the quality, the brand, the
price and the convenience.

9) Hence from the above inferences the conclusion of the thesis can be drawn as

“The consumer prefers buying cosmetics sold through retail store then from the
network marketer’s.”

43
Limitations
The limitations faced during the research and after the data collection were

5) Time constraint- since the time span for the thesis was only three months an in depth
study and analysis became a little difficult.

6) Sample size- the sample size of the study is only 100 which does not give a
comprehensive result. The conclusion of the study may not have resulted to an
accurate outcome due to the sample size being small.

7) Bound to only western suburbs of Mumbai- the other limitation of the study was it
was limited to only the western suburbs of Mumbai which constitutes of a different
set of samples. The buying behavior of an individual varies from place to place. It is
considered that the area between Bandra to Churchgate has an affluent set of families
hence their buying behavior towards cosmetics would be different from the samples
that stay beyond Bandra.

8) Awareness- the sample taken and the conclusion drawn can be led to only one side if
there is lack of awareness about cosmetics being marketed through network markets.
As seen in the analysis the awareness of network marketing was only among 84
respondents the remaining 16 which form a part of the sample will not contribute in
any way to know the outcome of the study.

9) Questions left blank- like stated above since a set of sample are not aware about
network markets they have left a part of the questionnaire blank. Even the samples
who are aware of cosmetics being sold through network marketing and have not
purchased cannot give a correct view of their satisfaction towards cosmetics of
network market.

10) Biasness- among the 100 respondents around 10 were network marketing agents
hence they have given high ranking to network marketing leading to a bias result to
the extent of 10%.

44
References

1) http://www.newsonretail.com/Report/IM192.htm

2) http://www.cosmetics.co.in/cosmetics-brands.htm

3) http://www.bestlifestyle.org/branded-cosmetic-product-%E2%80%93-a-trend-in-
fashion_page9885.html

4) http://www.einpresswire.com/article/33055-indian-cosmetic-market-surging-despite-
recession

5) http://www.gcimagazine.com/marketstrends/regions/bric/5950166.html?page=5

6) http://www.naukrihub.com/india/fmcg/overview/cosmetics-toiletries/

7) http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?
news_id=40587&page=2

8) http://www.financialexpress.com/news/avon-now-eyes-mass-market-third-party
partnership/67618/0

9) http://www.financialexpress.com/news/oriflame-goes-for-a-strategy-change/108727/

10) http://www.blonnet.com/catalyst/2002/04/04/stories/2002040400160400.htm

11) http://www.associatedcontent.com/article/162262/why_direct_selling_no_longer_wor
ks_pg4.html?cat=12

12) http://www.prlog.org/10304394-bharatbookcom-cosmetic-sector-analysis-in-
india.html

13) http://indiatoday.intoday.in/index.php?
option=com_content&task=view&sectionid=110&issueid=110&id=57146&Itemid=1

14) http://www.business-standard.com/india/news/kitcosmetics-market-in-india-
2008/335850/

45
Appendices

Management Thesis

A study of the consumers buying behavior for cosmetics marketed through network
marketing in comparison to store based products in Mumbai’s Western Suburbs.

Hello, I am Yasmin Singaporewala. I am a second year student of management pursuing my MBA from Adam
Smith Institute of Management. As a part of my curriculum I have to undertake a survey on the given topic. All
the information that we collect is strictly for study purpose and will be dealt with utmost confidentiality. This
survey would take only 10 mins of your time.

Name:

Telephone number: Age:


Profession:

1) Rank among the following which cosmetic brand appeals to you the most? (1 being
the highest)

L’Oreal Avon

Maybelline Oriflame

Garnier Amway

Lakme Revlon

Color bar Himalya

Others (pls specify)

2) What do you look for while buying a cosmetic?


 Quality Price Brand  Convenience 
Advertisement
3) Are you aware of cosmetics being sold through network marketing?
 Yes  No
4) Have you bought any cosmetic sold under this channel?
 Yes  No

5) Where do you purchase your cosmetics from?


 Store  Network Marketing
6) Your cosmetics assortment consist more of
 Personal care products
 Facial products
7) Do you buy cosmetics for gifting purpose?
 Yes  No
46
8) Where do you prefer to buy these cosmetics from (for gifting)?
 Store  Network Marketing
9) Given below are few characteristics of cosmetics being sold in stores. Please give each
characteristic some points based on your assessment, such that the points range from 1 to
10. (1 being the lowest and 10 being the highest).

Characteristics of cosmetics available in a store Number of points


Conveniently located
Enough range of products
Sales person
Price
Wide variety under one brand

10) If you purchase cosmetics through network marketing given below are few
characteristics. Please give each characteristic some points based on your assessment, such
that the points range from 1 to 10. (1 being the lowest and 10 being the highest).

Characteristics of cosmetics available in


Number of points
network marketing
Convenient
Enough range of products
Selling agent
Price

11) Given below is a scale that indicates points from 10 to 1, you have to indicate a point
that describes your satisfaction on the overall service of network marketer. 10 being
the best

10 9 8 7 6 5 4 3 2 1
12) Given below is a scale that indicates points from 10 to 1, you have to indicate a point
that describes your satisfaction on the overall experience of store and the cosmetics
they offer. 10 being the best

10 9 8 7 6 5 4 3 2 1

Thank you.

47