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Multi-level Marketing andNetworking as a Subset ofDirect SellingReported by: Freneil I.Reyes
What is Direct Selling? refers primarily to the distribution system. It is the marketing and selling products directly to consumers away from a fixed retail location. Modern direct selling includes sales made through the party plan, one-on- one demonstrations, and other personal contact arrangements as well as internet sales.
Two types of Direct Selling Single Level Marketing Multi Level Marketing
Single Level Marketing Rewards the sellers for their personal sales activity. They cannot sponsor any other distributorship or sales personnel. Income comes only in the form of commission or bonus.
Multi-level Marketing It is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation. In this strategy, the seller recruits other distributors or sales people, and also receives commissions and bonuses on the sales they make. Downliners are necessary to increase the sales force, and thus generate a huge number of sales. The term "multi-level marketing" emphasizes the compensation plan.
Is Network Marketing and Multi-level Marketing Synonymous? Network Marketing and Multi-level Marketing are generally considered to be synonyms, and a subset of direct selling. Network Marketing tends to be modern preferred term. Other terms are also used, including word-of-mouth marketing, interactive distribution, relationship marketing and others.
Multi-level Marketing Setup Independent, unsalaried salespeople of multi- level marketing, referred to as distributors (or associates, independent business owners, dealers, franchise owners, sales consultants, consultants, independent agents, etc.), represent the company that produces the products or provides the services they sell. They are awarded a commission based upon the volume of product sold through their own sales efforts as well as that of their downline organization. Independent distributors develop their organizations by either building an active customer base, who buy direct from the company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also
Multi-level/Direct SellingCompanies Avon Herbalife Mary Kay Natasha Nathaniel Sophie Martin Red Logo
Common types of direct sellingmethods. Telemarketing - This is one of the chief direct sales tactics prevalent today. There are different methods used to get your sales flowing and also make customers happy to take your calls. You should be very pleasant and stay on the point while making your sales pitch.
Direct Mail This is marketing conducted E-mail exclusively through mail. Direct mail may vary in format, but Sales letters usually conforms to standard mailing requirements. A direct Postcards mail package includes a letter, brochure or even both. Folders Brochures Self-mailers Statement stuffers House organs Direct-Mail Advertising
Direct Response - This is an advertising technique that urges consumers to respond in a certain manner, usually to buy a product, and also provides them the means to do so. A business reply card is a direct response tool.
Is Network Marketing aPyramid Scheme? Pyramid Scheme (illegal scam) ◦ A pyramid scheme can be defined as a fraudulent money-making scheme that is based on a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme without a legitimate product or service being delivered. Eventually the number of new recruits fails to sustain the payment structure and the scheme collapses with most people losing the money they paid in.
In a more practical sense, probably the easiest way to identify pyramid schemes is firstly there is no legitimate product or service involved (ie you do not get a legitimate product in return for your initial investment). The second way to identify pyramid schemes is that you do not get a financial return unless you have successfully introduced a number of new recruits into the pyramid. Basically, pyramid schemes concentrate on the money that you could earn by recruiting new people into the pyramid and generally ignore the marketing and selling of any products or services.
What is a pyramid scheme?•Of course, we are not talking about buildingstructures, but about people participating in a programwho are grouped in the shape of a pyramid, with a fewon the top and many on the bottom.
Five red flags of a product-based pyramid scheme Recruiting of participants is unlimited in an endless chain of empowered and motivated recruiters recruiting recruiters
Advancement in a hierarchy of multiple levels of “distributors” is achieved by recruitment, rather than by appointment.
Ongoing purchases by distributors are encouraged in order for them to be eligible for commissions and to advance in the business (“pay to play”)
The company pays commissions and/or bonuses to more than five levels of “distributors.” (Participants are not really distributors, but buyers.)
For each sale, company payout for each upline participant equals or exceeds that for the person actually selling the product. This creates an inadequate incentive to sell products and an excessive incentive to recruit a huge downline.
Network Marketing (legitimate,legal business model) The concept behind network marketing is a distribution model that allows a company to sell their products directly to the consumer. Choosing to use a word of mouth approach (networking) instead of advertising through traditional streams (eg media). Therefore instead of paying the media for advertising, network marketing companies are structured to reward distributors through commission in return for selling their products and finding new customers. Therefore the main focus of a network marketing company is product distribution. In fact, in a legitimate network marketing company, distributors are not required to recruit new distributors in order to earn a commission, they can earn money purely by selling the company’s
Although distributors can choose to sell the company’s products to earn their commissions, not everybody wants to be a sales person and therefore choose to recruit more distributors into their organization as a means to build their referral base. Not only does this create a group of loyal customers, it also allows you to leverage the efforts of others to create a residual stream of income.
Why victims of recruiting MLM’s seldom complain They have been conditioned to blame themselves for failing to “work the system.” “I failed.” They fear consequences from or to their upline (who may be a close friend or relative) “I won’t tell!” Lack of enforcement leads to the belief: “They must be legal or they’d have been stopped by now.”
Why People Should Not Join Multilevel Marketing? Highly difficult to make a profit Lack of management control (less than 1% make a profit). systems with sales territory. Image problems with public. Enormous strain on High level of rejection and resources: time and money resistance from the public. travel (fuel costs) Time and labor intensive. Strains personal relationships; leverages Market saturation of personal relationships products/services; products are recruitment. commodity-based. Pyramid infrastructure: does Attrition Rate. Extremely high not work. attrition rate. Deception. Uses deceptive practices to recruit individuals. Constant meetings ad nausea. MLM’ers must constantly drag people to meetings against their will.
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Pyramid Schemes vs. Multilevel MarketingPyramid Scheme MLM Characteristics: Characteristics: The revenue is split between All the money goes to the top those at the top and to the MLM person in the pyramid. company. Focus on growth through A direct descendant of pyramid recruitment of people. schemes. “Robbing Peter to pay Paul.” Focus on growth through Pays initial investors with recruitment of people. incoming recruits investment. Recruitment-centered rather than Recruitment-centered rather product-centered. than product-centered. Monitor performance of Require substantial upfront fees independent agents from people who are recruited. Have buy-back policies in place Pressure recruits to purchase so agents do not get stuck with corporate products for their own excess inventory. consumption or stockpile large Low upfront fees to get in. amounts of inventory. Incessant meetings to attend. Pyramid infrastructure Pyramid infrastructure.