MLM
Concept selling mostly uses Personal selling as a tool where the sales person depends on referrals. If he is successful in generating referrals from each customer, this will have a multiplication effect in the client database, in a very short time. This concept is knowingly or unknowingly employed by many of the successful salesmen irrespective of the product or industry. In MLM, technically, the promotion expenses on advertising, channel margins etc is distributed among the members as incentives. Many FMCG and appliances companies like HLL have started an MLM arm also. A close look at various MLM models reveals its strength and unique features which provides competitive advantage.
Multi-level marketing (MLM, now sometimes called network marketing) is a business model that combines direct marketing with franchising.
Multi-level marketing businesses function by enrolling unsalaried salespeople (also called by MLM companies as Distributors, Independent Business Owners, Franchise Owners, Sales Consultants, Consultants etc) to sell products and meanwhile earn additional sales commissions based on the sales of people enrolled into their downline, an organization of people that includes direct recruits, recruits' recruits and so on. This arrangement is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager. There can be multiple levels of people receiving royalties from one person's sales.
Legitimacy
Multi-level marketing has an image problem due to the fact that it is often difficult to distinguish MLMs from illegal pyramid or Ponzi schemes. MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.
In the most legitimate MLM companies, commissions are earned only on sales of the company's products or services. No money may be earned from recruiting alone ("sign-up fees"), though money earned from the sales of members recruited is one attraction of MLM arrangements. If participants are paid primarily from money received from new recruits, or if they are required to buy more product than they are likely to sell, then the company is a pyramid or Ponzi scheme, which is illegal in most countries.
New salespeople may be required to pay for their own training and marketing materials, or to buy a significant amount of inventory.
A commonly adopted test of legality is that MLMs follow the so-called 70% rule which prevents members "inventory loading" in order to qualify for additional bonuses. The 70% rule requires participants to sell 70% of previously purchased inventory before procuring new orders. There are however variations in interpretations of this rule. Some attorneys insist that 70% of purchased inventory should be sold to people who are not participants in the business, while many MLM companies allow for self-consumption to be a significant part of the sales of a participant.
Concept selling mostly uses Personal selling as a tool where the sales person depends on referrals. If he is successful in generating referrals from each customer, this will have a multiplication effect in the client database, in a very short time. This concept is knowingly or unknowingly employed by many of the successful salesmen irrespective of the product or industry. In MLM, technically, the promotion expenses on advertising, channel margins etc is distributed among the members as incentives. Many FMCG and appliances companies like HLL have started an MLM arm also. A close look at various MLM models reveals its strength and unique features which provides competitive advantage.
Multi-level marketing (MLM, now sometimes called network marketing) is a business model that combines direct marketing with franchising.
Multi-level marketing businesses function by enrolling unsalaried salespeople (also called by MLM companies as Distributors, Independent Business Owners, Franchise Owners, Sales Consultants, Consultants etc) to sell products and meanwhile earn additional sales commissions based on the sales of people enrolled into their downline, an organization of people that includes direct recruits, recruits' recruits and so on. This arrangement is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager. There can be multiple levels of people receiving royalties from one person's sales.
Legitimacy
Multi-level marketing has an image problem due to the fact that it is often difficult to distinguish MLMs from illegal pyramid or Ponzi schemes. MLM businesses operate in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.
In the most legitimate MLM companies, commissions are earned only on sales of the company's products or services. No money may be earned from recruiting alone ("sign-up fees"), though money earned from the sales of members recruited is one attraction of MLM arrangements. If participants are paid primarily from money received from new recruits, or if they are required to buy more product than they are likely to sell, then the company is a pyramid or Ponzi scheme, which is illegal in most countries.
New salespeople may be required to pay for their own training and marketing materials, or to buy a significant amount of inventory.
A commonly adopted test of legality is that MLMs follow the so-called 70% rule which prevents members "inventory loading" in order to qualify for additional bonuses. The 70% rule requires participants to sell 70% of previously purchased inventory before procuring new orders. There are however variations in interpretations of this rule. Some attorneys insist that 70% of purchased inventory should be sold to people who are not participants in the business, while many MLM companies allow for self-consumption to be a significant part of the sales of a participant.