sandyraj
Sai Kumar
What is Multi-level Marketing?
Multi-level Marketing (MLM) - also called network marketing (NM) - is a business model which utilizes a combination of direct marketing and franchising. Typically, individuals become associated with a parent company in an independent contractor relationship. Sellers are compensated based on their sales of a product or service, as well as the sales of those they bring into the business.
Hence, rather than using the customary distribution process that moves from manufacturer to warehouse to wholesaler to retailer to end customer, Network Marketing companies use a network of independent marketers to move the products directly from the manufacturer to the end customer.
The idea behind multi-level marketing (MLM) is simple. Imagine you have a product to sell. A common MLM product is some sort of panacea, such as a vitamin or mineral supplement. You could do what most businesses do: either sell it directly to consumers or find others who will buy your product from you and sell it to other people. MLM schemes require that you recruit people not only to buy and sell your product, but who will also recruit people who will not only buy and sell your product but also recruit people... ad infinitum. Only there never is an infinitum to move towards. This may seem unusual to traditional business people. One might wonder why one would recruit people to compete with themselves. For, isn't that what you are doing when you recruit people to sell the same products you are selling? MLM magic will convince you that it is reasonable to recruit competitors because they won't really be competitors since you will get a cut of their profits. This will take your mind off the fact that no matter how big your town or market, it is finite. The well will go dry soon enough. There will always be some distributors who will make money in an MLM scheme. The majority, however, must fail due to the intrinsic nature of all pyramid schemes.
In a legitimate MLM company, commissions are only earned on the sale of products or services to the end consumer who is also a distributor. Critics contend that some companies produce revenue primarily by attracting new participants, as opposed to selling products. Analysis of the compensation plan is often required to determine whether participants are paid based on actual sales of products to customers versus new recruit bonuses and sales of business support materials.
Companies Operating in this Business
Some of the companies which have created a position for themselves in this business are: -
• 4life claims to be the World's No-1 Working from Home Business.
• Amway is the most famous and notorious company for network marketing.
• Avon Products, Inc. is the corporation behind the "Avon Ladies".
• Champion Communications is a Network Marketing company involved in providing high-quality, flat-rate local and long-distance phone service via VoIP as an alternative to traditional phone service.
• Excel Communications claims to be the fastest-growing company in the history of multi-level marketing.
• Go Sports Network markets a popular 'energy drink' called Killer Buzz.
• Quixtar is sister company to Amway.
• Tupperware Corporation is famous because of the Tupperware parties.
• Vector Marketing sells Cutco knives.
Problems with MLM
Multi-level marketing is the system of marketing which puts more emphasis upon the recruiting of distributors than on the selling of products. As such, it is intrinsically flawed. MLM is very attractive, however, because it sells hope and appears to be outside the mainstream of business as usual. It promises wealth and independence to all. Unfortunately, no matter what the product, MLM is doomed to produce more failures than successes. For every MLM distributor who makes a decent living or even a decent supplemental income, there are at least ten who do little more than buy products and promotional materials, costing them much more than they will ever earn as an MLM agent. The most successful MLM scheme is Amway. It has millions of distributors worldwide with sales in the billions. At the turn of the century, the average Amway distributor earned about $700 a year in sales, but spent about $1,000 a year on Amway products. Distributors also have other expenses related to the business, e.g., telephone, gas, motivational meetings, and publicity material.
The reason MLM schemes cannot succeed is because MLM marketing is, in essence, a legal pyramid scheme. The basic idea is for a sales person to recruit more sales persons. This is very advantageous to those who own the company and supply the products, especially since the sales persons in MLMs are also customers.
But it is puzzling why a sales person would think it is to his or her advantage to increase the number of competing sales persons.
This is not to say there is no benefit to MLM membership. You get certain tax write-offs. You get to buy products, some of which you will be happy with. You get to go to inspirational meetings, some of which will make you feel good. You may meet new friends and you may even make a few bucks. But more than likely you will end up alienating some family and friends. You will probably end up buying more stuff than you sell. And you will learn a lot about deceiving yourself and others. You won't be allowed to tell anyone how you are really doing, for example. You will always have to think positive, even if that means lying. You will have to tell anyone who asks that you are doing great, that business is wonderful, that you've never seen anything go so fast and bring you income so quickly, even if it isn't true.
Market Saturation: An Inherent Problem
MLM can no longer claim to be new and, thus, exempt from the normal rules of the market and the way goods and services are sold. They have been tried and, for the most part, have failed. Some have been miserable failures in spite of offering excellent products.
Marketing innovations are not rare in the modern world, as evidenced by the success of Wal-Mart, which found a more efficient and profitable way to distribute goods and services than the status quo, providing lasting value to stockholders, employees, distributors, and consumers.
Math and Common Sense
MLMs work by geometric expansion, where you get ten to sponsor ten to sponsor ten, and so on. This is usually shown as an expanding matrix (just don't say "pyramid"!) with corresponding kick-backs at various levels.
The problem here is one of common sense. At a mere three levels deep, this would be 1,000 people. This covers the neighborhood. At six levels deep, that would be 1,000,000 people believing they can make money selling. This number, in most cases, would cover the city. So, where are the people to buy the products?
The Drop-Out Rate
The "Drop-Out Rate" of MLM programs is enormous - 98% will drop out immediately, meaning that only 2% will continue with the program over any long period of time. The Promoters will tell this 2% that they are the "successful" ones - what this means is that they have become "successful" scamming other people (who will probably spend their money and then drop out, possibly a big personal loss to them but a profit to the Promoters).
The Promoters know the Drop-Out Rate, and know that by far most people will buy in, but then never sell anything and quit, which is one of the reasons why MLM programs are criminal schemes.
The Promoters also tell those who stay in that they are the "well-motivated and lucky ones". This is 100% false. The people who never sold anything and dropped out are the lucky ones, since they will not be liable for securities fraud or any of the related criminal penalties that goes with promoting somebody else into the program. It is the people who stay in the program who are risking some prison time and a felony conviction for selling an unregistered security.
One of the biggest problems of MLM is that they are marketed to people who are down-and-out and desperate, and who can ill-afford to lose their money by purchasing memberships in these bogus programs.
Conclusion
Once upon a time, multi-level marketing was an attractive and a successful business which provided a way for small companies to get their unique products to consumers in small towns and rural areas which had no access to these products. At this time, the products sold themselves, and the multi-level aspect was a way of giving a small reward to those who had worked hard to build the organization. But the focus was always on the product.
Today, and especially with the growth of the internet, it is possible for consumer to get about whatever they want at competitive prices. There is simply no real need for distribution "systems" as there once was, and indeed the focus of all the programs is not on the products they sell - which are usually either bogus or are available somewhere else to the public at the same or lesser prices.
Instead, the focus now is solely on recruiting new people to either buy into the program or else to buy products that are grossly overpriced, with the idea that those people will recruit additional people who will also buy into the program or themselves buy the grossly overpriced products.
In today's internet economy, there is simply no need for multi-level marketing or the overpriced products that they sell - meaning that the only thing they are selling are memberships in anticipation that future memberships will be sold in the future.
Multi-level Marketing (MLM) - also called network marketing (NM) - is a business model which utilizes a combination of direct marketing and franchising. Typically, individuals become associated with a parent company in an independent contractor relationship. Sellers are compensated based on their sales of a product or service, as well as the sales of those they bring into the business.
Hence, rather than using the customary distribution process that moves from manufacturer to warehouse to wholesaler to retailer to end customer, Network Marketing companies use a network of independent marketers to move the products directly from the manufacturer to the end customer.
The idea behind multi-level marketing (MLM) is simple. Imagine you have a product to sell. A common MLM product is some sort of panacea, such as a vitamin or mineral supplement. You could do what most businesses do: either sell it directly to consumers or find others who will buy your product from you and sell it to other people. MLM schemes require that you recruit people not only to buy and sell your product, but who will also recruit people who will not only buy and sell your product but also recruit people... ad infinitum. Only there never is an infinitum to move towards. This may seem unusual to traditional business people. One might wonder why one would recruit people to compete with themselves. For, isn't that what you are doing when you recruit people to sell the same products you are selling? MLM magic will convince you that it is reasonable to recruit competitors because they won't really be competitors since you will get a cut of their profits. This will take your mind off the fact that no matter how big your town or market, it is finite. The well will go dry soon enough. There will always be some distributors who will make money in an MLM scheme. The majority, however, must fail due to the intrinsic nature of all pyramid schemes.
In a legitimate MLM company, commissions are only earned on the sale of products or services to the end consumer who is also a distributor. Critics contend that some companies produce revenue primarily by attracting new participants, as opposed to selling products. Analysis of the compensation plan is often required to determine whether participants are paid based on actual sales of products to customers versus new recruit bonuses and sales of business support materials.
Companies Operating in this Business
Some of the companies which have created a position for themselves in this business are: -
• 4life claims to be the World's No-1 Working from Home Business.
• Amway is the most famous and notorious company for network marketing.
• Avon Products, Inc. is the corporation behind the "Avon Ladies".
• Champion Communications is a Network Marketing company involved in providing high-quality, flat-rate local and long-distance phone service via VoIP as an alternative to traditional phone service.
• Excel Communications claims to be the fastest-growing company in the history of multi-level marketing.
• Go Sports Network markets a popular 'energy drink' called Killer Buzz.
• Quixtar is sister company to Amway.
• Tupperware Corporation is famous because of the Tupperware parties.
• Vector Marketing sells Cutco knives.
Problems with MLM
Multi-level marketing is the system of marketing which puts more emphasis upon the recruiting of distributors than on the selling of products. As such, it is intrinsically flawed. MLM is very attractive, however, because it sells hope and appears to be outside the mainstream of business as usual. It promises wealth and independence to all. Unfortunately, no matter what the product, MLM is doomed to produce more failures than successes. For every MLM distributor who makes a decent living or even a decent supplemental income, there are at least ten who do little more than buy products and promotional materials, costing them much more than they will ever earn as an MLM agent. The most successful MLM scheme is Amway. It has millions of distributors worldwide with sales in the billions. At the turn of the century, the average Amway distributor earned about $700 a year in sales, but spent about $1,000 a year on Amway products. Distributors also have other expenses related to the business, e.g., telephone, gas, motivational meetings, and publicity material.
The reason MLM schemes cannot succeed is because MLM marketing is, in essence, a legal pyramid scheme. The basic idea is for a sales person to recruit more sales persons. This is very advantageous to those who own the company and supply the products, especially since the sales persons in MLMs are also customers.
But it is puzzling why a sales person would think it is to his or her advantage to increase the number of competing sales persons.
This is not to say there is no benefit to MLM membership. You get certain tax write-offs. You get to buy products, some of which you will be happy with. You get to go to inspirational meetings, some of which will make you feel good. You may meet new friends and you may even make a few bucks. But more than likely you will end up alienating some family and friends. You will probably end up buying more stuff than you sell. And you will learn a lot about deceiving yourself and others. You won't be allowed to tell anyone how you are really doing, for example. You will always have to think positive, even if that means lying. You will have to tell anyone who asks that you are doing great, that business is wonderful, that you've never seen anything go so fast and bring you income so quickly, even if it isn't true.
Market Saturation: An Inherent Problem
MLM can no longer claim to be new and, thus, exempt from the normal rules of the market and the way goods and services are sold. They have been tried and, for the most part, have failed. Some have been miserable failures in spite of offering excellent products.
Marketing innovations are not rare in the modern world, as evidenced by the success of Wal-Mart, which found a more efficient and profitable way to distribute goods and services than the status quo, providing lasting value to stockholders, employees, distributors, and consumers.
Math and Common Sense
MLMs work by geometric expansion, where you get ten to sponsor ten to sponsor ten, and so on. This is usually shown as an expanding matrix (just don't say "pyramid"!) with corresponding kick-backs at various levels.
The problem here is one of common sense. At a mere three levels deep, this would be 1,000 people. This covers the neighborhood. At six levels deep, that would be 1,000,000 people believing they can make money selling. This number, in most cases, would cover the city. So, where are the people to buy the products?
The Drop-Out Rate
The "Drop-Out Rate" of MLM programs is enormous - 98% will drop out immediately, meaning that only 2% will continue with the program over any long period of time. The Promoters will tell this 2% that they are the "successful" ones - what this means is that they have become "successful" scamming other people (who will probably spend their money and then drop out, possibly a big personal loss to them but a profit to the Promoters).
The Promoters know the Drop-Out Rate, and know that by far most people will buy in, but then never sell anything and quit, which is one of the reasons why MLM programs are criminal schemes.
The Promoters also tell those who stay in that they are the "well-motivated and lucky ones". This is 100% false. The people who never sold anything and dropped out are the lucky ones, since they will not be liable for securities fraud or any of the related criminal penalties that goes with promoting somebody else into the program. It is the people who stay in the program who are risking some prison time and a felony conviction for selling an unregistered security.
One of the biggest problems of MLM is that they are marketed to people who are down-and-out and desperate, and who can ill-afford to lose their money by purchasing memberships in these bogus programs.
Conclusion
Once upon a time, multi-level marketing was an attractive and a successful business which provided a way for small companies to get their unique products to consumers in small towns and rural areas which had no access to these products. At this time, the products sold themselves, and the multi-level aspect was a way of giving a small reward to those who had worked hard to build the organization. But the focus was always on the product.
Today, and especially with the growth of the internet, it is possible for consumer to get about whatever they want at competitive prices. There is simply no real need for distribution "systems" as there once was, and indeed the focus of all the programs is not on the products they sell - which are usually either bogus or are available somewhere else to the public at the same or lesser prices.
Instead, the focus now is solely on recruiting new people to either buy into the program or else to buy products that are grossly overpriced, with the idea that those people will recruit additional people who will also buy into the program or themselves buy the grossly overpriced products.
In today's internet economy, there is simply no need for multi-level marketing or the overpriced products that they sell - meaning that the only thing they are selling are memberships in anticipation that future memberships will be sold in the future.