MULTI LEVEL MARKETING
MLM is community of people who tell others about great products and services they know and like. By adopting MLM concept a manufacturer gains an ability to reach the end-user directly through a distributor. Thus bringing to life the idea of individually thought about needs of a consumer says Burkes hedges.
This is not only convenient, but also very important in a modern society. Multi level Marketing is a modern system of distribution that is based on quality of serving the end consumers and keeping good relationships with them. Historically, this system goes back to economic practices of pre-industrial society when a manufacturer and customer lived without an intermediary having more personal kind of relationships.Appearance of mass production and evolution of distribution systems led finally to standardization and depersonalization of trade.
Working of Multi-level Marketing System
Multilevel Marketing system works through network of thousands of independent of distributors. Historically, Direct Selling companies sold goods to distributors for resale or paid them commission when they sold products to the customers. In new MLM Companies, distributors make money not only by selling goods and services but also recruiting other salespeople and receiving commissions or bonuses on the sales of those distributors – their down – line organization.Therefore, distributor A receives commission at multiple levels in the organization and it is true for other distributors. Distributor A is up – line to distributor B, C and D and B, C, D are called down – lines. Further B, C and D will be up – lines to next level. Fig. 4.1 provides clear picture of how MLM works and various levels of MLM.
There is no time limit imposed on it. At anytime, when some one is free, he / she can work to get an additional I come by joining that network. The harder a distributor woks, the more income he gets in the form of commission. It can also be started from home and hence is sometimes termed as “Home based Business”.
The cost for an individual to start an independent MLM marketing business as a distributor is typically low. Usually a moderately priced sales kit is all that is required for one to get started, and there is little or no inventory or other cash commitment required at the beginning.
Therefore, we can say MLM is a unique way of distribution.
Difference between Traditional Retailing System and MLM System
The method differs from Traditional methods of distribution in three basic ways :
Composition of sales force
The most important difference between traditional marketing and MLM system lies on distributors who replace the sales representatives, factory salesman, wholesalers and retailers. They buy their products directly from producer (from his warehouse), and in this way themselves become his own customers who further sell the products to the consumers. The traditional required the producer to look for a wholesaler who in turn supplied to retail stores where customers buy products. In MLM each distributor directly or indirectly (through other distributors), works with the Corporation.
In Traditional marketing, sales representatives are most often the employees of a given company, warehouse or the store. They are answerable to and dependent on their respective companies while in MLM, distributors are independent salesmen who work directly with the corporation and with other distributors as their partners. If a producer wants to enter a market as a new MLM firm, he has to find the right people in the major regions of the country. He has to teach them every thing about his products and marketing plans. The producer assists and helps in sponsoring of down – line and development of a network. He organizes courses, training sessions, seminars, products demonstrations and various other meetings. The producer is vitally interested in the correct preparation, start, activities and attitude of distributors, since it creates power for further sponsoring of a down-line and product sales.
Profit distribution
In Traditional business, according to Burkes Hedges, the owner of the business enjoys the major chunk of the profit. The profits are shared with another person, namely with an owner of a sales office or sales agent, who looks for sales out – lets for a particular producer. All these profits become the first component of the final price of the product. The second major component is the cost of the product distribution. It consists of storage expenses, workers wages, rent, depreciation and many others, with advertising as major price inflating element.
By eliminating major links of distribution chain, MLM lowers its costs to minimum. Obviously, it is not possible for all costs to be eliminated. Transportation is necessary as well as storage in various regional distribution centers. It also needs some necessary administration. However, by cutting out middlemen, MLM is able to set aside about 60-70% of retail price of the product. Distributors, who take it upon themselves to buy and demonstrate products , to advertise and sell, as well to recruit additional distributors into network that they create, results in money saving according to rules and regulations established by their corporation.
One part of the distributor profit is included in the price for which he buys his products from the firm. His price is lower by 20-30% than the suggested retail price. So one of the components of his income is Savings (when he buys for his own use) or Profit from resale.
The second and the most important component of the distributor’s income in every MLM network is the Volume Bonus. It includes not only his personal turnover but also the turnover of his network that he has built. His network consists of other distributors who operate under same legal and ethical code, code who remain in partnership with one another. Each distributor represents an independent, self – governing business. There are no supervisors or employees, no managers or executives. Everybody is his own boss. Apart from above mentioned elements of the distributor’s income, there are still many other bonuses and awards. Individual corporations within their own specific systems establish them.
The Method of selling
The thing that distinguishes MLM from Traditional distribution so drastically is the relationship between the salesmen and the customers. In conventional system it is the customer who looks for the stores, and goes back and forth between them to make his purchases. In MLM, it is the distributor’s task to find his way to a customer. The consumer can do his shopping without having to move from in front of his television set. Instead of losing time on trips to different stores, people receive competent service exactly where and when they want it. In addition, their salesmen devote more time and effort to a detailed explanation of product’s features and usage. Distributor demonstrates the effectiveness of the products and can also compare them to other products. Establishing good relations with customers is one of the important elements of success in the current market place.
Therefore, we can see MLM is fundamentally different from Traditional Marketing system. The corporations following MLM system devise their own Marketing Plans based on basic structure of MLM system. To have a better understanding of MLM system, the marketing and sales plan of largest MLM corporation – Amway was studied.
Amway Sales and Marketing Plan
The sales and marketing plan is corner stone of the Amway business. It encourages Distributors to sell products and sponsor other Distributors through extensive system of Awards and Rewards that recognize the increasing amount and effort required to achieve higher performance levels. To build a successful Distributorship, a Distributor must sell products and sponsor other individuals as Distributors.
Merchandising Amway Products
Amway offers wide range of high quality products. By using the products and recommending them to others, distributors can earn profits i.e. if they use the products themselves they benefit by getting them at discounted price and if they sell them to others they earn profits. As the Amway products are consumable, Amway distributor will have to provide regular replenishment to their customers, giving opportunity to Distributors to demonstrate lots of other Amway products and hence continuous profits. And also, distributor gets some percentage of profits of products sold or consumed by his down – line. According to Amway, their products are the foundation upon which business of a Distributor grows. And having just 20 customers can give a distributor workable base for monthly retail sales and can be source for potential Distributors by providing referrals.
Sponsoring new distributors
NETWORK MARKETING AND ITS FUTURE
Internet marketing has had phenomenal growth and this trend will continue with no signs of abatement in foreseeable future. Individual entrepreneurs and small business organizations will increasingly look for fresh avenues on the Internet. By all indications network marketing will continue to grow providing fresh opportunities for serious marketers.
Sweeping changes are engulfing us all driving entire humanity with irresistible force. Though we are caught up in middle of storm, we do not fully realize the implications. Future historians will perhaps be able to see our times in better perspective. The forces of globalization is breaking down the barriers and opening up the world market. Market is fast becoming global riding over advances in Internet technology.
The growth of American workforce is maintained at 1.1% since 1990's and is likely to continue till the end of present decade. In the next decade the growth is predicted to fall significantly. But a major change is occurring in the demographic composition of the workforce. Shifting Demographic Pattern: The move is towards more balanced distribution by age, sex and ethnicity. The average age is increasing, as the baby-boomer generation is getting older. Rising female participation and declining percentage of male participation is bringing workforce closer to gender balance. Inflow of immigrants is increasing racial and ethnic diversity with Hispanics and Asians being the fastest growing groups. What does all this have to do with network marketing? Plenty. Major chunk of individual internet marketers come from the workforce. Network marketing is also subjected to continuous evolution. Network marketers all over the world are not bound by national boundaries and are in a sense true global players. Firms are increasingly outsourcing their non-core functions. There is greater decentralization of decision-making.
There is a definite shift from permanent lifetime employment to less permanent employment. The increase in self-employment is evident and distances between work centers are becoming irrelevant. More opportunities are being created for work-from-home type of jobs and people are becoming more inclined towards home -based or part time occupation. There is trend towards knowledge-based work in which education and training becomes a continuous process.
Explosive growth can be expected in network marketing as opportunity providers and opportunity seekers grow in number. Competition between network-based organizations is likely to intensify as they tap on the same common resources. Those established and time-tested organizations are likely to survive and prosper which adapt to the change.
If so much opportunities are being created, why failure rate of network marketers so high? My guesstimate is that most of them leave too soon to gain anything for variety of reasons. They were probably hooked by get-rich-quick schemes that sucked their time and money without giving much in return. Like any other venture network marketing takes time to develop. Only those who persist remain to reap the benefits. It is interesting that in spite of growth of network marketing in last few decades, the failure rate has remained fairly constant.
It is important to get associated with organizations which have good track record and dynamic management to quickly respond to any change. For the organizations which market their products thru affiliate programs, it is in their interest to look after their affiliates well. The affiliates who are new to internet marketing need training, support, guidance and more to earn for themselves and for the organization.
Network marketing is here to stay and grow offering tremendous earning opportunities. Those who join good promising organizations, have the patience to stick with them and work with open, positive mindset can expect to be suitably rewarded.
CONCLUSION
Network marketing is not a complex business. Unlike most businesses, there is very little capital risk. You do not have to analyze it as much as you would if big money was at stake.
With little or no capital risk, the questions become simple: is this the company I’d be proud to be associated with? Are the products are able to capture an appropriate segment of a market? Can I believe in them? Will I enjoy doing the business on day-to-day basis? All of these are answered simply by trying- experiencing both the products and the business.
A convergence of trends in making network marketing stand out as a business today. The downsizing of corporate America, the aging of the population, the reduction of effectiveness of advertising as an approaches to the consumer, the ease and speed of communications technology, the increase of entrepreneurship, and many other trends have positioned network marketing for a staggering boom in the next decade.
Network marketing is fast becoming the single most powerful distribution methodology in business today, both in the United States and in worldwide. Ultimately, however the underlying reason for the extraordinary attractiveness of network marketing is life style- the potential of person, economic and time freedom.
One of the most appealing about this business is that it provides a level playing field- productivity, not capital or policies, matters. Anyone can get involved, and if network marketing is done well enough and long enough, anyone has a chance to become prosperous.
Network marketing is not an easy road: you have to work hard. But have you ever seen anything real or worthwhile where you did not have to work? You need to chose your corporate vehicle carefully, and then remember that if you want a big business, you cannot treat like a hobby. The one “flaw” in the industry is that we do not have a capital investment, and so people often lose track of the need for intense regular business like efforts to achieve significant success.
If you choose the industry, you are about to embark on a wonderful adventure in business and in personal development. There is no replacing or even approaching the economic potential that comes from creating a source of leveraged income and ironically there is no way to help other people- oriented business without becoming a bigger person yourself.
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