The twentieth century was marked by the massive emergence of companies engaged in sales of various goods through MLM or multilevel marketing. In our time, this trend has only intensified. More and more companies work through the network of their consultants, more and more people are actually becoming consultants, advocates, directors in the field of MLM marketing.
What Is the Multi-Level Marketing
MLM or multilevel marketing is a new direction in the modern world of business, which is based on a bilateral equal partnership, in which the company - the manufacturer of one or another product participates on one side, and on the other hand, it is the person who concluded the contract with this company. The company is responsible for the production, delivery of the product, as well as maintaining financial accounting, accounting for the structural activities of each of its partners, and the person (distributor) is responsible for building his sales system (network) of the product. In other words, it is a marketing system in which every distributor has equal rights with respect to the company and each other.
MLM businesses were designed to solve the following tasks:
- Reduce the cost of goods for the end user. This can be achieved by abandoning expensive standard advertising on radio, TV and on the Internet.
- Speed up the delivery of goods to the end user. This is achieved through well-thought-out logistics (a network of own warehouses in different cities and countries).
- Exclude goods falsifications. In the process of reselling goods, its substitution and falsification of large lots are possible. MLM Company works with the end user directly; therefore the probability of product falsification tends to zero.
- Motivate company employees with money and business opportunities. In multi-level marketing, it is possible to earn money and build own business from scratch.
- Bye-Back Policy is the rules established by the manufacturer and determine the procedure for the return of unsold products with full or partial damages.
- Dual Marketing is the concept according to which the firm itself does not engage in recruitment for the marketing of its products.
- Generation is all distributors in the network after achieving a certain level of effectiveness; usually refers to the separated networks.
- Renewals are re-registration. Many network marketing firms require that an individual confirms the desire to be a distributor annually, by signing a certain document and making a small contribution. Such a process excludes falling out of functional roles in the company.
MLM Businesses Examples
There are a lot of really successful MLM companies that help its customers and partners to be successful as well.
- Herbalife. This is an American company, which was founded by Mark Hughes in 1980. The company offers products of balanced nutrition, beauty, and weight control and has the maximum number of positive feedback. Herbalife does offer good products and excellent working conditions.
- Nu Skin. The American company was founded in 1984 by Blake Roni, Sandy Tillotson, and Steve Land. Here it is possible to find wellness products and skin care products. Nu Skin can rightly be called the leader among other network marketing companies for the production of quality products against skin aging.
- Farmasi. This is a Turkish company, which was founded in 1994 through the merger of two enterprises. It offers budget cosmetics and skin care products. The great variety, good quality of the product, reasonable prices promptly brought Farmasi to a high level of sales.
- Forever Living. This is an American company, which dates back to 1984. It offers health products, which necessarily include an aloe vera leaf, which a priori means good quality for a reasonable price.
- Nature's Sunshine. This is an American company, which was founded in 1974. This company is the leader in the production of biologically active additives, as well as a range of cosmetics.
Multi-Level Marketing vs Pyramid Scheme
MLM marketing has nothing to do with financial pyramid schemes, frauds or illegal activities. Associations with the pyramid arise because in the pyramid and in MLM it is needed to attract people in order to earn money. In the first case, the earnings depend on the number of people involved, who invested money in the pyramid, and in the second, the income depends on the turnover that the attracted customers will make.
How MLM Works
First of all, one must understand the general principles of the work of this industry. The manufacturer has its own factories for the production of goods. It sells these goods without shops, the products are distributed through a built-in system of recommendations. In everyday language, this system is called "word of mouth". A lot of people like this principle and they gladly buy goods from the company. Now all MLM-company orders can be issued through the Internet, while popular some time ago, paper catalogs with the development of information technology are receding into the background.
The customer uses products and can start building a business with a direct sales company. To do this, he needs to find several people who will constantly buy products and attract new partners to the business to develop the network. That's why this type of marketing can also be called network marketing. With its warehouses and delivery services, the network company delivers the products to the warehouse, and then this product is delivered to offices that the company's partners (distributors) have personally opened for themselves. Sometimes a company delivers an order to a customer directly.
There are also features and principles of multi-level marketing for the manufacturer of the goods (company), for the end user (client) and for the person who decided to open his business (entrepreneur) using the possibilities of MLM.
- From the Point of View of MLM –Company. A distinctive feature of the promotion of goods through a network is to reduce the cost of advertising their products. The company takes more care of promotional materials for its distribution partners (they are sometimes called independent entrepreneurs) and the formation of a system of professional training (mentoring). It is from the quality transfer of the idea of MLM from person to person the business of the enterprise ultimately depends.
- From the Point of View of the Consumer. The client is comfortable to receive goods with a quality guarantee, he likes affordable prices, samplers, catalogs. Often in direct sales companies, there are exclusive goods and accessories that can not be found in ordinary stores.
- From the Point of View of the Distributor (Entrepreneur). People who want to start their own business without investments can succeed here. After all, the whole system is already built, the market is formed, most of the large companies are already known to the population. In addition, a powerful system of training and mentoring makes the possibility of building the business more than real.
"Pyramids" are illegal and prohibited by law in all civilized countries. The reason for their illegality is the lack of promotion of goods or services. Such pyramids can be multi-level, but they can not be attributed to multi-level marketing.
A financial pyramid is a kind of fraud, in which a huge number of people at the bottom of the pyramid pay money to a small top. Each new member pays money to the sponsor for a chance to move up and receive income from contributions from other people who can join later. Naturally, the pyramid can collapse long before a certain participant gets to the top. Thus, an infinite supply of new participants is necessary so that each participant in the pyramid can receive income.
The financial pyramids and MLM-companies are very similar in structure and are easily confused. Recently, since the 90s of the last century, a huge number of financial pyramids, masked under the MLM-company, appeared. Because of this, a stable negative stereotype in relation to the MLM business was formed in the minds of people.
The Main Distinguishing Features of Financial Pyramids
The financial pyramid is:
- Lack of product, money is paid for attracting new members. As a rule, this can be a one-time contribution, while the monthly profit is promised, but if there is no monthly consumption of the goods by all participants in the structure, then there is no question of monthly payments.
- The product is of poor quality or not unique.
- Promise of superprofits.
- The illegal status of the company or its registration in offshore.
- There is no transparent marketing plan of commission payments.
- Paying commission through virtual money.