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What is MLM? MLM stands for multi-level marketing
other terms use for it are direct selling, network marketing,
word of mouth marketing, referral marketing
etc. And a person who is involved in such marketing
activities
is referred as MLMer, network marketer,
affiliate, distributor, direct seller etc.
Wikipedia defines MLM as “MLM
is a marketing strategy in which the Salesforce is compensated
not only for sales they personally generate, but also for the sales of the
other sales people that they introduce". Direct selling
defers slightly from MLM. World Federation of Direct Selling
Associations
WFDSA defines direct selling
as "Direct selling is a dynamic, vibrant,
rapidly expanding channel of distribution for the marketing of
products
and services directly to consumers. Direct selling
can be uni-level, meaning only one person selling to the consumer receive
commission for the sales generated;
or it can be multi-level whereby more than one person receive commission
for the sales generated. This marketing strategy when more than one person
receives commission
is termed as multi-level marketing or network marketing.
How did MLM start? And why do we need it?
MLM style businesses existed as early as 1920.
It became a lot more popular from the late nineteen sixties. In early 1960s Sam
Walton
observed that certain products require a sales person to talk to a potential
buyer
before selling where certain products didn't. He decided to open huge stores and
sold
only products that require no sales person and stocked such products in huge
quantities
at cheaper prices. Customers could pick up the products,
bring to the cashier and pay for it. He called his store
Walmart. This model worked so successfully
the he became a multi-billionaire. Many corporations all over the world
followed suit and such stores started opening all over the world.
On the other hand products that required a sales person to talk
were simply dropped out. It became costly for manufacturers of such products to open their
specialities stores
in every neighborhood and their sales dropped. They re-looked at their
existing sales and observed that a large part of the sales was due to
recommendations from satisfied customers. They decided to experiment with word of
mouth marketing.
They relooked at their traditional expense distribution and rearranged it
for MLM.
The expense distribution in the typical company that uses traditional marketing
might look something like this: Manufacturing cost -
20 percent. Manufacturers' profit 20 percent.
Logistics 10 percent. Major and minor distributors
10 percent. Retail profit 25 percent.
Marketing and advertisement 15 percent. For MLM
manufacturing cost profits and logistics will remain the same.
Distribution charges will still be required but not the same as in
traditional marketing.
Retail profits can be saved fully. Marketing and advertisements will be
either zero
or substantially lesser than traditional costs.
This makes a total of 60 percent. Meaning full
40 percent can be offered as commissions to customers who bring in new sales.
Well it might not be accurate representation for all Industries
but you get the idea. As you can see that part of the money that is spent on
distributors,
retail profits, marketing and advertising; is spent on giving commissions to
a network of direct sellers who bring in the sales. Manufacturers tried using this
new marketing strategy
and it worked wonderfully. Consumers were happy because they could use quality
products
that I tried and tested by people they trust.
Those who introduced such customers were happy because they could earn
commissions.
Manufacturers were happy because new sales were generated
all over without settling a physical branch in each locality.
Soon rewards were at multiple levels and the entire new
marketing strategy became popular. Who uses
MLM? Why do these people join MLM corporations?
Regular people like doctors, engineers, IT professionals,
teachers, housewives etc. join MLM
for several reasons - 1. It helps earning commissions.
2. MLM corporations have great sales training programs
that are mostly free to learn. One can grow sales and marketing skills by
joining a good
MLM corporation.
3. Direct sellers usually meet after
office hours or during weekends. These are good places to meet many people
and they really do you have a good time together. Some join to fulfill their
social needs.
4. For direct sellers growing their network and commissions
is like growing their own business. It has its own struggle
and takes time to build but once it's done it can generate consistent
income all the time. MLM membership can be passed on to the next generation
something that most other professionals cannot
do. Even if you earn little income every month that income
can be passed to your children. They can grow it even further and pass it to the next
generation.
What about illegal pyramid schemes? I keep hearing about such schemes and
about several people losing their hard earned income.
Unfortunately there are a few corporations who do run
illegal pyramid or ponzi schemes and con
innocent people. Eventually they do get caught by the law
and then pay for their crime by spending several years behind bars.
Pyramid schemes are frequently disguised to appear as legitimate direct selling
companies,
that is why it is a lot more important to know the difference between legal MLM
and illegal pyramid schemes. The start-up fee
is generally low primarily to cover training material sales aids
or demonstration kits. Start-up fees for pyramid schemes
are high. Type of products:
Customers pay for tangible products or services.
Prices are quite comparative to what another vendor would charge for similar
products
if these were sold without MLM. Customers pay for start-up
fees only. These products that are of dubious value.
Repeat sales: Depend a lot on repeat selling to existing customers
so focus remains on quality products which offer value for money.
Almost all of their sales are from initial startup fees
that direct sellers pays for sign up, not because they are useful or
more attractively priced but because they must buy them to participate in
the scheme.
Commission Payments: Commission to direct sellers
is based on the sale of goods or services. Commissions are based on
recruitment
rather than on sales. Refund policy
many companies have a 100 percent money back guarantee.
They do not allow refund. Primary sales strategy:
Primary sales strategy is value offering. Primary sales strategy
is greed. Direct Selling Association membership:
This is not mandatory in most countries, many established companies hold
DSA membership. None of the pyramid schemes are members ok DSA.
DSA world over have stringent verification policies
and you can be sure that corporation's running illegal pyramid schemes
cannot be part of the DSA. 60 national DSAs
and one regional DSA, representing the EU,
are affiliate so the WFDSA. If you are unsure about
verifying yourself then focus on MLM companies that are official members
of the DSA in your own country. Is there any credible personalities
supporting MLM
industry? United States ex-President Bill Clinton has officially
endorsed the MLM industry. Several prominent entrepreneurs like
donald Trump and investors like Warren Buffet have invested their money in
companies using
MLM. Many motivational speakers like Robert Kiyosaki,
Jack Canfield etc. recommend MLM to others.
There are many others like US former congressman *** Chrysler,
University of Texas professor doctor Robert Peterson,
president and CEO of the US Chamber of Commerce
Tom Donohue, former US ambassador and member of cabinet
Ron Kirk, SVP from Council of Better Business Bureaus -
Beverly baskin, Professor of Marketing in The University of New Mexico -
Linda Ferrell, FTC General Counsel -
Robert Paul, former FCC commissioner Thomas Leary; have all shown their support for
the industry.
I have started feeling good about the industry now.
Can you tell me how big the MLM market is?
How many people use it? Are sales growing in the industry?
As per WFDSA - total sales in direct selling industry in 2012
was an astonishing US$166 Billions
with over 89 million direct sellers involved in it.
You can see that the global sales in the MLM industry
has been growing steadily over the years. In fact (it is observed that) global
MLM sales grows every time there's a major economic crisis.
For example in year 2000-2001
dot-com bubble burst and in year 2002
MLM industry grew by 9%. In the year 2003
there was the SARS outbreak in Asia and in the year 2004
global sales grew by 11.7%.
In the year 2008 to 2009 the world faced sub-prime mortgage crisis
and in 2010 MLM industry saw an increase of 20.2%
growth in sales. Also it is observed that at least since 1998
global number of direct sellers has always gone up consistently
with big spikes in the years following economic crisis.
During economic crisis people lose jobs or find their net income shrinking,
so people tend to join MLM to supplement their income.
So what are you waiting for, Let’s MLM !!
For additional details visit us at www.LetsMLM.com.