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Multi-level marketing, also known as network sales or MLM, is a method of selling, which depends on networking between people. The salespeople not only sell their product, but also recruit other salespeople who in turn sell the product and recruit other salespeople, thus bypassing the traditional forms of promotion and distribution in favor of a large network of independent distributors. These Independent distributors earn commission at two levels; one is their own commission and two, a proportion of commission earned by other distributors appointed by them. None of these distributors are employees of the company.
Distributors are not allowed to sell these products to retailers. The companies insist that the distributors should take prior appointment with the consumer. Personal interaction is not only convenient but adds value as customers get valuable advice on the product and how to use it. This helps in creating awareness and removing misconceptions like cosmetics are harmful for the skin.
Amway, the largest multi-level marketing company:
Any discussion on MLM would be incomplete without Amway. It is the largest MLM Company based on the sale of products as varied as soap, water purifiers, vitamins, and cosmetics.
In Amway, one is recruited as an "independent" distributor of Amway products by buying a couple of hundred dollars worth of the products from the one who recruits you, known as your "upline." Every distributor in turn tries to recruit more distributors. Income is generated by sales of products by the distributor plus "bonuses" from sales of his or her recruits and their recruit-descendent.
MLM over the years:
In the beginning, Multi-Level Marketing was designed and intended to take a manufacturer's products directly to the consumer market rapidly in volume. That is still its highest and best purpose, when it is the true and real goal of the marketing company. However gradually the emphasis was changed from selling the product to recruiting more and more and more sales people. - Why? - Because it was logical to assume that if 10 sales people, making just one sale each per month, could sell 10 of a product - then - 1000 sales people, making just one sale each per month, would sell 1000 of a product. - The more sales people, the more sales.
Many people get confused about getting involved in a pyramid scheme. However although they share the same organizational structure, multi-level marketing is not the same as a pyramid.
What is pyramid structure and how it is different from MLM:
A pyramid scheme is a fraudulent system of making money, which requires an endless stream of recruits for success. Recruits (a) give money to recruiters and (b) enlist fresh recruits to give them money.
A pyramid scheme is called a pyramid scheme because of the shape of a pyramid: a three dimensional triangle. For example in a pyramid scheme suppose a person starts recruiting 10 people and each of those 10 people recruit another 10 people and that way the process continues. A diagram might help see this:
1
10
100
1,000
10,000
100,000
1,000,000
10,000,000
100,000,000
1,000,000,000
10,000,000,000
Now for the time being let us assume the world population to be 11,111,111,111(=1+10+100+1000+………+10,000,000,000)and everybody on the earth is covered under this scheme, then from the diagram we can see that the bottom layer consists of 10,000,000,000(around 90%) people ,who can never find anybody to recruit anymore. Thus, for 1,111,111,111(10%) people to win, 10,000,000,000 (around 90%) must loose.
In a straightforward pyramid scheme, a recruit is asked to give a sum of money, say Rs100, to a recruiter. The new recruit then enlists, say, 10 more recruits, to give up Rs100 each. In the simplest example, the recruiter keeps all the money he gets from his recruits. In our example, each recruit gives up Rs100 in exchange for Rs900 (Rs100 from each of his 10 recruits minus the Rs100 he gave his own recruiter). In order for no one to lose money, the recruiting must go on forever, which is just impossible.
Thus pyramid schemes, which are illegal, recruit people who pay money to those already in the network. The only way to get money in turn is to bring in more people. The pyramid inevitably collapses when there are no more people to bring in.
Multi-level marketing, on the other hand, offers a legitimate product, costs little to become a distributor, and emphasizes selling to customers. While in some pyramid schemes, Sometimes a product or service of questionable value is involved (that is never retailed to the general public by the way), but generally what you're buying is the right to recruit others into the scheme. This is illegal. Also, in pyramid schemes, those who get in first and who are at the top win, while everybody else loses. Where as unlike illegal pyramids, in Network Marketing, no matter where you're positioned or when you join, you can advance to the very highest income levels and even make more money than those above you in the network. . There's also compensation based on the training and managing of your marketing team.
Advantages:
Network Marketing can be done successfully part-time
You can start your Network Marketing business on a part-time basis without giving up your current source of income until your Network Marketing business is generating the income you require. And the best part is that you can continue to operate indefinitely on a part-time basis. What would you do if you were financially independent and most of your time was free to do with as you pleased? This is why so many people are flocking to Network Marketing. And that's why we say that Network Marketing puts the freedom back in free enterprise!
No limit to the amount of money you can make
The bottom line is you'll get out of it what you put into it. It works...if you do. But that's the beauty of it, too; you are the sole in charge. It's up to you how far you take it. And don't forget the income you create in Network Marketing is residual. This basically means that for the work you do just today, you have the potential to earn money not only for today but also for years to come.
Builds your security in this business
Why? In most traditional businesses, what happens if you become ill or disabled and are unable to service your customers? Or perhaps you just want to take a nice long vacation? Whatever the case, you could lose most if not all of your income overnight because it relies on you being there. Where as in Network Marketing, through the process of sponsoring and building a downline, you can create total financial freedom for yourself. With a downline of independent business people working for you, you no longer have all your eggs in one basket. On the contrary, because each person in your downline has a vested interest in continuing and building their own businesses, you create an income that is non-dependent upon you -- an income that can continue, even grow, indefinitely with or without you.
Low initial investment:
Virtually all Network Marketing companies require you to first purchase some kind of "Starter Kit."(Apart from paying the amount for entering into the channel. This is a one-time cost, and quite low. In addition, of course, you'll have monthly expenses for office supplies, postage, advertising etc. Anyone can afford this amount of money without jeopardizing their current lifestyle while they're trying to build a better one.
Highly flexible
That's precisely why you should consider Network Marketing. Besides creating financial freedom, Network Marketing is specifically designed to create personal freedom for you so that you can do all the things in life you really want to do that you don't have the time for now.
Tremendous growth opportunities
Because Network Marketing is still a very young industry, there are hundreds of millions of prospects worldwide that have never even heard of Network Marketing. It will take years to even make a dent in that.
Bottom line: The market is wide open and the potential is enormous.
The major drawback: MLM harassment
Multi-level marketing harassment is a form of harassment in the work place whereby a superior uses his or her power to recruit a subordinate into a multi-level marketing scheme. Like sexual harassment, MLM harassment can be subtle or blatant. The most blatant form would be using the direct threat of not hiring or promoting, or even firing someone for not agreeing to become an "independent" MLM agent. In fact, anywhere there is a person who has power over others, the opportunity for MLM harassment emerges. Fear of not being hired or re-hired and fear of not being promoted or of being fired can be powerful incentives to get on board the MLM bandwagon. More over the main point is that it is quite difficult to prove harassment occurred.
Again there are no laws prohibiting superiors of non-MLM organizations from recruiting inferiors into MLM schemes. Thus, even if you could prove beyond a reasonable doubt that the only reason you were fired from your last job as a structural engineer was because you refused to become an Amway agent when asked to do so by your superior, you may have no recourse in a court of law.
Conclusion:
Apart from the above-mentioned drawback MLM is definitely an effective new way to bring products to market. Now the question comes if Network Marketing is so great, why aren't more people involved? That can be summed up in one word: misconceptions. There are fair Network Marketing companies, great Network Marketing companies, and, yes, even some bad Network Marketing companies. But Network marketing works! You just need to link up with the right company. The general public just doesn't understand what Network Marketing is or its potential. Just because of few fraud companies, you cannot blame the entire concept. However that's finally starting to change. Today network Marketing is a multi-billion dollar industry involving millions of independent business people and major U.S. corporations like Colgate-Palmolive, Gillette, Sprint, and MCI, just to name a few. And it's a rapidly growing international force, too, with thousands of Network Marketing companies already in operation in Canada, Mexico, Europe, Japan, Australia, New Zealand, and the Pacific Basin.
In India, Multi level marketing has been slowly growing. Word of mouth has a strong impact on purchase decision of a consumer, especially in personal care and cosmetic products. Hindustan Lever has also recently launched a new personal product brand Aviance that is sold directly to consumers exclusively by trained beauty specialists. Direct marketing has also been extensively used in marketing of household appliances like Vacuum cleaners. However given the widely spread geographical area in India, direct marketing cannot be easily used to build an extensive national reach and is more likely to be used as a supplementary channel.
* Contributed by -
Tanmaya Mohan Panda, MDI, Gurgaon,
Biswajeet Adhikari, XIMB, Bhubaneswar.
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