The Multilevel Marketing (MLM) Concept
The Multilevel Marketing (MLM) Concept. What is Multi-Level Marketing? Multi-level Marketing, or MLM, is a marketing strategy that creates a downline of distributors and a hierarchy of multiple levels of compensation.
The sales force is compensated not only for their sales but also for the sales of the people they help recruit.
- Firms, having a large product base, often cannot employ an equivalent sales force; and believe they would be better off without the traditional approach. Hence, they implement MLM to survive competition from multinationals.
- MLM is also known as Network Marketing because it utilizes a network of individual customers to hit other potential customers. In other words, every individual customer serves as a sales representative.
Multi-Level Marketing Vs. Pyramid Marketing
People often confuse MLM with pyramid marketing; however, there is a very clear distinction between the two approaches:
- pyramid marketing is about getting your money and then using you to recruit other distributors; MLM, on the other hand, is about moving the product through a larger network of distributors so that the business can increase sales volume.
- Another difference between MLM and pyramid marketing is that Pyramid marketing requires each level to DOUBLE before a new level is created so it isn’t fair to people lower down in the levels and is also unethical.
- MLM, however, awards a commission based upon the volume of product sold through its own sales efforts as well as that of the downline organization.
- Since MLM faces the risks of initiating a business that has not been tested by the customers is not recognized, people prefer to wait a couple of years before joining. Hence, they also witness the company’s track record and reliability.
Structure of Multi-Level Marketing
Multi-level Marketing follows a significantly different structure than Pyramid marketing:
- The network is divided into parts comprising of different numbers of people. Some parts of the network may comprise of lesser people because the initiator might not have been able to sign-up more people; however, other parts may have flourished due to a hard-working marketing genius having good resources.
Hence, MLM turns out to be a fairer approach to income generation.
- Growth within Multi-Level Marketing Firms An MLM opportunity, having a wide-spread network, brings greater growth prospects as members become eager to introduce more people.
- Furthermore, those present higher up in the network are encouraged to share their experiences with those subordinating them.
- This is because improvements in the performance of new entrants and subordinates will result in higher profits for the seniors.
- Hence, great income-earning opportunities can be availed out of Multi-level Marketing firms.
- The only key is to select one with a successful product or service; such that you would prefer for yourself.
Understanding the MLM Situation and Opportunities
Multi-level Marketing is a Distribution Revolution.
- The evolution of multi-level marketing has fostered a business paradigm shift that has changed remarkably the traditional ways through which a product was marketed and distributed to the end-users.
- Multi-level marketing has eliminated the need of requiring additional warehouses, wholesalers, and retailers, and advertising budgets making it one of the lowest cost marketing methods.
- Hence this new mode of marketing has freed up a lot of money that was previously being eaten up by huge advertising budgets and these funds can now be utilized by developing better and innovative products.
Scope of Multi-Level Marketing
- The multi-level marketing technique incorporates multiple levels of marketing spreading to masses of potential customers and this is what all companies desire that is to reach a maximum number of prospects.
Especially with the advent of internet marketing, the scope of MLM or Network Marketing has reached the apex.
- Companies in various industries like health care products, beauty and skincare lines, cosmetics, and various others cannot survive in the long run without actually implementing Multi-level marketing strategies especially amid the course of their business.
- Highlighting the scope of Multi-Level Marketing, Michael L. Sheffield, the CEO of Sheffield Research Network, a Direct selling, and MLM consulting firm, in his Direct Sales Journal, issue of Feb / Mar 1999, wrote an article titled “Comp Plan Conversion: Direct Sales to MLM Compensation Plans” in which he maintained that MLM has introduced a paradigm shift in the traditional direct selling business and with the internet revolution the success of MLM companies have raised many folds. He further cited the statement produced by Neil Offen, president of the Direct Selling Association that MLM had gone from 25 percent of Direct Selling Association membership in 1990 to 77.3 percent in 1999.
Multi-level Marketing Opportunities
- Multi-level Marketing is a career of uncountable opportunities and growth prospects in the economy.
- Today multi-level marketing is not only viewed as one of the most cost-effective and efficient sources of marketing and distributing your products and enhancing your sales, profits, and business leads but also it is considered to be a source of employment generation in the economy.
- As more and more people are moving towards e-marketing and e-selling, MLM is creating a buddle of employment opportunities and is considered to be a source of residual income for several people around the world including students, unemployed, and women especially housewives.
- Not only has this, but MLM also offers a variety of benefits to the companies to achieve maximum profits.
Understanding the MLM Model
- As we have discussed earlier that MLM marketing is also referred to as Network Marketing and as the name implies it has multiple numbers of people (and/ or networks) marketing a product to the consumers.
- In very simple words under multiple-level marketing a company employees a sales representative (sometimes referred to as a distributor, an affiliate, or an associate) who performs the following basic tasks,
- Firstly getting customers and generating sales.
- Secondly generating, recruiting, and training other people as sales reps to get customers or generate sales.
- Let’s discuss in detail how the Multi-Level marketing model works?
- Multi-level Marketing Model-The following four-step model will demonstrate how a multi-level marketing model works:
Step I: Sales Representatives gets the customers
- Initially, the MLM Company appoints a sales representative and/or distributor whose primary motive is to sell the product or service to prospective customers.
- The initial number of customers he has to get varies with the company’s plan and commission structure. But it is usually better to get as many customers as the person can retain effectively and can make repeat sales to them.
- Also if your company’s payment structure is more rewarding towards training people to get more customers than as an MLM marketer you should limit your efforts towards getting a few customers first at this stage and then focus on the next stage that is getting them trained to promote sales.
- This strategy is well appropriate for companies who pay you to “duplicate yourself”.
Step II: Train and recruit a person as a sales representative:
- After generating a few customers and making sales to them as done by normal direct marketing or direct sales, a multi-level marketer’s next job is to train a person to act as a sales representative and to convince him to bring more prospects and generate more sales for the company.
- This person would be called you’re downline.
- Here your role is of a recruiter rather than a retailer or distributor.
Step III: You teach the rep to train and recruit another person as a sales rep:
- Once your sales rep gets enough customers at will and generates sufficient sales, it is time for you to train them to get a sales rep.
- Your job as a leader has now multiple dimensions such as generating further sales, training people to become sales reps, and training the sales rep to train future people as sales reps.
- The focus of your efforts will again depend on your commission plan, you as a marketer would off course concentrate your efforts where you can get higher commissions.
Step IV: Repeat the above steps to generate a chain:
- Once you recruit and train your sales rep to train further people and generate more customers, now you can recruit another sales rep and follow the same procedure making a network of distributors within your downline.
- This is the reason why it is called multi-level or network marketing and hence companies through MLM tactics cannot only generate reliable customers but also can get their products and/ or services to masses of people with minimal costs and in a relatively shorter period as compared to the traditional marketing methods.
- The above procedure well explains the MLM model but is it always that easier to get as it appears? Or how is it possible for a company to promote MLM marketing?
A well-designed compensation plan is the only answer to the above questions. In our next chapter,r we will discuss guidelines to develop an
effective compensation plan.