What is multi – level marketing (MLM), also known as network marketing, relationship marketing or team marketing . It is a business model in which services or products are sold through a hierarchical system of representatives or distributors (also known as (sales) advisors). The tiered structure usually involves a predetermined level or level and a predetermined discount amount. This level depends on the size of the realized turnover. Personal Representatives’ income can be increased by selling more products to end users or by attracting more distributors. Because these resellers are also resellers to bind them, a hierarchical network is created. These network systems can be used in many forms by manufacturers or suppliers. There are single stage, binary, single stage and matrix systems.
MLM participants almost always operate entirely on a freelance basis, which means that they are not employed by the parent company, manufacturer, or supplier. Therefore, the participants are self-employed, not employees of the company. The company’s senior management does not assume any legal responsibility towards subordinates. In this way, a large-scale distribution network can be built at a low price to penetrate deeper into the market through word of mouth. Since distributors of a network marketing company often sell products to friends, acquaintances or acquaintances, they enjoy more confidence compared to normal retail sales. For the parent company, the disadvantage of this form of sales is that it has less control over the sales process.
Investment and return
Distributors or consultants pay registration fees at most parent companies, usually in the form of a starter pack (a set number of products for personal use). Typically, an annual renewal fee is required so that inactive participants can be removed from network management. Distributors also purchase promotional materials, such as manuals, presentation materials, and advertising materials, at their own expense. The courses offered by the parent company are usually free. Courses and incentive meetings organized by participants usually reimburse rent and other expenses. In addition, higher-level participants often sell inspiring books and CDs. It is considered unfair to force the purchase of these so-called tool companies.
Compensation takes place in the form of commissions or through sales dividends. Because the selling price to end users or smaller distributors is higher than the price they buy themselves, distributors can make a profit. Sometimes distributors are also rewarded directly for recruiting new distributors, but usually the rewards will not follow until the new distributors generate more sales.
Pyramid scheme vs network marketing
The difference between an illegal pyramid scheme and a legitimate multi-level marketing organization is that the pyramid scheme focuses on recruiting new members / vendors / consultants / distributors. In a legal MLM system, commissions are earned for the sale of products or services to end users. You cannot make money by signing up with potential distributors or consultants. However, commissions can be earned from the sales of recruited distributors or consultants. The concept of fair prices is crucial in evaluating all of these aspects. This means that multi-level marketing organizations and participants must be able to clearly state that their direct or indirect sales to participants are reasonable. But in practice, this transparency is often lacking.
Public Criticism
Despite this distinction , there is criticism of multi – level marketing. Recruitment (RR5) often takes the form of meetings where participants are given little information in advance (” I have something interesting for you , I want you to meet someone “). Often the impression is given that you can get rich quick and that once you have done enough, you don’t have to do anything anymore. Many participants feel than frustrated, but others insist that you must continue to work and it is not for everyone. In this case, it is often about entrepreneurial skills that are required. Having your own business can indeed bring more obligations with it , so you sometimes should work at weekends or at night. This is often overlooked. In many cases, structural benefits are not accrued until after 6-12 months of effort, and earning more than $3,500 per month or higher is only for a few.
Some early distributors make money, but it is not mentioned that most distributors are not making money by the end of the year and have incurred more expenses . In fact, the distributors do the sales work but barely make any money. As a result , many quit. They are being replaced by new distributors (RR3).
In this way, the representatives or distributors are exploited when the chance of quick profit is not offered. This happens a lot. There are special sites like Falseprofits.com and MLMsurvivor.com that are against this. They provide a lot of factual information but also hint that they are not a fan of the industry. The question then is to what extent there is objectivity.
There are many companies that are addressing this and giving new distributors the opportunity to make an immediate profit. However, this means that work needs to be done to help to get network marketing a good name.