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Multi-Level Marketing (MLM) Company : The Much Debated Business Opportunity

This article briefly covers the following key aspects of Multi-Level Marketing (MLM) Company/Business.
  1. Meaning;
  2. Origin;
  3. Synonyms of MLM / Other names for MLM;
  4. Comparison with Pyramid Scheme;
  5. Distributors vs. Consumers;
  6. Joining MLM Company for Career;
  7. Court Rulings;
  8. Advantages;
  9. Disadvantages;
  10. Tips for Successful MLM Business;
  11. MLM Companies around the World.
Multi Level Marketing (MLM) Business Structure


MEANING

MLM is a hierarchical business model, wherein the Distributors are compensated for the sub-distributors they recruit under them and also sometimes for the sales they do.

MLM is a legal form of business.

ORIGIN

The multi-level marketing model of selling products was first introduced and implemented during 
1940s  by a company called California Vitamins (later on renamed as 'Nutrilite') established by  Dr. Carl F. Rehnborg .

In 1934, Dr. Rehnborg had invented a Multivitamins dietary supplement. Back then the concept of Vitamins food supplement was not that popular. Dr. Rehnborg was finding difficult to market his product, which he developed after years of research. So.. then he started distributing and selling the product among his kith and kin. During this period, his wife suggested to engage his own set of sales force for marketing the product. Later on Dr. Rehnborg and two of the main distributors of the company came up with the idea of Multi-Level Marketing model, wherein one can be rewarded with discounts and other benefits if he refers new customer(s). Thereafter, the company started attracting more no. of distributors who can not only sell the products but also recruit distributors for the sale of products and thereby availing various benefits from the company from the sell made by them and their distributors. This model of marketing resulted in a huge success for Nutrilite.


In 1949, Jay Van Andel and Rich DeVos from Michigan, became distributors of Nutrilite and took the market to new heights. In addition to Nutrilite products sale, in 1959, they founded a new company called "Amway", (short for 'American Way'), which was into household products. They implemented the Multi-Level Marketing model for Amway too. The MLM model worked out great for the company and brought much success with huge turnover.

Carl F. Rehnborg passed away in 1973 at the age of 86. In 1994, Amway took over the Nutrilite before which they already had a controlling interest in the company from 1972. Nutrilite is still a part of Amway and is maintained as a separate corporate entity.

SYNONYMS OF MLM / OTHER NAMES FOR MLM

Generally whenever the term Multi-level Marketing(MLM) is discussed, certain other terms which are considered to be equal or equivalent to MLM also pop up into the discussion, but nevertheless some of these terms are many a timeconfused as a similar term as MLM, and whereas in fact they are quite different.

Synonyms of MLM / Same business model as MLM
  • Network Marketing, 
  • Direct Sales, 
  • Referral Marketing,
  • Seller-assisted Marketing Plans
Not synonyms of MLM Different business model
  • Pyramid scheme / pyramid sales plan
  • Ponzi scheme

Multi-level Marketing Vs. Multi-channel Marketing

Multi-level Marketing is quite different from Multi-channel Marketing. Multi-channel Marketing simply means different channels adapted to book sales. These channels can be Print materials, Websites, Physical Stores, Social Networking Sites, Emails, Televisions, etc.



COMPARISON WITH PYRAMID SCHEME

Often, MLM business model is related to pyramid scheme of business, and mostly it is confused to be one and same whereas it is NOT. While MLM business is not considered to be illegal, Pyramid Scheme is considered as illegal and many a countries have specific laws prohibiting the conduct of such business.


Now, let us know what is Pyramid scheme?

In a Pyramid Scheme, the promoters are at the top of the pyramid. Then, they start engaging other persons under them by taking their joining money on an assurance that they will earn money by engaging more and more persons under them and so on and so forth. Though, these businesses claim to be multi-level marketing company, but they mostly miss one of the most important aspect that is - MLM businesses generally also do good business by selling their products and services.

When this chain of people gets bigger and bigger, the earning potential to the early investors/participants become less and lesser. And it becomes difficult for the promoters to handle this big chain of people, but somehow they manage to get their share of fortune. 

Hence, it has been declared as illegal under law in different countries. It is always advisable that whenever you come across this kind of business (a fraud), please report them asap. Let federal authority decide whether business is pyramid scheme or not.


DISTRIBUTORS VS. CONSUMERS

MLM companies mostly target and do more promotions in getting distributors rather than targeting consumers for its products. 

One of the important thing to be noted here is that, in most of the companies in MLM industry, the attrition rate of Distributors is quite high almost more than 50% per year. Likewise it is seen that consumers don't stick around for a long time with their product.


JOINING MLM COMPANY FOR CAREER

"Would you join a MLM company?" Well, you and only you can answer that. But we are going give you  some perspectives based on which you can just think over again to join or not.
  1. Distributor / Salesman - The first and foremost career opportunity that a MLM company can offer you is either to become a Distributor or a Salesman, The suggestion is to go for 'Distributor'. A Distributor enjoys much more benefits than a Salesman. In this article, you will find enough reasons to justify this reason.
  2. Other positions - Apart from being a Distributor or Salesman, other posts really do not possess any kind of big risk unless you are in a very senior position like CEO sort of. There may be one or two things which you may consider before joining. (a) Many a MLM business suffer from bad reputation, so if you a bit of a society conscious person, you rather think twice over this thing  before joining; (b) Job security is another thing to be kept in mind. MLM business runs with a risk of legal threats and comes under strict judicial scrutiny from time to time. So it leads to chances of business gettinshut down by law actionand hence ultimately it leads your job to a risk too.

COURT RULINGS

In re Amway Corp. (93 F.T.C. 618; full name In the Matter of Amway Corporation, Inc., et al.) is a 1979 ruling by the United States Federal Trade Commission concerning the business practices of Amway, a multi-level marketing (MLM) company. The FTC ruled that Amway was not an illegal pyramid scheme, but ordered Amway to cease price fixing and cease misrepresenting the apparent success achieved by the average distributor.

ADVANTAGES : WHAT’S SO GREAT ABOUT MLM BUSINESS MODEL? WHY DOES PROMOTERS GO FOR IT? WHY DO DISTRIBUTORS STICK TO IT?

MLM Business Advantage
  1. Less Operating Costs: The day-to-day operation needs comparatively low amount of investment, as the whole business is manpower centric i.e. recruitment of more 'n' more distributors. Major portion of the expenses are mainly spent on marketing, training of distributors, and other promotional activities.
  2. Less Committed Human Resource: A MLM business's regular employees number is quite less as compared to their turnover, as majorly it engages with distributors. And as its employees number is less, it also lowers the burden of fixed legal commitments towards employees.
  3. Business Expansion (including Globally): MLM business mostly works through word-of-mouth, among family and friends etc, hence, business expansion becomes easier. It doesn't require big branch set-up plans and investments etc. It's easily expandable to different market and locations including globally. Many a MLM businesses are being set-up, keeping in mind, international scale up of business.
Advantages to Promoters
  1. Low Foundation Cost: MLM business generally does not require big chunk of investment as it is mostly "Distributor recruitment" oriented company than a "Products/Services" oriented company where big investment is required on raw materials, plant & machinery, equipments etc.
  2. Risk is less: As the required amount investment is comparatively less in MLM business, this business is considered less risky from promoters point of view. Promoters, initially, with a few capital investment can start off the business and even if the business does not succeed, they have hardly anything to lose.
  3. High Success & Earning: One of the greatest benefits for promoters are that once the business starts to pick up the pace, it's all "PROFIT" for them. They have nothing to lose but only gains n gains. Success is all obvious for them as they get a share out of each distributors that's get added to the organization.

Advantages to Distributors
  1. Unlimited Earning Potential: Unlike an employee of an organisation whose income is mostly limited to his working hours in that organisation plus may be some commissions, incentives etc, a person who becomes a distributor has the chance to earn as much money as he can depending upon the work achievements.
  2. Freedom to work / work-at-home: A distributor is not an employee of the main MLM company. So he has the freedom to work on his own suited time schedule. Whether he sits at home and does the work or goes to the company and carry out his activities, it all is quite flexible. Hardly any restriction.
  3. Personality Development: MLM business is all about 'convincing' people and it involves lot of training & development programmes. Generally, the MLM Companies ensures that their Distributor possesses good personality traits. As such, distributors are automatically getting a platform to not only earn money but also to develop their personality.
  4. Tax benefits: If a distributors opens up his own business establishment (to market and employ more distributors for the MLM company), he can avail the tax advantage as compared to being a tax payer as an individual. Generally speaking, without going into the typicality of taxation laws, an individual pays tax on its total income whereas a business pays tax on its net profit (i.e. income - expenses).
  5. Costs: And of course, as already discussed earlier in the article, the cost factors are very reasonable in MLM business. It's also an advantageous point for a Distributor to set up his own business to promote MLM business.
So, to sum up the whole advantages, it can be said that if you want to be rich in a short period of time, MLM is your destination.


DIFFICULTIES/PROBLEMS IN / DISADVANTAGES OF MLM BUSINESS

A lot more than its benefits, MLM companies have faced enough of unending controversies and great amount of difficulties in their day to day operations. Herein, some of these difficulties are jotted down.
  • Convincing Distributors / A call to Social trouble
    • The whole foundation and growth of MLM business relies upon the greater performance of the distributors. MLM companies tend to pay more and more commissions to the distributors to keep them motivated.
    • Mainly, the distributors are paid compensation in two ways (1) Recruitment of distributors; (2) Product Sales. 
      • Distributors are paid commissions on recruitment of new distributors under them. Though this kind of payment of commissions on recruitment is not allowed under law, as this method is mostly recognised as pyramid scheme. However, the MLM companies
        inevitably continues to promote their distributors with these kind of compensation.
      • Furtherthere are two mediums of commission on sales of products by distributors. (a) Direct sales - sales directly made by the distributors; (b) Indirect sales - sales made by the sub-distributors appointed under the main distributors.
    • It ia well knowfact that the distributor would take the first step towards it's family to sell the product of the MLM company. That means the distributor tries to build the business among the members of family and then friends. And what happens when you introduce business to your social life??!! The answer is "Disaster".
    • Convincing Customers
      • The most difficult part of MLM business is convincing the customer to buy their product. Direct Sales model can be good upto a certain stage (that is as long as market is not saturated) but after that it may badly hurt the sales target and finally become some unachievable endeavors by the sales representatives.
      • MLM Business are mainly dependent on distributors channel and the products bought among their kith and kin. So conclusion is - if you are not related to the distributor, then you are probably not interested in the products.
      • Sales Manpower
        • MLM Companies also face difficulties in finding right number of sales representatives for the product marketing. What is the real cause behind it? It is seen that the MLM Companies generally have a trend of paying lesser amount of commissions to its salesmen and much of its commission goes to the distributors.
        • Human Resource Recruitment
          • First of all the disputed nature of the "MLM Company" makes it difficult for the company to attract talents. In short, people are less interested to join a MLM company which has a history of going into dispute on and off.
          • As to the other very important fact that many a times the human resources (even other than the sales manpower) are asked to attract their family and friends into the business for sale of products, etc. This results in disturbances among family members and friends.
          • So, all in all, you are kind of "biting the bullet".
        • Brand Building
          • Another biggest problem faced by MLM businesses are "bad reputation". Majority of the MLM companies in the past have attracted conflicts in some way or other. So for new as well as old mlm companies, it becomes a tough task to build good brand image among the society.
          • Mostly, these companies have to spend havoc amount of funds in advertisement and promotion for brand building, especially in their initial stage of business.

        SOME TIPS FOR SUCCESSFUL MLM BUSINESS
          Keep aside all the controversies MLM businesses have faced so far, the fact is, there are still a lot of MLM companies who are doing good business and are successful and still continuing to survive and grow and expand. So the question is "Why thes e busine ss are still there in the market and are successful?" Well, here are some answers to it.

            1. Genuine & Ethical Business
              • MLM business's first and foremost success requirement is "being genuine and ethical" factor.
              • Products / Services: MLM business is generally considered to be "Distributor" channel growth centric organisation and products/services are mostly ignored. Hence, it is important that the company also tries to improve the quality of its products/service.
              • Joint Venture/Partnership: Now, as "quality" is important, but in case the Company is not so strong in building or improving the quality factor on its own, it would advisable to partner with any other organisation for manufacturing or trading of its products/service. And it can always concentrate on the "Distributors channel expansion". In that case, both the things will get necessary focus and have ultimate success.
            2. Branding & Promotion
              • MLM has already shadowed in people's mind as a bad business model. Hence it is necessary to change this image from people's point of view and at first establish a good brand image. 
              • Digital media and social media have totally replaced any other media by getting the maximum attention and engagement in it. Hence, the Company must focus and spend more of its budgeted funds on digital, online and social media advertisement to attract attention of prospects and distributors. And ultimately create a good brand image with maximum reach.
              • Prospecting: Prospecting is nothing but looking out for prospects for your business. Now, how effectively you do that is of essence here. 
              • Follow ups - MLM marketing is a bit of a lengthy process in itself as it involves lot of convincing and hence there is a requirement of regular follow up with your prospects. But the follow up needs to be given very gentle and decent approach.
              • Avoid misleading info. : Pyramid scheme is illegal, MLM is not. Let your prospects be clear on this, that you are a MLM company not a company promoting Pyramid scheme.
            3. Compensation/Commission Schemes
              • Well, it is a established practice among various lines of businesses that attractive commission schemes for human resources most of the times pays of pretty well. And sometimes even the improvement in performances are beyond imagination.
              • Also, it is pertinent to note that good talents always expect handsome commissions on the base of their performance. So not paying adequate commissions may lead to more attrition.
              • Hence, there should be attractive commission on sell schemes which are revised at regular intervals and may be given with additional perquisites.
            4. Mentoring
              • Constant mentoring of distributors /employees is very essential. The more time is spent on this the better it would be. It would give a lot of motivation and would act like a refreshing sessions.
              • It would also be advisable to engage specialized coach or mentor for this purpose.
            5. Recruitment / Expanding Network
              • MLM business is all about a large number of recruitments over a period of time. And one has to be careful in choosing the right men at the right time. It'd be advisable to recruit manpower with a good personality, smart, a team player and a socially mixing candidate.
              • Job Security: MLM business has a tag attached to it and that is "there is job security in it". Hence, make sure you explain your prospective recruits how their jobs going to be secure with your company.
              • Go easy on Family/Friends: On a personal note, once you join MLM business, do not start pushing hard on your family members and friends to join your company too. It might not go easy on them and well, things may get worse.
            6. Personality Developments
              • Distributors/Promoters/CEO: Networking / MLM business is considered to be a stylish business. Hence, ensure that while recruiting you choose those kind of candidates only. It is important that the personality of your company's human resource is quite at a higher level as they often come into contact with the prospects /recruits of the company.
            7. Right Approach / Right Pitch
              • Whom you should contact? /Whom you should not waste your time with?: Time is essence in this business. A lot of your time would go into meeting with the prospects and convincing them, hence, before you go and meet them, try to evaluate the situation of that person, would he really join your company? why he may? why he may not?. This would help you save a lot of time which can be spent on persons where your chances are high in convincing them.
              • First impression lasts long:  This is quite self explanatory. Make the best out of your presentation at the first meeting itself. Who knows he may change his mind in the next meeting?!
              • Success Stories/Testimonials: Always, when you approach a person on joining your company, present some success stories about other persons who have joined and grown. Any other written testimonials would also be great.
            8. Creativity & Innovation
              • This is an era of Creativity and Innovation. Most companies have started adapting this culture in their organisation. So it's important that you too encourage this in your business model.
              • Essentially, the Creativity and Innovation circles around the customer satisfaction. Everything that would make your business and its products/services more and more customer friendly (easy to use), including the services to enroll distributors, etc.
            9. Patience
              • Last but not least, the success mantra for MLM business is "Slow and steady wins the race".
              • MLM business is not a business, where you get rich overnight. It takes time build your network and then expand it. And once your network is big enough, it's important to maintain it with good and regular service 'n' relationship with the distributors down the chain.
              • So have some patience, make constant efforts and do not give up in the beginning. Success is far but not an impossible mission.

            MLM COMPANIES AROUND THE WORLD
            • Active MLM Companies
            1. Amway Global - An American company, formerly known as Quixtar North America, is very popular worldwide for its multi-level marketing (MLM) or network marketing. The company sells health and beauty products globally.
            2. Herbalife International - An American company that sells nutrition, weight management and skin-care products globally. Herbalife makes it products exclusively available through Herbalife Members and independent Distributors in more than 90 countries.
            3. Telecom Plus - Based in United Kingdom, Telecom Plus PLC provides a range of multi-utility services (viz. Phone & Broadband, Mobiles & Energy) to residences and small and medium scale businesses. Telecom Plus PLC, is listed on the London Stock Exchange. 
            4. Melilea International - A Malaysian company dealing in health and beauty products worldwide, has been using Network marketing method for sales.
            • Defunct MLM Companies
            1. Metabolife - An American company that was selling dietary supplements. Company got liquidated in late 2006.
            2. Nouveau Riche (Real Estate Investment College) - Nouveau Riche Corporation under its Nouveau Riche University was providing real estate investment education services in the United  States. Nouveau Riche University closed down on December 31, 2010.
            MLM Companies are mostly famous in America, and in other part of the world it is yet to gain popularity, though it is in existence in almost every country.


            TAKE AWAY

            You be the judge and decide whether a MLM Business Model is good or bad. Well, what I think is, it all depends on how the promoter /key management team drives the company. A MLM company, which is incorporated and run with an intent to defraud people in the name of networking with false promises, is bound to bring some grave worries for its distributors.

            At last, it can be said that a MLM company is a genuine company if it sells more than 3/4th of its products to the consumers who are not its distributors.


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