Multi-level Marketing and Networking

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					Multi-level Marketing and
Networking as a Subset of
Direct Selling
Reported by: Freneil I.Reyes
What is Direct Selling?
 refers primarily to the distribution
 It is the marketing and selling products
  directly to consumers away from a fixed
  retail location.
 Modern direct selling includes sales made
  through the party plan, one-on-one
  demonstrations, and other personal
  contact arrangements as well as internet
Two types of Direct Selling

 Single Level Marketing
 Multi Level Marketing
Single Level Marketing
    Rewards the sellers for their personal
    sales activity. They cannot sponsor any
    other distributorship or sales personnel.
    Income comes only in the form of
    commission or bonus.
Single Level Marketing
Multi-level Marketing
   It is a marketing strategy in which the sales force
    is compensated not only for sales they personally
    generate, but also for the sales of others they recruit,
    creating a downline of distributors and
    a hierarchy of multiple levels of compensation.

    In this strategy, the seller recruits other distributors
    or sales people, and also receives commissions and
    bonuses on the sales they make. Downliners are
    necessary to increase the sales force, and thus
    generate a huge number of sales.

   The term "multi-level marketing" emphasizes the
    compensation plan.
Is Network Marketing and Multi-level
Marketing Synonymous?

 Network Marketing and Multi-level
  Marketing are generally considered to be
  synonyms, and a subset of direct selling.
 Network Marketing tends to be modern
  preferred term.
 Other terms are also used, including
  word-of-mouth marketing, interactive
  distribution, relationship marketing and
Multi-level Marketing Setup
 Independent, unsalaried salespeople of multi-level
  marketing, referred to as distributors (or associates,
  independent business owners, dealers, franchise
  owners, sales consultants, consultants, independent
  agents, etc.), represent the company that produces
  the products or provides the services they sell. They
  are awarded a commission based upon the volume of
  product sold through their own sales efforts as well
  as that of their downline organization.
 Independent distributors develop their organizations
  by either building an active customer base, who buy
  direct from the company, or by recruiting
  a downline of independent distributors who also build
  a customer base, thereby expanding the overall
  organization. Additionally, distributors can also earn a
  profit by retailing products they purchased from the
  company at wholesale price.
Multi-level/Direct Selling Companies
 Avon
 Herbalife
 Mary Kay
 Natasha
 Nathaniel
 Sophie Martin
 Red Logo
Common types of direct selling
   Telemarketing - This
    is one of the chief
    direct sales tactics
    prevalent today. There
    are different methods
    used to get your sales
    flowing and also make
    customers happy to
    take your calls.You
    should be very pleasant
    and stay on the point
    while making your sales
     Direct Mail
   This is marketing conducted            E-mail
    exclusively through mail. Direct
    mail may vary in format, but usually   Sales letters
    conforms to standard mailing
    requirements. A direct mail package    Postcards
    includes a letter, brochure or even
    both.                                  Folders
                                           Statement stuffers
                                           House organs

    Direct-Mail Advertising
   Direct Response - This is an advertising
    technique that urges consumers to
    respond in a certain manner, usually to
    buy a product, and also provides them the
    means to do so. A business reply card is a
    direct response tool.
Is Network Marketing a
Pyramid Scheme?
   Pyramid Scheme (illegal scam)
    ◦ A pyramid scheme can be defined as a fraudulent
      money-making scheme that is based on a non-
      sustainable business model that involves the
      exchange of money primarily for enrolling other
      people into the scheme without a legitimate
      product or service being delivered. Eventually the
      number of new recruits fails to sustain the
      payment structure and the scheme collapses with
      most people losing the money they paid in.
   In a more practical sense, probably the easiest
    way to identify pyramid schemes is firstly there is
    no legitimate product or service involved (ie you
    do not get a legitimate product in return for your
    initial investment). The second way to identify
    pyramid schemes is that you do not get a financial
    return unless you have successfully introduced a
    number of new recruits into the pyramid.
    Basically, pyramid schemes concentrate on the
    money that you could earn by recruiting new
    people into the pyramid and generally ignore the
    marketing and selling of any products or services.
What is a pyramid scheme?
•Of course, we are not talking about building structures, but
about people participating in a program who are grouped in
the shape of a pyramid, with a few on the top and many on
the bottom.
Five red flags of a product-based
pyramid scheme

   Recruiting of
    participants is
    unlimited in an
    endless chain
    of empowered and
    motivated recruiters
    recruiting recruiters
   Advancement in a
    hierarchy of
    multiple levels of
    “distributors” is
    achieved by
    rather than by
   Ongoing purchases
    by distributors are
    in order for them to
    be eligible for
    commissions and to
    advance in the
    business (“pay to
   The company
    pays commissions
    and/or bonuses
    to more than five
    levels of
    (Participants are
    not really
    distributors, but
   For each sale, company
    payout for each upline
    participant equals or
    exceeds that for the
    person actually selling
    the product.
   This creates an
    inadequate incentive to
    sell products and an
    excessive incentive to
    recruit a huge
Network Marketing (legitimate,
legal business model)
 The concept behind network marketing is a
  distribution model that allows a company to sell their
  products directly to the consumer. Choosing to use a
  word of mouth approach (networking) instead of
  advertising through traditional streams (eg media).
  Therefore instead of paying the media for advertising,
  network marketing companies are structured to
  reward distributors through commission in return for
  selling their products and finding new customers.
 Therefore the main focus of a network marketing
  company is product distribution. In fact, in a legitimate
  network marketing company, distributors
  are not required to recruit new distributors in order
  to earn a commission, they can earn money purely by
  selling the company’s product.
   Although distributors can choose to sell
    the company’s products to earn their
    commissions, not everybody wants to be
    a sales person and therefore choose to
    recruit more distributors into their
    organization as a means to build their
    referral base. Not only does this create a
    group of loyal customers, it also allows
    you to leverage the efforts of others to
    create a residual stream of income.
Pyramid Scheme                        Legitimate Direct Selling

          Manufacturer                                Manufacturer

                     “Distributors”                          Customers
Why victims of recruiting MLM’s
       seldom complain

   They have been conditioned to blame
    themselves for failing to “work the system.”
                             “I failed.”
   They fear consequences from or to their upline
    (who may be a close friend or relative)
                         “I won’t tell!”
   Lack of enforcement leads to the belief:
   “They must be legal or they’d have been stopped by
    Why People Should Not Join Multilevel Marketing?

   Highly difficult to make a profit    Lack of management control
    (less than 1% make a profit).         systems with sales territory.
   Image problems with public.          Enormous strain on resources:
      High level of rejection and        time and money travel (fuel costs)
       resistance from the public.       Strains personal relationships;
   Time and labor intensive.             leverages personal relationships
   Market saturation of
    products/services; products are      Pyramid infrastructure: does
    commodity-based.                      not work.
   Attrition Rate. Extremely high
    attrition rate.
   Deception. Uses deceptive
    practices to recruit individuals.
   Constant meetings ad nausea.
      MLM’ers must constantly drag
       people to meetings against
       their will.
Split One

Split Two

Split Three

Split Four

Split Five

 Split Six

                Next slide 27
  Pyramid Schemes vs. Multilevel Marketing

Pyramid Scheme                        MLM Characteristics:
  Characteristics:                     The revenue is split between those at
 All the money goes to the top         the top and to the MLM company.
  person in the pyramid.               A direct descendant of pyramid
 Focus on growth through               schemes.
  recruitment of people.               Focus on growth through
 “Robbing Peter to pay Paul.” Pays     recruitment of people.
  initial investors with incoming      Recruitment-centered rather than
  recruits investment.                  product-centered.
 Recruitment-centered rather than     Monitor performance of independent
  product-centered.                     agents
 Require substantial upfront fees     Have buy-back policies in place so
  from people who are recruited.        agents do not get stuck with excess
 Pressure recruits to purchase         inventory.
  corporate products for their own     Low upfront fees to get in.
  consumption or stockpile large
                                       Incessant meetings to attend.
  amounts of inventory.
                                       Pyramid infrastructure.
 Pyramid infrastructure
Thank you