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Network Marketing in India-The beginning or the end!Shifali Mandhania, Reader AMSSOI

ABSTRACT:

Networking is an art; with it great things can be achieved, and

without it even smaller things will become difficult to

comprehend.

Network marketing is a general term for a type of marketing thatis usually performed by an individual instead of a company. It

refers to the use of interpersonal or social networks to market

products and services for business purposes as opposed to the

more traditional and common practices of wide-range advertising.

The term is technically a type of marketing that can be used as

part of an overall marketing strategy which may or may not

encompass multiple tactics. For example, the most common

marketing tactic in a network marketing strategy is word of

mouth. As a business venture Network Marketing has taken

different nomenclatures - Multilevel Marketing, Retailing,

Customer Centric, and Relationship Marketing. Many companies

which utilize a network marketing strategy facilitate it with a

multi-level marketing (MLM) compensation structure. Multilevel

Marketing is a genuine form of marketing. There are many well-known, very successful and trusted companies across the world,

which follow this mode of distribution of the products. Network

Marketing has reached at a turnover of approx. Rs. 600,000

crores with the leading markets being Japan & USA. In India too,

the Industry which is less than 10 years old has grown rapidly to

reach a size of Rs. 4000 crores. The India Direct Selling

Association (IDSA) has projected that the network marketing

industry will be around Rs 8000 crores by 2010.Network

Marketing has been a very interesting discussion, with some

totally against the concept due to lack of knowledge. Studies have

shown that consumers often have negative perception of direct

selling organizations and network marketing organizations in

particular. Network marketing needs to be nurtured, tested and

translated in the exact sense as it should be. But often the concept

is misunderstood and hence the ramifications are many. The

negative connotations are more than the positive understanding of

the concept. But the real problem with MLM is not MLM itself,

but some of the people it attracts. This model has often been

misused by fly-by-night operators, thus bringing discredit to the

entire fraternity and to this business model itself. This study is

undertaken to have a better understanding of Network Marketing

and to understand the perceptions of the existing customers.

Several misconceived notions are cleared and the positive

framework is presented here as an educative measure.

I DEFINATION & EXPLAINANATION

Network Marketing, is a business-distribution model that

allows a parent company to market its products directly toconsumers by means of relationship referrals and direct selling.The way it basically works is this: a company sells products orservices via a network of independent distributors. Thedistributor usually pays some sort of joining fee or has to buyX products to gain distributorship status. The company alsourges distributors to bring in other people to act in the samecapacity. The referring distributor then also earns commissionson the products that the referred distributor sells. If thedistributor they referred also brings in other distributors, theoriginal distributor also receives commissions on those sales -and so on. This is the "Multi Level" component. There aresome matrixes which go to 15 levels (or tiers) deep.

Independent distributors develop their organizations by eitherbuilding an active customer base, who buy direct from theparent company, or by recruiting a down line of independent

distributors who also build a customer base, thereby expandingthe overall organization. Additionally, distributors can alsoearn a profit by retailing products they purchased from the

parent company at wholesale price. Hence this system ofnetwork marketing boosts sales and also brings in new andmore marketers by way of existing customers working on

behalf of the company and marketing its offerings + the great business opportunity available with the customer ship.Independent, unsalaried salespeople of multi-level marketing,referred to as distributors (or associates, independent businessowners, franchise owners, sales consultants, consultants,independent agents, etc.), represent the parent company and areawarded a commission based upon the volume of product soldthrough each of their independent businesses(organizations).Most products and services sold via MLM ornetwork marketing aren't available in bricks and mortar stores,

the whole model is built around independent distributorsworking via their network of family, friends and acquaintances.A whole social and business culture is built around the programwith conferences, conventions and training products available -

at a price. The Network Marketing industry is growing at arapid rate. More and more companies are looking at it as aviable method of cutting advertising and distribution costs. Ithas enabled a huge amount of people to start earningsubstantial incomes with low financial investment and,therefore, low risk.

II MERITS OF NETWORKMARKETING

The 45 per cent or more of the margin or markup, whichwas charged by the middlemen, is now given to theconsultants.The consultant gets the product direct from the firm, hencethe material is always genuine. The products will be ofsuperior quality at affordable prices and in appropriate

packs. These products will not be available at retailoutlets; hence there is exclusivity of selling rights. Adetailed computerized monthly statement of accounts,along with the payment is sent to the consultant. Thisstatement also gives the names, addresses and phone nos.of all the consultants in the group. The consultant gets achance to do business without any heavy investment orliability

III TRADITIONAL VS NETWORKMARKETING

In traditional business goods and services move from onechannel to the other with the increase of prices at everychannel. A pen at the point of manufacturing will cost Rs2, thesame pen will cost Rs3 at the whole sale price, while at thedistribution it would cost Rs 4 and at retail it would cost Rs 6.In network marketing the same pen sells to the customer at Rs2 from the manufacturer. a) In traditional business themanufacturer will have to meet all the advertisement costwhether people buy his product or not while networkmarketing works on very simple "word of mouthadvertisement". The manufacturer doesnt need to pay
http://en.wikipedia.org/wiki/Marketing_strategyhttp://en.wikipedia.org/wiki/Multi-level_marketinghttp://en.wikipedia.org/wiki/Multi-level_marketinghttp://en.wikipedia.org/wiki/Marketing_strategy


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irrespective of whether people buy his services and products ornot b) Traditional businesses are faced with counterfeit

products competing with original products hence the producermight compromise the price of the products to compete withthe counterfeit goods, while network marketing one dealsdirectly with the producer of that product or service one wantsto buy. No middlemen or conmen. c) In traditional businessthere is no residual income compared to Network marketingwhereby the compensation plan allows one to earn after

building a large organization d) In traditional business there isless emphasis on personal development, if there is then this istilted to support the growth of the organization not anindividual compared to network marketing where personaldevelopment is a major ingredient to success. e) In traditional

business one will never hear about financial freedom because ifone becomes financially free, he becomes a threat to theorganization, compared to network marketing where financialfreedom is a key success factor in building a large organization

IV CHALLENGES OFNETWORKMARKETING

Network Marketing can be a great business for many, but noteveryone is suited for the business. It takes someone withdetermination, and drive to become successful. That doesntsay that a person cant be trained to become successful, but90% of the people getting into Network Marketing drop out

because they expect overnight success, and without the righttraining and coaching success becomes hard.The following arefew challenges of network marketing :1. Many people jointhese companies thinking they'll get rich quickly and with littleeffort on their part. They envision signing several of theirfamily and friends, and then receiving huge checks. This isn'tthe case, and anyone who joins under these misconceptions,

will quickly become disappointed and quit. 2. The personjoining has no sales or business experience. This is somethingthat can be easily over come, if they're willing to learn theseskills, but this should be brought to their attention in the

beginning so they're aware of it. 3. Because most people who join Network Marketing Companies already have full timejobs, they treat their part-time business like a hobby. Buildingany business requires setting goals, setting aside the timeneeded to actually work for business, and it requires

professionalism. 4. Many times people sign up under a friend,family member, or a co-worker, which is great. But do theyhave any experience building a large, profitable business? Mostof the time NO! This starts a cycle that can go on and on. One

of the most important things a new person can do is find amentor who is active in the company and successful. Learnfrom them and ask them to be the mentor. 5. Some people justget frustrated and give up. It may not always be easy, and itmay not happen as quickly as one would like. One has toremember that Network Marketing, it is not a 'lazy man's' wayof making money. In order to build a successful business, likeany business, one must invest a great deal of time and effortinto it. Many people have 'fallen by the wayside' because theyhave been misinformed (by over enthusiastic recruitmenttactics) about the level of work that is required to generate adecent income. But the fact is that for nearly 50 years , networkmarketing has provided a perfect opportunity to people by

helping them to be self employed to create additional incomeand gain better control of their lives. This innovative method of

marketing has grown into a $ 100 billion industry that includesvirtually every developed country of the world

V NETWORK MARKETING IN INDIAThe development of MLM in India is ascribed to Amwaysentry into this business in 1995. Within a span of three years,the firm had established itself as the largest direct selling

company. Fascinated by the success of Amway a number ofcompanies entered the fray with the same MLM model. Thusmarket saw many well known players like Avon, AMCcookware, Forever living products, Modicare, Tupperware andothers. Apart from these, pyramid marketing companies ormoney spinning schemes masqueraded as MLM companies.And these fake companies caused much damage to the wholeMLM market. Pyramid scheme companies have nocommercially viable product sales base. They require highentry fees and also require to stock large non refundableinventory. Pyramid schemes offer get rich quick schemes,these schemes dont have any viable, long term businessopportunity. Whereas a Network Marketing company offers a

genuine business opportunity, discourage overstocking ofinventory and provide participants leaving the plan with anopportunity to return unused merchandise. The legitimatedirect selling opportunities may be taken up with minimal costsand little or no inventory investment. As India is in disarrayover the lack of MLM laws or guidance, thousands of MLMcompanies which didnt have a stable business model,launched their business with great pomp and show and

projected a stable income pipeline. But in reality, these scamcompanies never cared for the distributors and escaped silentlyand suddenly after collecting huge sums of money. Thedistributors were left in lurch as India lacks regulation tocontrol such companies. The only available regulation is the

Prize Chit and Money circulation banning act of 1978, whichseems ineffective in this context. But one has to understandthat all network marketing companies are not fakes thedistributor should be alert and smart to scrutinize thesecompanies before associating with them. India lacks a clear

policy on Network Marketing, which under a proper regulatoryframework could have given millions with limited means alegitimate tool to earn a decent living and develop marketingand management skills. The situation in India is in sharpcontrast to that in the US, most of Europe and Singaporeespecially as these countries have legalized (and thriving)

Network Marketing industries the global size of the industrywas around $110 billion in 2007 under meticulous, yet non-

intrusive regulatory frameworks. Even China now permitsNetwork marketing by calling it sales away from a fixedlocation although subject to several conditions such asminimum paid-up capital ($6.5 million) for each Networkmarketing firm. Linking compensation to sales would ensurethat properly regulated MLM is not akin to a pyramid scheme,Indian Direct Selling Association (IDSA) said in a recent

presentation to the central government. The legitimate directselling industry in India is clamoring for differentiation

between them and (fraudulent) pyramid/money circulationschemes. IDSA demands legalization of the DS industry.According to it, the correctness of the behavior of the networkmarketing units can be ensured through a few a steps: link

commissions to product sales (not to more recruits as done bychain companies); give direct seller the option to exit after a


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reasonable period with refund; ensure quality of products;obviate inventory loading. In India, currently, provisions ofSales of Goods Act, Consumer Protection Act, and thoserelating to restrictive and unfair trade practices, packagingregulations etc. mutatis mutandis apply to direct selling. It isnot otherwise clear which law whether framed by the Uniongovernment or the states will apply to the network marketingindustry.

VI NETWORK MARKETING POTENTIAL

Data state that the direct selling industry has grown over thelast two decades by leaps and bounds. It has registered agrowth of almost three times, taking sales volumes in 1988from US$ 33.32b to US$ 100b (approx.) as of now, which isclearly demonstrative of the exponential growth potential ofthe industry. Also with the given potential of the industry, thereare immense direct and indirect employment & businessopportunities to come up and benefit millions of peopleworldwide. India with its unique strength of trained and

enterprising manpower offers immense potential for the directselling industry and this has been proved time and again by theconsistent growth of the industry over the past 13 years. Forthe fiscal ended 2006-07, IDSA has over 15 lakh agents underits belt with a total business of over Rs 4,000 crore, includingRs 1,500 crore from selling of insurance products directly.With the entry of reputed players like Hindustan Lever

Network (a HLL co.), LIC and the like, the seriousness in theindustry is getting more & more. Many companies now haveMLM as an important sales tool option on their charts. PShanker, Chairman, IDSA had said that With a population ofone billion, it would not be difficult to say that direct sellingindustry of the county would be anywhere between 10,000 cr

to 15,000 cr by 2012.

VII PRESENT SCENARIO

In United States Direct Selling Association has laid down thecode of ethics for Network Marketing companies. Europe andSingapore have legalized Direct Selling industries. Even Chinahas legalized Network Market companies The over Rs 4,000-crore Indian Direct Selling Association, comprising 16members of domestic and global fame, have sought the Uniongovernments recognition and asked to frame suitablelegislative guidelines to not only protect the industry from

mushrooming unscrupulous and fraudulent companies but alsosave the agents, customers alike from debt trap and financiallosses. In order to safeguard the common public in general andthe industry in particular, the Centre should take stock of thealarming situation and come out with suitable guidelines,thereby not only regulating the industry in a more organisedmanner but also bringing the culprits to the book. The industryis looking forward towards the government of India andindustry to come up with a proper legislation in form of aDirect Selling Act in the country, so as to properly organizeand regularize business in this sector. Also such legislationwould boost healthy competition and eliminate incompetent &fraudulent players and promote level playing field in theindustry. This would also remove the negativism in the societyabout MLM companies

VIII CONCLUSIONIf one compares the size and magnitude of the global NetworkMarketing industry with that of Indias, it is very clear that theindustry needs policy support, in the form of removal of the

regulatory ambiguity. There are over 3,500 companies globallythat use only Network marketing for sales, with 61 milliondistributors aggregating sales of $110 billion. In comparison,Indian Network Marketing industrys turnover is just about Rs2,500 crore (excluding insurance product sales) with 15 lakhdistributors. Obviously, there is a lot of potential foremployment in the sector provided the most importantsafeguard no payment unless product is sold is in placeand a proper legislative framework for these companies.

References[1[1]FEDSA (World Federation of Direct SellingAssociations), IDSA (Indian Direct Selling Association) andHLN (Hindustan Lever Network).[2]Multilevel Marketing Be Alert,Be safe- Article in ICFAIMarketing Mastermind[3]Exploitation of relationships Myth or Reality?Geevarghese K. Mathews, Dr. James Manalel, Siby Zacharias[4]One Stop MBA Forum Network Marketing an insight intoits Indian pe.[5]Economic times article:Remove_policy_ambiguity_on_direct_selling_industry


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Discussions:

1. Regulations pertaining to Network Marketing indeveloped countries?

In United States Direct Selling Association has laiddown the code of Ethics for Network MarketingCompanies. Europe and Singapore have legalizedDirect Selling Industries. Even China has legalized

Network Marketing Companies.

2. Examples of successful Network Marketingcompanies in India.

A dominant player and market leader in the fastmoving consumer goods segment, HLL forayed intodirect marketing in 1999 with a premium brand of

personal care products for women, with women

acting as consultants.

Modicare was created in 1995 as the largest and theonly Indian MLM company in the country.Operations started in March 1996 with a portfolioof 12 products and 300 distributors

The Tupperware Company entered India inNovember 1996. It started its operations from NewDelhi. It appointed 15 distributors in the first 12months itself

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