Multi-level Marketing and Multi-level Marketing and Networking as a Subset of Networking as a Subset of Direct SellingDirect Selling

Reported by: Freneil I.Reyes

What is Direct Selling?What is Direct Selling?refers primarily to the distribution

system.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 sales.

Two types of Direct SellingTwo types of Direct Selling

Single Level Marketing Multi Level Marketing

Single Level MarketingSingle 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 MarketingSingle Level Marketing

Multi-level MarketingMulti-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 Is Network MarketingMarketing and  and Multi-level Multi-level Marketing Synonymous?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 others. 

Multi-level Marketing Multi-level Marketing SetupSetup 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 Multi-level/Direct Selling CompaniesCompaniesAvonHerbalifeMary KayNatashaNathanielSophie MartinRed Logo

Common types of direct selling Common types of direct selling methods.methods.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 pitch.

Direct MailDirect Mail

This is marketing conducted exclusively through mail. Direct mail may vary in format, but usually conforms to standard mailing requirements. A direct mail package includes a letter, brochure or even both.

E-mail

Brochures

Sales letters

Self-mailers

Postcards

Statement stuffers

Folders

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 Is Network Marketing a Pyramid Scheme?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? 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 flagsFive red flags of a product- of a product-based pyramid schemebased 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 recruitment, rather than by appointment.

Ongoing purchases by distributors are encouraged in order for them to be eligible for commissions and to advance in the business (“pay to play”)

The company pays commissions and/or bonuses to more than five levels of “distributors.”(Participants are not really distributors, but buyers.)

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 downline.

Network Marketing Network Marketing (legitimate, legal business (legitimate, legal business model)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

Manufacturer

Distributors

End-User/Customers

Manufacturer

Downline/

“Distributors”

End-Users???

Upline/“Distributors”

Legitimate Direct Selling

Why victims of recruiting Why victims of recruiting MLM’s seldom complainMLM’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 now.”

Why People Should Not Join Multilevel Why People Should Not Join Multilevel

Marketing?Marketing?

Highly difficult to make a profit (less than 1% make a profit).

Image problems with public. High level of rejection

and resistance from the public.

Time and labor intensive. Market saturation of

products/services; products are commodity-based.

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.

Lack of management control systems with sales territory.

Enormous strain on resources: time and money travel (fuel costs)

Strains personal relationships; leverages personal relationships recruitment.

Pyramid infrastructure: does not work.

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Market saturation

Pyramid Schemes vs. Multilevel Pyramid Schemes vs. Multilevel MarketingMarketing

Pyramid Scheme Characteristics:

All the money goes to the top person in the pyramid.

Focus on growth through recruitment of people.

“Robbing Peter to pay Paul.” Pays initial investors with incoming recruits investment.

Recruitment-centered rather than product-centered.

Require substantial upfront fees from people who are recruited.

Pressure recruits to purchase corporate products for their own consumption or stockpile large amounts of inventory.

Pyramid infrastructure

MLM Characteristics: The revenue is split between

those at the top and to the MLM company.

A direct descendant of pyramid schemes.

Focus on growth through recruitment of people.

Recruitment-centered rather than product-centered.

Monitor performance of independent agents

Have buy-back policies in place so agents do not get stuck with excess inventory.

Low upfront fees to get in. Incessant meetings to attend. Pyramid infrastructure.

Thank youFor

Listening….