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

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

• Reported by Freneil I.Reyes

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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.

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Two types of Direct Selling

• Single Level Marketing
• Multi Level Marketing

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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.

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Single Level Marketing
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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.

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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 others. 

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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.

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Multi-level/Direct Selling Companies

• Avon
• Herbalife
• Mary Kay
• Natasha
• Nathaniel
• Sophie Martin
• Red Logo

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Common types of direct selling 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.

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Direct 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
Sales letters
Postcards
Folders
Brochures
Self-mailers
Statement stuffers
House organs
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• 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.

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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.

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• 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.

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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.

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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

Red flag 1
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Red flag 2

• Advancement in a hierarchy of multiple levels of
  distributors is achieved by recruitment,
• rather than by appointment.

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

Red flag 3
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Red flag 4

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

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Red flag 5

• 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.

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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 companys
  product.

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• Although distributors can choose to sell the
  companys 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.

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Pyramid Scheme
Legitimate Direct Selling
Manufacturer
Manufacturer
Upline/Distributors
Distributors
Downline/ Distributors
End-User/Customers
End-Users???
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Why victims of recruiting MLMs 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 wont tell!
• Lack of enforcement leads to the belief
• They must be legal or theyd have been stopped
  by now.

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Why People Should Not Join Multilevel 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.
• MLMers 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
Split One
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Next slide
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Pyramid Schemes vs. Multilevel Marketing

• 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.

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• Thank you
• For Listening.
• ???