Multilevel Marketing

During our life I guess everyone of us have come across someone who offered us to be a member of business like Amway, Herbalife, Oriflame or RCM etc. or at least use their products. So what’s common between these companies? The answer is a simple, old but controversial business strategy called the Multilevel Marketing or Network Marketing.

 It’s a marketing strategy in which sales force is compensated not only for the sales they personally generate, but also for the sales of other salesperson recruited by them or through them.

Let’s take a simple example to help us understand this better.

 guy recruits 3 guys under him and those 3 guys recruit 3 guys each under them. So the network of the first guy is now consisting of 13 people and each sale generated by the 12 people under him will make his wallet fatter too other than his sales profit. 

During our life I guess everyone of us have come across someone who offered us to be a member of business like Amway, Herbalife, Oriflame or RCM etc. or at least use their products. So what’s common between these companies? The answer is a simple, old but controversial business strategy called the Multilevel Marketing or Network Marketing.

 It’s a marketing strategy in which sales force is compensated not only for the sales they personally generate, but also for the sales of other salesperson recruited by them or through them.

Let’s take a simple example to help us understand this better.

A guy recruits 3 guys under him and those 3 guys recruit 3 guys each under them. So the network of the first guy is now consisting of 13 people and each sale generated by the 12 people under him will make his wallet fatter too other than his sales profit.

Sounds easy. Isn’t it??

Simple business plan, little initial investment compared to a franchisee or a start up and easy, big money. A dream for any person looking to make easy money.

But stats reveal that only 10% of all persons associated with multilevel marketing make money and rest 90% fade away quickly with their dreams.

So let’s look at the drawbacks of this strategy.

A multilevel marketing strategy is based on pyramid schemes which mean the “queen bee” makes the most money and the “working bees” are getting crushed. The salesperson even if he is generating excellent sales numbers, will hardly make significant amount if he has no network or has a dormant network. So, naturally the selling of products takes a back seat as everyone tries to swell up their network. To make a network, a person generally would head towards their friends and families and will convince them to join the group or at least buy the product. And if the relative or friend joins the group and fails to make money or buys the product and fails to see any benefit of the product, the next time they will avoid the person. So in the end, a personal relationship gets strained.

The prices of the products are fixed by the company and they don’t look at the marketing competition because in the end they know that even If they fix a product at double the price, their faithful business members will buy it no matter what. There is a cult like following amongst the group members which results in using only the company products no matter what.

Another way of making money for the “queen bee” is conducting training sessions. These training sessions are conducted at regular intervals, sometimes mandatory and sometimes not mandatory, but the cult like following ensures that more often than not, the members attend these training sessions paying fees. The sessions are aimed at training various business tricks and tricks, get them fired up but in the end the “queen bees” are the ones smiling all the way to the bank.

So is multilevel marketing good or bad?

In the end it all boils down to making money. If a guy is successful, the multilevel marketing is excellent and if he’s not, which is more often than not as the stats suggest, then who is to blame for? The person or business strategy called multilevel marketing?