An Objective Analysis of Network and Multilevel Marketing
Even though the object of a good retirement program is to quit working, without a doubt, the best way to get to the point that you can just live off of your investments is to work your way to that point. As a matter of fact as I talk with others about beginning a retirement program, the one objection that I hear most often is that families don't have enough to even start a retirement program. But retirement programs don't have to be started with money, just one alternatives is the all important home business. Ah, another mystery? Then the questions turn to, "What kind of home business can I do? How do I sell my products? How do I get products that sale?" For someone just starting out, I will usually say two things, find something in a field that you are already interested in, and possibly consider multilevel as a marketing method.
Multilevel or network marketing is a way to expand your sales beyond your natural reach. However, miss-understandings of this marketing strategy is so prevalent that when someone hears the word multilevel, they turn to their misinformation for a knee jerk response of "oh this is some kind of a pyramid scheme". This is a clear case of "a little knowledge can be dangerous", dangerous to your ability to increase your family's financial success, and to your ability to establish a retirement program. Network marketing is one of the easiest and least expensive ways to start a home business for your retirement. But to understand the system, we need to set the record straight on what it is, and what it is not.
First and foremost, these are marketing systems, a way to sell products. There is nothing wrong with selling something. The ability to sell is what has made capitalism the singularly most successful system on the planet. The only thing asked is that the method of marketing be ethical and respective. In other words, 'don't be pushy'. We will cover more on how to make your marketing efforts more effective later, but lets first look at what network marketing is not.
Back in the late 1940's and 1950's people were looking for a way to make money. World war II was recently over, and the soldiers came home to restart their lives. Many needed to find work for some kind of an income. There are always unscrupulous people that are ready, willing and able to take advantage of other people's misery. People were invited to "join the club". To get in, you would have to pay $500 dollars or some amount like that. You paid $100 to the person that invited you in to the club, and another $100 to the person that sponsored him in and so on up some number of levels. The only thing that you got for your money was a pat on the back and the right to scam someone else with your sponsors blessing. This is what was called a pyramid scheme because there was an ever expanding lower level. But who would fall for this? Well, it was so prominent that we are addressing the fall out of this flimflam operation fifty years later.
It wasn't new, Charles Ponzi who through his operations in the 1920's coned unsuspecting folks out of millions by using new investors deposits to pay the interest of depositors that had started with him earlier on. When the earlier depositors were actually paid, and quite well at that, they went and told their friends who then became victims of Ponzi. Look in today's news and read about Bernard Madoff's similar investment scam and you can see how easy it is to be taken by these kind of frauds. The pyramid scheme is nothing more, it's a fraud. But for every fraud, there is a genuine article. No one would buy a false diamond except for the value of the real ones.
What Ponzi and Madoff discovered was the natural nature of people to share their knowledge and good fortune with others, and because of who these two were, how to exploit that good nature.
There isn't anything good that criminals can't use for evil. But sometimes, the things that were used for evil can also be used to do good. Here's an example, in 1959 two friends from Michigan began to market a liquid soap by paying affiliates a bonus based on volume. This wasn't new but they allowed the affiliates to hire other affiliates and based the bonus on the groups total sales, and multilevel marketing was created.
An affiliate is someone who doesn't work for your company, but sells your company's products. Out sourcing sales is almost as old as business itself. There isn't a product of any kind that exists on this earth that doesn't have some method of marketing. The benefit of multilevel marketing was that a sales person has more influence with people that they know, and if the people that they know and sell to wants to also cash in on this type of marketing then the sales people and the company can cash in on their influence of others as well. Now we are coming closer to the ethical question, are you selling a product, or buying your down-line's personal influence? Is the product a better option for the end user, or is he paying more for what he gets because the salesman is his friend?
Multilevel is an older version of network marketing. With multilevel, you would buy products by the case from the company, and act as a distributor by reselling those products at the wholesale price to those under you. In fact, members of multilevel structures are usually referred to as distributors. They get a bonus at the end of the month for how much products that flowed through them. From that bonus, the distributor would have to pay the distributors that he supplied products to in the form of a bonus as well. If there was only one bonus percentage times the amount of sales, no one would sponsor any other distributors, as the new distributors would be just competition and there would be nothing in it for the lead distributor. When Amway began paying an increasing percentage of bonus based on the volume of products sold by a distributor, then it became worth while for a distributor to hire and train, not competitors, but down-lines, part of his organization.
Multilevel distributors actually bought and resold products and had those products in their inventory for some length of time. The result was that novice businessmen had ended up with a garage full of product and no where to sell them. To remedy this obvious negative aspect of multilevel marketing, companies began to ship products directly to the end salesperson and even directly to the end users. Since distributors were not directly handling the products and they didn't have to pre-purchase anything, the company's sales were a result of the business of the network as a whole. Much of the bonus structure was the same which was based on the volume of sales but you didn't get your bonus check from your up-line, it came from the company. This structure where every distributor is dealing directly with the company is considered network marketing, and it was made possible because of the increased efficiency of the mail, and the expansion of private delivery services like UPS. Also, computers began to make their presence known which made it a lot easier to keep track of thousands of individual sales people. The name distributor was still carried over from multilevel marketing, but the term really no longer applied.
Network marketing fixed one problem but created another. When distributors were purchasing cases of product, they had an excess of inventory, someone always had product so there was very little back order. With network marketing, the company had to carry inventory but didn't want to end up with more than they could sell so they watched how much product they made. This then resulted in a lot of back orders and unfilled orders. Since the product prices tended to be on the high side to compensate the affiliates multilevel bonus structure, sales began to taper off as buyers began to purchase their products from the more traditional suppliers that were able to reduce their cost by purchasing in larger volumes.
In the 60's Amway was taken to court to see if they were in fact a disguised pyramid system. The premise was that since their product costs were so much more than traditional marketing costs, was the extra cost really just to pay the up-line bonuses and not really part of the real cost of doing business? Amway showed that they were actually combining a product with a more expensive and convenient distribution service, and therefore the extra cost was warranted. The courts looked at the evidence and agreed. Since that time, it has generally been accepted that this was a legitimate type of marketing and its legality no longer questioned.
Of course there were still some folks that didn't understand how to do business properly and would invite friends over to a birthday party that ended up being a sales meeting. The question of integrity was still a problem. The courts did order that when proselyting for new sales peoples, the company had to include what the real probabilities of return were, and not just the possibilities. That had a dampening effect on growth as the average person was making only a small amount per month for their efforts. Plus there was monthly minimums or membership fees that the sales reps had to cover out of pocket. It didn't take long for the new sales staff to realize that they were not making any money and dropped out, leaving a bad taste for the whole system.
Much of the problem was that everyone that had a product to sell was jumping on the network bandwagon, but the fact that not all products work well with multilevel or network marketing was never even considered. In a nutshell, products that are not used up and reordered monthly, or in some equally short duration, is not a good candidate for multilevel/network marketing. No experienced marketer would ever consider trying to use a multilevel marketing structure to sell cars. Big ticket items require a professional sales staff, and the home business just can't give that level of expertise on those types of products, plus, you just don't need a new car every day. The products need to have a readily perceived need. Water purifiers fail to do well with network marketing, not just because you don't buy one often enough, because there is an ongoing demand for the filters, but because the perceived need isn't that great. People have to be shown that they have a need and that the company's product is the best answer to that need. Again, this type of product requires a well trained and professional salesman to represent it. Professionals of that caliber require a much higher compensation package than you would find in the small home business.
So what does work well? Small lower priced home products. The company that does the most research in health products world wide, even doing more than the next two companies together is Shaklee Corporation. This company started back in the 40's with vitamin sales but added the multilevel aspect to its marketing in the 1960's. Their sales and product volume took off, and they still use that same structure today. Amway is still going strong and has also become a world wide corporation. But as many success stories as there are, there are more companies that have gone belly up trying to use this method. Until they find a way to keep their sales staff from dropping out because of a negative financial experience, there will always be an up hill fight for the network marketing company.
The difference between network marketing and affiliate marketing systems is how the marketing affiliates are paid. If the company recruits affiliates directly and pays them for only for the sales that they do personally, then it is said to be a standard affiliate marketing system. Since the affiliates don't personally know all that many people they use other methods to get their message to the general public. Sometimes they use traditional advertising methods such as advertising and promotions but with the almost universal access of the internet, these affiliate marketer can barge right in on your forums, e-mails and even hijack web pages. If a person has an ethics problem, it doesn't matter what system of marketing they take advantage of. Bad behavior is bad behavior, and no one wants to do business with this type of person. With network marketers, pushy sales people are simply avoided, we have not yet learned how to do that on the internet.
There is a new hybrid system that combines the best aspect of affiliate and network marketing, which is called a multilayer referral system. This system combines a number of marketing concepts in a way that limits the negative side effects of the stand alone systems. To do this, the multilayer referral system would need to:
a) reduce the product cost to equal or less than the price of other marketing systems
b) eliminate monthly or yearly dues and or mandatory inventory purchases of referrers
c) make the system keep from losing the affiliates.
d) keep the affiliates from being too pushy and eliminate the temptation to use unethical means of sales or recruiting down-lines
This is a tall order, and just like multilevel and networking marketing systems, it is not good for all products. A multilayer system differs from the others by being able to generate income from other outside sources without the direct contact of the marketer after the initial sale. A consumers club would be one such type of business that might use a multilayer referral structure. The system would be based on referrals as apposed to sales. Since it would not make good business sense to sign someone up that wasn't purchasing anything, the initial purchase would be all that is required to get into the system.
Lets consider a utility company that sells electric. Everyone knows what electric is and that they need it. They would need to repurchase the electric monthly as it is used up. So far their products fit well with multilayer system. The sales person would not need to recontact the user to get them to buy more electricity. There would not be any requirements on the part of the marketer to sell a minimum amount of electricity each month or pay dues to be a member. The customer is getting his product, electricity, in exchange for his payment, but let's throw in one more twist. Let's also assume that the power company could pre-sale the electricity so that the customer is paying the cost upfront for the whole year. The company uses this money to make needed upgrades to the system without having to borrow from the bank, saving it money. They then pass some of this savings back to the customer. The affiliate would get paid each month, not from the usage but from the advertising costs, they could separate the affiliate referral fees to pay the affiliate that directly brought in the contract plus the person that recruited the direct affiliate and maybe even the one who recruited him.
Now there aren't a lot of businesses that can offer this type of system, but they do exist. Personal Investor Plan uses this type of referral system to help their members prepare for retirement.
To be part of the system a member would only have to make an initial purchase. They could then refer others. The company puts 100% of the sales price from the sale of their investment robots into the company's account from which it uses the profits to pay rebates back to the customer, reducing the customer price, and paying the referrals to the affiliate staff. Typical professional affiliates require anywhere from 25% to 50% of the sales price, but by taking their referral over time, the company is able to actually pay more than the product price. If the company pays out 25 percent of the purchase price then that money is gone out of the system and can not be used by the company, but if they pay out 25% of their profits from their investments at 5% per layer of recruited affiliates, then they would eventually make as much as 25% of the sales, but also 5% on the profits from 5 layers of affiliates.
Without an additional cost, why would down-line referrers drop out. Unethical behavior would be grounds to lose the on going referrals, unlike the one time referral payment that might be paid out before the news of unethical behavior came to light. No customer is required to refer anyone else but is compensated if they do. If the company's investments should crash, the only one who loses is the company because the customers already have their product and probably some rebates as well.
If you are considering a network, multilevel, or multilayer marketing program for your company, or to become part of any of these types of marketing systems, here are the basics. Other than buying a product, one that you can use even if you decide not to do this business, don't pay to have the opportunity to belong. You are performing a service, they should be paying you. If you are required to purchase products other than what you would use yourself to remain active; they are marketing to you, not you to the end user. Some products don't do well with these types of systems. Stay away from any that doesn't have a good repeating periodic income or those that are too expensive compared to the market. The products should be ones that have a real recognizable need, they should be of good quality and price. Vitamins, home cleaning products, personal products like health and beauty aids and cosmetics are traditional mainstays of the home affiliate business. There are also service and money making programs like low cost insurance (AM Best), discount legal services, or retirement programs like PIRC (marketing club for PersonalInvestorPlan mentioned earlier), that have done well with multilayered referral systems.
All and all, there are so many variations that it would be difficult to say that any one system is good or not, but to assume that a product or system is bad because there have been those that misused it, is probably going to hurt you more in the long run than taking your time to evaluate programs individually.
What we do know that works with every business is to put yourself in the shoes of the end user. Are you getting more for your money by doing business with this company than not? This is one of the fundamental precepts in Wallace Waddle's book 'The Science of Getting Rich', give more to your customers than you ask in payment. If they have a good experience with your company and you impress them with the added quality and quantity of your service, you will not have to be out looking for, and spending good money on, replacing your customers. It is easier to keep them than to get new ones.
You may be the best widget maker in the world but if you are not all that strong with sales and marketing, find someone who is. Don't rely overly much on super affiliates that have large lists. They got those large lists by offering a deal to some other affiliate so the same names end up being on many lists, and those customers get hammered every day by new and better offers from a whole group of professional affiliates. They may be a good way to get started, but it is really tough for a new company to get their attention. Most affiliate marketers won't even reply to your e-mails. If you have a good product, find a way to make your customers your affiliates. They won't have the 100,000 name lists but they are more believable because they actually use your products. Never assume that your customer is out talking about your company. The so called word of mouth advertising is just a delusion and wishful thinking on behalf of business owners. Even if a customer is talking about your business, they may be saying all the wrong things.
Without a doubt, the best way to generate enough money to retire on is to create your own small business that you work from home in your spare time. Do this just to generate money for your investments, then it won't matter how much you make because the effects are additive. Just put all of your profits into your retirement program and you will be head and shoulders above everyone else. And who knows, your home business company may in time grow big enough to take over your current living expenses as well, it's been known to happen. The easiest way to get started is to work with some one who has already set up a profitable business and wants to expand. That is what we call, an opportunity.
Bob Llewellyn, the Forex-Assistant, is a Research Specialist, and contributing member to the rel=nofollow
http://www.PersonalInvestorPlan.com
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http://EzineArticles.com/?I-Hate-Sales,-What-Kind-of-Business-Can-I-Do,-and-Make-Money-at-It?-An-Objective-Analysis&id=5883022] I Hate Sales, What Kind of Business Can I Do, and Make Money at It? An Objective Analysis
