Multi-level marketing ( MLM ) is also called pyramid sales , network marketing , and referral marketing is a marketing strategy for selling a product or service in which MLM company earnings come from non-salaried workers selling the company's products/services, whereas participants' income comes from a pyramid-shaped or binary compensation commission system.
Although each MLM company dictates its own specific "compensation plan" for any revenue payments to their respective participants, a common feature found in all MLMs is that the compensation plan theoretically pays to participants only from two potential revenue streams. The first compensation flow can be paid from the sales commissions made by the participants directly to their own retail customers. The second compensation flow may be paid from commissions based on sales made by other distributors under participants who have recruited other participants to MLM; in the MLM organization hierarchy, these participants are referred to as distributors of "downline" of a person.
Therefore, MLM sellers are expected to sell products directly to end-user retail consumers through referrals and word of mouth marketing, but most importantly they are given an incentive to recruit others to join the company as a fellow seller so that it can become i> they downline distributors. According to a report studying the 350 MLM business model, published on the Federal Trade Commission website, at least 99% of people who join MLM companies lose money. Nonetheless, MLM functions because downline participants are encouraged to stick to the belief that they can achieve great results, while the instability of these statistics is not emphasized. MLM has been made illegal in some jurisdictions only as a variation of traditional pyramid schemes, including in mainland China.
Video Multi-level marketing
Business model
Flow of revenue
In the MLM business model, commissions derived from the MLM pyramid-shaped structure (ie from one's recruitment sales) are the most profitable revenue streams. This revenue stream, however, is also the least statistically possible source of remuneration for a salesperson. In contrast, the income stream from direct sales from personal sales alone is the most unfavorable. This revenue stream, however, is also statistically the most likely source of remuneration for sellers. For the majority of participants, however, none of these two streams of income will be profitable after deducting operating costs.
Benefits and losses of participants
The majority of MLM participants (most sources estimated at more than 99.25% of all MLM participants) participate in either nil or insignificant net income. Indeed, the largest proportion of participants should operate at a net loss (after deducting costs) so that some individuals at the top level of the MLM pyramid can earn their significant earnings - earnings that are then stressed by MLM companies for all other participants to encourage their continued participation with financial losses that is sustainable.
Consumerism of participants
Consumers of an MLM product/service company can, in theory, only be the end-user retail consumer. The end-user retail consumer is a non-participant of the MLM company, with their relationship with MLM companies becoming nothing more than in the capacity of consumers. However, in actual practice, most consumers of MLM products/services are participants. They are "salespeople" in MLM who have been recruited by fellow participants who are placed above them in the structure of the MLM pyramid.
The total income and profits of MLM companies are thus largely generated from the pockets of participants in the MLM pyramid that simultaneously both sellers and consumers altogether. Only a small fraction of the revenue and total non-significant earnings derived from non-participant retail consumers who are outside the MLM participating pyramid. Many MLM companies will not disclose what percentage of their customers are simultaneously from their own participants. Other MLMs do not store these numbers because they do not distinguish between participants' consumerism versus non-participant retail consumerism.
Distribution of profit to participants
It is important to distinguish between MLM companies themselves versus what is called an "independent business" run by MLM participants. Many MLM companies generate billions of dollars in annual revenue and hundreds of millions of dollars in annual profits, however, the overall profitability of MLM companies is not correlated with the profitability experience of their participants.
The percentage of total profits of an MLM company that is eventually distributed to its participants (salespeople), away from MLM owners or shareholders, differs from one MLM company to the next. However, the percentage allocated to the payable to a participant is usually a smaller portion of the company's overall earnings. The allocated figure is then distributed in a complex compensation plan which, in turn, transfers most to some of the top-level individual participants of the MLM participating pyramid. Most participants (often more than 99.5% or more) do not receive any returns, or refunds that are overlooked more often than not net loss after they deduct the costs incurred in their "independent business" promotion.
Participant movement
While the movement of participants up the pyramid of MLM can be achieved in theory, and indeed this is one of the factors that distinguishes between MLM and traditional pyramid schemes (besides displaying actual product or service sales), saying upward movement is highly unlikely because to make it practically impossible, regardless of all the effort and investment of time and money by a participant.
Financial losses of participants, corporate financial benefits
The end result of the MLM business model is, therefore, one company (MLM company) sells its products/services through non-salaried labor ("partners") working for MLM companies on the basis of commission only partners simultaneously constituting the majority of very consumer product/service MLM companies that they, as MLM participants, sell each other in the hope that one day they are at the top of the pyramid. This creates a big advantage for the owners and shareholders of an actual MLM company.
As noted, many MLM companies generate billions of dollars in annual revenues and hundreds of millions of dollars in annual profits. However, MLM company earnings stem from the loss of the majority of employees of non-salaried companies (MLM participants). Only a portion of the profits are then significantly distributed to none but several individual participants at the top of the MLM participating pyramid. The earnings of some of the top participants then allow the creation of an illusion of how a person could potentially become financially successful if someone becomes a participant in MLM. It is then emphasized and advertised by MLM companies to recruit more participants to participate in MLM with false anticipation to earn margins that are in reality only theoretical and not statistically possible.
Although MLM companies have extended some of the top individual participants as evidence of how participation in MLM can lead to success, the reality is that the MLM business model relies on a majority failure of all other participants, through cash injections. from their own pockets, so it could be the income and profit of MLM companies, where MLM companies only share a small portion to some individuals at the very top of the MLM participants pyramid. Participants, in addition to some of the above individuals, are no more than their own financial losses for the benefit of the company itself and the benefits of some of the top participating individuals.
Financial independence
The main sales pillars of MLM companies to their participants and prospective participants are not the products or services of MLM companies. Products/services are mostly devices for MLM models. Instead, the actual sales promotion and emphasis is on trust given to participants of the potential for financial independence through participation in MLM. This is called "selling a dream".
Although the emphasis is always made on the potential for success and positive "possible" or "possible" life changes (not "will" or "can") results, it is only in otherwise difficult to find disclosure statements (or, at least, read and interpret disclosure statements), that MLM participants are given a fine print rejection that they as participants should not rely on other participants' revenue results at the highest level of the MLM participant pyramid as an indication of what they expect to earn. MLM very rarely emphasizes the possibility of extreme failure, or the possibility of extreme financial loss, from participation in MLM. MLM also rarely comes about the fact that the significant success of some individuals at the top of the MLM participants pyramid actually depends on the financial losses and the failures of all other participants under them in the MLM pyramid.
Differences and similarities with pyramid schemes
MLM has been made illegal in some jurisdictions only as a variation of traditional pyramid schemes, including in mainland China. In jurisdictions where MLM has not been made illegal, many illegal pyramid schemes seek to present themselves as MLM businesses. Given that the majority of MLM participants can not realistically generate net income, let alone significant net profits, but on the contrary operate at a net loss, some sources have defined all MLMs as pyramid schemes, even if they have not been made illegal like traditional pyramid schemes by law - legislative legislation.
MLM is designed to generate profits for the owners/shareholders of the company, and some individual participants at the top level of the participating MLM pyramid. According to the US Federal Trade Commission (FTC), some MLM companies are already illegal pyramid schemes even by the more narrow laws that exist, exploiting members of the organization. There are calls in different countries to extend existing anti-pyramid schemes legislation to include MLMs, or to enforce certain anti-MLM laws to make all MLMs illegal in parallel with pyramid schemes, as has been done in some jurisdictions.
The legal distinction between MLM and traditional pyramid schemes has been marked by many authorities as legal fictions. Jurisdictions that maintain the legal distinction between the MLM pyramid business versus the illegal pyramid scheme maintain word differences on two major differentiator features: 1) that MLM always includes the actual sale of products/services, while traditional illegal pyramid schemes usually do not (though sometimes they do) , and 2) that climbing an MLM pyramid is highly unlikely statistically (especially for the highest participants level) but not theoretically impossible, while climbing illegal pyramid schemes is traditionally not possible statistically and theoretically.
Employment law
MLM sellers are not employees of MLM companies. Participants do not earn salary/wages, and participants also do not receive remuneration from MLM companies for labor and fees invested in their "independent business" MLM. Participant income, if any revenue is made, only comes from commissions on their personal sales or their share of commissions on their personal downline sales (MLM compensation structure).
As non-employees, participants are not protected by legal rights from the provisions of labor law. Instead, sellers are usually presented by MLM companies as "independent contractors" or "independent business owners". However, participants have no business in the traditional legal sense, as participants have no real business assets or intangible good business that can be sold or bought in the sale or acquisition of a business. It belongs to the MLM company.
Maps Multi-level marketing
Direct sales versus network marketing
"Network marketing" and "multi-level marketing" (MLM) have been described by writer Dominique Xardel as a synonym, by becoming a direct selling type. Some sources emphasize that multi-level marketing is just a form of direct sales, rather than being direct sales. Other terms sometimes used to describe multi-level marketing include "word-of-mouth marketing", "interactive distribution", and "relationship marketing". Critics argue that the use of these and other different terms and "keywords" is an attempt to distinguish multi-level marketing from illegal Ponzi schemes, chain letters, and consumer fraud scams.
The Direct Selling Association (DSA), a lobbying group for the MLM industry, reports that in 1990 only 25% of DSA members used the MLM business model. In 1999, this has grown to 77.3%. In 2009, 94.2% of DSA members used MLM, accounting for 99.6% of sellers, and 97.1% of sales. Companies like Avon, Electrolux, Tupperware, and Kirby are all one-tier marketing companies, using a traditional and non-controversial direct selling business model (different from MLM) to sell their goods. However, they later introduced a multi-level compensation plan, becoming MLM. DSA has about 200 members while it is estimated there are more than 1,000 companies that use multi-level marketing in the United States alone.
History
The origins of multi-level marketing are often disputed; but a multi-level marketing business existed in the 1920s, the California Company of the 1930s Vitamins (later named Nutrilite) or California Perfume Company (renamed "Avon Products").
Settings
Non-independent payers, referred to as distributors (so-called "partners", "independent business owners", "independent agents" etc.), are authorized to distribute the company's products or services. They are given their own direct retail benefits from customers plus commissions from the company, not the downline, through multi-level marketing compensation plans, based on the volume of products sold through their own sales efforts as well as their downline organizations.
Independent distributors develop their organizations by building an active consumer network, which buys directly from the company, or by recruiting independent distributors that also build a consumer network base, thereby expanding the organization as a whole.
The number of members recruited from this cycle is the salesperson referred to as the "downline" of the seller. This "downline" is a pyramid in a multi-level structure of MLM compensation.
Assuming the individual blue recruits five, and five recruits their own five, and so on, the maximum theoretical cycle of possible recruitment in the "downline" of the blue individual is 14 cycles (5 14 = 6.1 billion people), after which the total human population is exceeded.
Income level
Some sources have commented on MLM or MLM income levels in general:
- The Times : "The Government Inquiry claimed to have revealed that only 10% of Amway agents in the UK make a profit, with less than one in ten selling one item from a product group."
- Eric Scheibeler, a member of the high-level "Emerald" Amway: "Justice Norris UK found in 2008 that of the IBO [Independent Business Owner] population of 33,000," only about 90 earn enough income to cover development costs actively. their business. 'That is a 99.7 percent loss rate for investors. "
- Newsweek : based on Mona Vie's 2007 income disclosure statements "less than 1 percent qualify for commissions and from them, only 10 percent earn more than $ 100 a week."
- Business Students Focus on Ethics: "In the US, the average annual income of MLM for 90% of MLM members is no more than US $ 5,000, which is far from being sufficient to earn a living ( San Lian Life Weekly 1998) "
- USA Today has several articles:
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- "While earnings potential varies by company and sales capabilities, DSA says the average annual income for those in direct sales is $ 2,400."
- In the October 15, 2010 article, it was stated that an MLM document called Fortune Hi-Tech Marketing revealed that 30 percent of its representatives did not make money and that 54 percent of the remaining 70 percent only earned $ 93 per month, before cost. Fortune is being investigated by the Attorney General of Texas, Kentucky, North Dakota, and North Carolina with Missouri, South Carolina, Illinois, and Florida following up on complaints against the company. The FTC has finally stated that Fortune Hi-Tech Marketing is a pyramid scheme and checks worth more than $ 3.7 million are being delivered to victims.
- The article February 10, 2011 states, "It can be very difficult, if not impossible, for most individuals to make a lot of money through direct sales of products to consumers, and the big money is what pitches often recall."
- "Roland Whitsell, a former business professor who spent 40 years researching and teaching the traps of multilevel marketing": "You will find it hard to find anyone who earns more than $ 1.50 per hour, (t) The strongest and most powerful strength of motivation today is false hope. "
Legality and Legitimacy
United States
MLM businesses operate in all 50 US states. Businesses can use terms like "affiliate marketing" or "home business franchises". Many pyramid schemes attempt to present themselves as legitimate MLM businesses. Some sources say that all MLM is basically a pyramid scheme, even if they are legal.
The US Federal Trade Commission (FTC) states: "Avoid multilevel marketing plans that pay commissions to recruit new distributors, they are illegal pyramid schemes Why is pyramiding dangerous? Because plans that pay commissions to recruit new distributors will collapsed when no new recruits could be recruited, and when a plan collapsed, most people - except perhaps those at the top of the pyramid - ended up empty-handed. "
In a 2004 Advisory Service letter to the Direct Sales Association, the FTC states:
Much has been made of personal consumption issues, or internally, in recent years. In fact, the amount of internal consumption in a multi-level compensation business does not determine whether the FTC will consider a pyramid scheme plan or not. The critical question for the FTC is whether earnings that primarily support commissions paid to all participants are generated from purchases of goods and services that are not only related to the purchase of the right to participate in the business of making money.
The Federal Trade Commission warns "Not all multilevel marketing plans are legitimate Some pyramid schemes It is better not to be involved in the plan in which the money you generate is primarily based on the number of distributors you recruit and your sales to them, people out of plans who intend to use the product. "
Criticism
Federal Trade Commission issued a decision, In re Amway Corp. , in 1979 where it showed that multi-level marketing is not illegal per se in the United States. However, Amway is found guilty of pricing (by effectively requesting an "independent" distributor to sell at the same fixed price) and making excessive income claims. The FTC suggests that multi-level marketing organizations with greater incentives for recruitment rather than product sales should be viewed skeptically. The FTC also warned that the practice of getting a commission from recruiting new members was banned in most states as "pyramiding".
In April 2006, the FTC proposed a Business Opportunity Rule intended to require all sellers of business opportunities - including MLM - to provide sufficient information to enable potential buyers/participants to make decisions about acquiring/joining business ventures with disclosed information. about the likelihood of average monetary profitability (and monetary profitability, if any) to gain/join a business venture. In March 2008, however, the FTC removed "Network Marketing" (ie MLM) companies from the proposed Business Opportunity Rules, leaving MLM participants without the ability to make informed choices entering or not entering MLM based on the likelihood of success being disclosed and profitability:
The revised proposal, however, will not reach certain multi-level marketing companies or companies that may have been accidentally swept into the scope of the April 2006 proposal.
Walter J. Carl stated in the 2004 Western Journal of Communication article that "MLM organizations have been described by some as cult (Butterfield, 1985), pyramid schemes (Fitzpatrick & Reynolds, 1997), or organizations full of misleading, deceptive, and unethical behavior (Carter, 1999), such as the use of evangelical discourse in question to promote business (HÃÆ'¶pfl & Maddrell, 1996), and exploitation of personal relationships for financial gain (Fitzpatrick & Reynolds, 1997) ". In China, volunteers working to rescue people from schemes have been physically attacked.
MLM is also criticized for not being able to fulfill their promise to most of the participants due to basic conflict with Western cultural norms. There is even a claim that the success rate for breaking even or making money is far worse than other types of businesses: "Most MLMs recruit MLM, where participants have to recruit aggressively to make a profit.Based on the data available from the companies themselves, the loss rate for recruiting MLM is about 99.9%, that is, 99.9% of participants lose money after subtracting all costs, including purchases from companies. "In part, this is because encouraging recruitment to" recruit people to compete with [them] "leads to" market saturation. " It has also been claimed "(b) y in its nature, MLM is completely without scientific foundation."
Because it encourages recruitment to recruit their competitors even further, some even say that in the best modern MLM is nothing more than a pyramid scheme endorsed with a statement "Multi-level marketing companies have become legally accepted and accepted forms of pyramid schemes in the United States "while other countries" Multi-Level Marketing, a form of Pyramid Scheme, is not always fraudulent. "In October 2010 it was reported that multilevel marketing companies are being investigated by a number of state attorneys amid allegations that salespeople are paid for recruiting and that newer recruits can not get anything close to what the early migrants did. Industry critic Robert L. FitzPatrick has called the multi-level marketing "the Main Street bubble" that will eventually explode.
China
Multi-level marketing (Chinese simplified: traditional Chinese: << > was first introduced to China by American, Taiwanese and Japanese companies after China's 1978 economic reforms. This increase in the popularity of multi-level marketing coincides with economic uncertainty and a new shift towards individual consumerism. Multi-level marketing was banned inland by the government in 1998, citing social, economic, and taxation issues. Further regulations "Ban Chuanxiao" (where MLM is a type of Chuanxiao, the Chinese name of the regulation is ????????), enacted in 2005, paragraph 3 of Chapter 2 of the declared rules have a downline is illegal (original text of the rules' ??????????????????????????????????????????????????????????????????????????????????????????????? ??????????????????????????????????????????, ?????? ?? '). O'Regan writes 'With this rule, China explains that while Direct Sales are allowed on the mainland, Multi-Level Marketing is not'.
MLM companies have tried to find a way around China's ban, or have developed other methods, such as direct sales, to bring their products to China through retail operations. The Direct Sales Regulations limit direct sales to cosmetics, health food, sanitary products, bodybuilding equipment and kitchen utensils. And the Regulations require Chinese or foreign companies ("FIE") who intend to engage in direct selling business in mainland China to apply and obtain direct sales licenses from the Ministry of Commerce ("MOFCOM"). By 2016, there are 73 companies, including domestic and foreign companies, which have obtained direct sales licenses. Some multi-level marketing sellers have avoided this ban by creating addresses and bank accounts in Hong Kong, where the practice is legal, when selling and recruiting on land.
Not until 23 August 2005 The State Council issued rules specifically relating to direct sales operations - Direct Sales Administration (entered into force on 1 December 2005) and Regulations for Chuanxiao Prohibition (enacted on 1 November 2005). When direct sales are allowed, it will only be allowed under the most stringent requirements, to ensure the operation is not a pyramid scheme, MLM, or flight operations per night.
See also
- Binary planning
- List of multi level marketing companies
References
External links
- Federal Trade Commission article
Source of the article : Wikipedia
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