What is Multi-Level Marketing?
According to the US Federal Trade Commission, multi-level marketing or MLM refers to a business paradigm where a company dispenses products through a web of distributors who also earn income from their sales and sale made by the direct and indirect recruits of the distributor. This is a marketing strategy wherein each member in the multi-level marketing network receives a commission from the sales made by their recruits. Thus, every member of the network is motivated to continue recruiting more sales representatives to increase their income.
What are the advantages and disadvantages of Multi-Level Marketing?
As aforementioned, multi-level marketing has already been widely used for quite some time. Nowadays, it has become very popular because of the promising benefits that come with it. Let us get to know what are the advantages and disadvantages of this business marketing strategy.
Advantages:
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Attractive Rewards: The main reason this business model is becoming all the rage these days is because of the promising rewards that come with it. Some companies offer top performers a good amount of cash, discounts, and even luxury cars. This is used not only to motivate the existing recruits to work more but also to entice possible recruits in a breeze.
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Smaller investment: With this business model, an individual gets the chance in the business world by only capitalizing a smaller amount of money as compared to starting in a typical business set-up. Everyone gets the chance to become successful in the business world with only a spare amount of money which is not that hard to lose in case the endeavor is unsuccessful.
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Supplemental Income: This type of business model can be used to gain additional income for almost everyone, even those who are working or stay-at-home parents. This is because the selling of the product or the recruiting of potential distributors can be done during breaks or free time and doesn’t really require full time.
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Balanced Compensation:
Unlike corporate jobs where one either gets underpaid or overpaid, this type of business model gives you the compensation that is directly proportional to your efforts. This means the more work you do, the bigger the compensation you get. -
No Degree required:
Unlike most corporate jobs nowadays that require a good educational background, this multi-level marketing model doesn’t need you to have a bachelor’s degree or the like. You just need to know the product by heart and exert more effort in recruitment and sales, and you get to be your own boss.
Disadvantages:
However, just like any business model, multi-level marketing also has its shares of flaws. Let’s get to know each of these flaws, as it may hinder you to become successful in the field.
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Good interpersonal and communication skills are a must:
Not everyone is blessed to have good communication skills that can entice potential customers and recruits. With this model, you must have good communication and interpersonal skills to become successful. -
Get the right marketers:
In order to get further compensation from recruits, you need to get the right marketer who shares the same passion and ideation with you. And with the skepticism in the market nowadays, finding the right recruit is a tough one.
How does Multi-Level Marketing work?
This business model is believed to be one of the safest business models because of the low risk it entails. But, this will mainly depend on the number of participants.
For this marketing strategy to work, the MLM company hires some distributors first to start the trade.
Then, the distributors are encouraged to recruit more distributors with the promise that every sale made by their recruits could bring the commission to the up line distributors. This will not only increase the sales of the company but will also save them big time on hiring costs.
Is Multi-Level Marketing ethical?
The business model itself is ethical. It gives the right compensation equivalent to the work done. However, by enticing recruits with promising rewards, they are more likely to take the short and faster route by deceiving people just to earn more. This gives the business model a bad reputation. Thus, it is essential for the company and the distributors to thoroughly explain the business and to ensure that it is compliant with the rules and regulations set by the government.Examples:
Here are some of the well-known companies that have become successful with the multi-level marketing business model.
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Mary Kay:
Mary Kay has been using the multi-level marketing model since it was founded in 1963. The company hires independent beauty consultants who earn by direct selling to people and through the sales made by their recruited consultants in their distribution network. -
Avon Products, Inc.:
Avon Products Inc. was founded in 1986 and also uses the multi-level marketing business model to increase their sales. They offer various items such as beauty products, fashion garments, jewelry, and so much more which are sold by a network of distributors. -
Herbalife Ltd.:
Herbalife offers nutritional supplements, personal care and hygiene items, and even cosmetics. This was founded in 1980 and has been using the multi-level marketing strategy ever since. There have been allegations that Herbalife uses a fraudulent business model. But, it was not proven since the FBI don’t have sufficient evidence.
Relevance of this business model in today's times.
This strategy is a win-win for both the company and the distributor. The company gets to have more sales while shedding out less hiring costs. On the other hand, distributors also get to earn more from the usual income they get from their corporate jobs. Also, stay-at-home parents can take advantage of this; they can have the luxury of taking care of their family while earning more income for the family as well. This is applicable these days as the income one gets from his or her job doesn’t already suffice for the needs of the family. Thus, this model enables an individual or a family man or woman to earn more to meet family needs.
Conclusion:
In conclusion, knowing more about multi-level marketing gives you an idea of how the strategy works for both the companies and the distributors as well. Although it has its own shares of workable flaws, the benefits that you get to enjoy can convince one to start using the business model. However, you must not use the promising rewards to entice others into the network business without properly explaining as this may lead to deception in the end. Use this scheme to give you more income in a more flexible way.
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