What is Network Marketing?

Network Marketing is a new phenomenon that has gained ground in the last three decades and
hence there isnt much of research, study and literature that is available as in the other traditional theories
and practice of Marketing.

Marketing and Selling of Products and Services directly to the Consumers in a face to face and
in places like home, workplace and other offices other than retail sales locations. On the face of it this
definition describes the Network Marketing in the right way. However you will see that this definition can
hold good even for Direct Selling which is not the same as Multi Level or Network selling. There are
several characteristic differences in the modalities that these two sales methods follow though there are
similarities too.

In both cases of Direct Selling as well as Network marketing, the selling happens on One to One
basis where the sales person comes in face to face contact with the user or customer. Therefore both the
methods involved the End User or End customer on one end and the Sales person on the other. In both
cases the Salesman involved plays the role of influencing the decision maker. The main different between
the two methods is to do with the organizational setup of the sales teams as well as the method of
compensation and income generation. However theoretically Network marketing is considered to be a
part of Direct Selling methods.

Multi Level Marketing is an activity that anyone can take up at any point of time in life and
generate income. There are thousands who take up MLM along with their main careers and then there
are so many who have become millionaires by taking up MLM on full time basis and making it their prime
vocation. This form of marketing does not require any qualification or any investments. Besides
generating income, the individual gets to build social contacts and relationships as well which is seen as
an added benefit.

What is MLM?

Multi-Level Marketing in its basic definition is a type of compensation plan that a company uses to
structure the sales people. As the sales team brings on new team members, the recruiter can be paid for
the recruitment and a percentage of the product that is sold by the team too. The structure of the recruits
continues on many levels under the original recruiter. The levels can go very deep up to 10 or more levels
below the first level in some multi-tiered companies; most keep it around 5-8 levels.

The recruited team mates can also recruit new sales members and they in turn would also be
placed under them, earning a percentage of the profits and recruiting bonuses, if applicable.

The negative connotation of Multi-Level Marketing has come from many years of claims of
companies that offer no product sales; direct sales reps only use of the products; encouraging recruitment
into the company instead of product sales; required distribution of the product on a monthly basis to both
the sales rep and the consumer.

There has also been a lot of concern over MLMs that create intricate tiers of compensation so
that it is hard to tell what one would earn. They have also had problems with people required to invite
others to their home under false pretenses and then badgering them to sign up with the company as well.
Tales of exaggerated income helped fuel the signups.

As you may already realize, these practices are now few and far between. With the FTC now
watching many questionable multi-level companies for illicit actions, it is pretty safe to say that most
companies that are structured in multi tiers for compensation are legitimate businesses.

Many of the multi-level marketing companies will require a purchase of product on a monthly or
quarterly basis in order to receive commissions. Whether this practice is acceptable by the Direct Selling
Association and the FTC is still to be determined. The final determining factor is whether the required
sale is made in order to remain active by the distributor/rep or if they are actually using or selling the
product.

Brief History of MLM

Multi Level Marketing or Network Marketing as it is called world over happens to be a fast
growing phenomenon. The fact that anyone, anywhere can become a distributor and earn income from
building the network without having to sacrifice any other occupation or additional investment into this
business makes it very attractive for people from all walks of life to attempt at joining the network. It is
estimated that in US alone over 70 percent of the Direct Selling Revenues come from Network Marketing.
Though no figures are available to confirm the revenue figures at national level, over 50 million people are
estimated to be engaged in Multi Level Marketing all over the world.

Though there is no documented history of Origin of Multi Level marketing, generally it is believed
that this concept owes its origin to Nurtralite or formerly known as California Vitamin Company which
produces food supplement products. In the early part of 1940s, the Company used to engage in Direct
Selling.

The concept of Multi Level or Network selling seems to have emerged accidently when the
Distributors discovered that they were generating more sales for the Company by referring their friends
and known people to the business opportunity available with Nutralite. At this point of time, there was no
system in place to recognize and reward the distributors for their efforts in recruiting other Distributors for
the company. With the realization dawning on the Distributors and the Company, the system of paying 2
percent bonus to the sponsor Distributor on the sales that were achieved by the Distributor and the
network that he sponsored or built was introduced. This then led to the birth of modern day system of
Pyramid Selling.

Nutralite achieved unprecedented growth and profits in the following decades thanks to the fast
growing network not only in the US but across other continents as well. In early 1960s, two men Richard
DeVos and Jay Van Andel,c who were the Distributors of Nutralite broke away to build their own company
which grew to be the biggest in MLM business world over called Amway. This company initially made a
foray into House hold and cleaning products and went on to buy Nutralite Company and merge the food
supplement products into its portfolio.

Yet another distributor named Dr. Forrest C Shaklee too broke away from Nutralite at the same
period that Amway took birth and found the new Company named Shaklee dealing with Natures
sunshine products.

Today there are several hundreds of Companies that are practicing Pyramid selling or Multi Level
Selling and compensation methods to sell their products. Numerous brands such as Avon, Tupperware,
Electrolux, Discovery Toys, Herbal life, Kleenez, Oriflame, Reliv etc have been highly successful in
growing their business globally using this concept of sales.

Though there are a lot of criticisms and charges levied against this system and companies both
by the industry watchers as well as the trade and Governments, the figures reveal that the concept has
been successful in the growth of more businesses in recent years. The Direct Selling Association of US
reported that about 25 % of its members were engaging in MLM channel of selling in the 1990s whereas
by the year 2009, it was found that over 94% of the members had been practicing this method
contributing to about 97% of the total Direct Sales.

While the figures are showing progressive trends and the Companies often promote the success
stories of individuals who have become millionaires in the business, it is to be noted that there is growing
concern in the trade and Governments of various countries which have been raising questions about the
authenticity of the pyramid compensation method which they believe is inherently faulty model and that
the revenue or income generation does not happen due to sales of the product but is due to the
recruitment of distributors. China has banned this form of Direct Selling since 1998. The trade however
seems to be growing unprecedentedly all over the rest of the world.
What is Pyramid Selling?

Pyramid selling is a scheme that operates similar to Network Marketing in the form of recruiting
people to join the network. Pyramid schemes are derived to make money by the promoters through
recruitment of people into the network promising those future benefits that will accrue when they recruit
more people into the network. These schemes do not involve any sale of goods or products and charge
entry fee from those joining the network thereby earning money in promise of a future income. One of the
well known fraudulent schemes that has made rounds all over the world has been the Chain of Letters
scheme. It takes a while for the participants to realize that there is no money to be made and that the
promoters stand to gain without any real business. Often you will find the Pyramid selling schemes talking
about some kind of illusory products or treatments, subscriptions to magazines, catalogues and trainings
etc. None of these amounts to any substantial sale of concrete products. They push the distributors to buy
and sell on paper without concrete physical transaction of products and goods.

MLM VS Pyramid Schemes

Companies that require a minimum purchase to remain active and receive commissions on
recruitment can be potentially labeled as a pyramid scheme. The structure of the company is the deciding
factor. If the company has little or no product or the product is excessively expensive, it is a red flag. Also
a definite red flag is if the main or only focus is bringing in new members that pay a fee for no products.

Pyramid schemes are illegal because the structure is built on will eventually collapse. This causes
of those involved a loss of their money they may have invested.

MLM Schemes have legitimate process governed by rules and contractual obligations for
distributorship as well as regarding inventory holding, training and sales etc. Pyramid selling on the
contrary is based on very loosely constructed, vague rules, promises without any legal or contractual
obligations and more importantly without any substantial product range.

Pyramid selling aims at making quick money out of the network whereas MLM businesses focus
on building and extending distribution networks primarily aimed at selling their products and thus
generating income out of sale of products.

MLM Schemes do not require you to make any investment except a meager cost involved in
buying a start up kit or some marcom materials or a small distributor fee for membership and such
amounts are quite miniscule. Pyramid selling networks are focused on making money from charging all
kinds of entry fee as well as pushing the distributor to buy, hold inventory on paper without actual physical
goods or based on schemes like catalogue or magazine subscription or some sort of discounts etc. In lieu
of a future sale and income, every subscriber to the scheme gets to make investments which accrue as
income to the promoters alone. Pyramid selling always comes with ambiguous plans that promote
hoarding of inventory as well as lack of clarity regarding income generation.

Pyramid selling on the whole has marred the public image of direct selling as well as Multi Level
Marketing schemes. Due to lack of clarity and understanding of the differences between Pyramid selling
and Multi Level Marketing, the public has considered both the concepts to be the same and holds
negative opinion. As a Multi Level Marketing Distributor it is good for you to be aware of the pyramid
scheme and the above details and this awareness will help you confront the negative opinions of the
people you come across in your business and change their perceptions about your business.

Multi Level Marketing Today

Multi-Level Marketing companies today are mainly strong businesses with multi-tiered
compensation levels. The products they promote are usually legitimate and affordable. It does help to be
aware of what a MLM looks like so that when you are looking for a new business venture you know the
difference between a legitimate company and a pyramid scheme.
 If you are interested in a new product that you have seen advertised and are interested in selling
the product, many times the structure of the company will be in multi levels. There are a few companies
that exist on a single level marketing and compensation strategy, which is one that pays you for product
sales only.

It is always a good idea to take the time to research and learn about any company you may want
to join. While multi-level marketing as a concept may have a negative image in some peoples view, most
companies do operate within the guidelines of the FTC and the Direct Selling Association.

The difference between selling via retailers and direct to consumer

In the traditional business model a company will manufacture products, send them to a distributor
who supplies them to a retailer who finally sells them to the consumer. In network marketing (or direct
selling) the manufacturer simply sells directly to the consumer. You can see this model at work in another
form with the computer company Dell that manufactures laptops and sells them directly to consumers via
their website.

Selling straight to the consumer cuts out the middle men in the supply chain and this saves the
company a ton of money. People usually dont appreciate that even just the retailers mark up is usually
about 50% of the products final sale price. They need to charge this to pay for sales staff, premises etc.

How a company markets its products

In order to sell directly to the consumer the company can either spend their money on traditional
advertising like TV, radio, newspapers etc (which can also be very expensive) or adopt a network
marketing model. In a network marketing model the company finds independent distributors and pays a
commission to them based on how much product they sell. This means the money normally spend on the
supply chain and marketing can now go to the independent distributors.

The independent distributors are usually also consumers of the products (after all why would you
promote something that you didnt believe in enough to use yourself?). The distributors are people who
believe in the product enough to want to promote it to other people. They earn a commission for their
sales and marketing efforts.

Building a traditional sales team versus a network marketing sales team

In a traditional business the company usually recruits sales staff to sell its products. It relies on
marketing to get people interested and has its sales team waiting to answer phones or at a retail location.
These salespeople are sometimes paid on commission but will probably have a fixed salary as well plus
the company is paying for the premises that the sales team work from.

In network marketing the companies are always looking for more people who believe in the
product and want to become independent distributors themselves. So distributors are given tools to find
other like-minded people who might also want to become distributors as well. When a distributor sponsors
a new distributor they also get a commission on the sales of that new distributor which varies based on
the compensation plan of the company.

Both the traditional business and the network marketing business are building a sales team.
Theyre just going about it in different ways based on what they believe is the most effective for their
company.

Some benefits of the network marketing model

Because sponsoring distributors are also paid commission based on the sales of the new
distributor this encourages the sponsoring distributor to train the new distributor so their business is a
success as well. In this way network marketing creates a network of like-minded people who are
continuously helping other members of their team to create a more successful business. So rather than
view a new distributor as competition (like traditional sales people based solely on commission) it is just
like adding a new salesperson to your team that you can leverage.

Hence if the network marketing model and compensation plan are structured correctly it creates a
team of people all working to promote the companys products together. Of course different companies
have different models so this is not a general rule with every company you see.

Problems with the network marketing model

A common problem with network marketing that was far more prevalent in the past is the variety
of different models and structures used. Many looked fancy on paper but when push came to shove they
fell over. However with new compensation structures and the maturity of the network marketing model
things are very different these days.

Obviously you will have to do your own due diligence with the network marketing company you
are looking to join to ensure their compensation plan is fair and does not create a spirit of competition
between distributors. Plus there are also get rich quick schemes disguised as network marketing which
start out with a bang and end with a bankruptcy or owners fleeing the country.

This means you have to be careful which company youre choosing to work with. Make sure they
have a proven track record as its often the latest and greatest opportunity where you can get in on the
ground floor where the problems occur.

List of Network Marketing Companies in the Philippines

Amway Philippines, L.L.C.

Avon Cosmetics, Inc.

Dakki Classics Concepts, Inc.

Direct Shopping Inc.

DXN International Private LTD

Empower Marketing (The Peak Marketing Group, Inc.)

Ever Billena Cosmetics, Inc.

Fern Inc.

Filway Marketing, Inc.

Forever Living Products Philippines, Inc.,

4 Life Research Phils.

GanoiTouch

GNLD International

Herbalife International Philippines

Intelli Controller Philippines, Inc.,

Mary Kay Philippines, Inc.,

Max Health & Living International,

 New Image International F.E. (Phils.), Inc.,

Nikken Philippines, Inc.,

Nu Skin Philippines, Inc.,

Philkraft Wellness Corporation,

Questnet Philippines, Inc.,

Reliv Philippines, Inc.,

Sophie Paris Philippines .Inc.,

Stemtech,

Sundance Direct Sales,

Sunrider Philippines Inc.(MLM),

Symmetry Phils., Inc.(MLM),

Tianshi Philippines, Inc.,

Tupperware Brands,

Unicity Network Philippines, Inc.

Waters Philippines, Inc.

How MLM works

Signing Up
Retail Selling
Recruiting and building distributor network

MLM Process

Training
Selling

Pre Sales Process

Listing prospects
Qualifying the list of prospects
Need for additional income
Socializing need

Finding and Keeping Customers in Multi Level Marketing (MLM)

Sharing and Selling

Product knowledge
Customer service and care