Network Marketing in India-The beginning or the end!
Shifali Mandhania, Reader AMSSOI
ABSTRACT:
“Networking is an art; with it great things can be achieved, and
without it even smaller things will become difficult to
comprehend.”
Network marketing is a general term for a type of marketing that
is usually performed by an individual instead of a company. It
refers to the use of interpersonal or social networks to market
products and services for business purposes as opposed to the
more traditional and common practices of wide-range advertising.
The term is technically a type of marketing that can be used as
part of an overall marketing strategy which may or may not
encompass multiple tactics. For example, the most common
marketing tactic in a network marketing strategy is word of
mouth. As a business venture Network Marketing has taken
different nomenclatures - Multilevel Marketing, Retailing,
Customer Centric, and Relationship Marketing. Many companies
which utilize a network marketing strategy facilitate it with a
multi-level marketing (MLM) compensation structure. Multilevel
Marketing is a genuine form of marketing. There are many well-
known, very successful and trusted companies across the world,
which follow this mode of distribution of the products. Network
Marketing has reached at a turnover of approx. Rs. 600,000
crores with the leading markets being Japan & USA. In India too,
the Industry which is less than 10 years old has grown rapidly to
reach a size of Rs. 4000 crores. The India Direct Selling
Association (IDSA) has projected that the network marketing
industry will be around Rs 8000 crores by 2010.Network
Marketing has been a very interesting discussion, with some
totally against the concept due to lack of knowledge. Studies have
shown that consumers often have negative perception of direct
selling organizations and network marketing organizations in
particular. Network marketing needs to be nurtured, tested and
translated in the exact sense as it should be. But often the concept
is misunderstood and hence the ramifications are many. The
negative connotations are more than the positive understanding of
the concept. But the real problem with MLM is not MLM itself,
but some of the people it attracts. This model has often been
misused by fly-by-night operators, thus bringing discredit to the
entire fraternity and to this business model itself. This study is
undertaken to have a better understanding of Network Marketing
and to understand the perceptions of the existing customers.
Several misconceived notions are cleared and the positive
framework is presented here as an educative measure.
I DEFINATION & EXPLAINANATION
Network Marketing, is a business-distribution model that
allows a parent company to market its products directly to
consumers by means of relationship referrals and direct selling.
The way it basically works is this: a company sells products or
services via a network of independent distributors. The
distributor usually pays some sort of joining fee or has to buy
X products to gain distributorship status. The company also
urges distributors to bring in other people to act in the same
capacity. The referring distributor then also earns commissions
on the products that the referred distributor sells. If the
distributor they referred also brings in other distributors, the
original distributor also receives commissions on those sales -
and so on. This is the "Multi Level" component. There are
some matrixes which go to 15 levels (or tiers) deep.
Independent distributors develop their organizations by either
building an active customer base, who buy direct from the
parent company, or by recruiting a down line of independent
distributors who also build a customer base, thereby expanding
the overall organization. Additionally, distributors can also
earn a profit by retailing products they purchased from the
parent company at wholesale price. Hence this system of
network marketing boosts sales and also brings in new and
more marketers by way of existing customers working on
behalf of the company and marketing its offerings + the great
business opportunity available with the customer ship.
Independent, unsalaried salespeople of multi-level marketing,
referred to as distributors (or associates, independent business
owners, franchise owners, sales consultants, consultants,
independent agents, etc.), represent the parent company and are
awarded a commission based upon the volume of product sold
through each of their independent businesses
(organizations).Most products and services sold via MLM or
network marketing aren't available in bricks and mortar stores,
the whole model is built around independent distributors
working via their network of family, friends and acquaintances.
A whole social and business culture is built around the program
with conferences, conventions and training products available -
at a price. The ‘Network Marketing’ industry is growing at a
rapid rate. More and more companies are looking at it as a
viable method of cutting advertising and distribution costs. It
has enabled a huge amount of people to start earning
substantial incomes with low financial investment and,
therefore, low risk.
II MERITS OF NETWORKMARKETING
The 45 per cent or more of the margin or markup, which
was charged by the middlemen, is now given to the
consultants.
The consultant gets the product direct from the firm, hence
the material is always genuine. The products will be of
superior quality at affordable prices and in appropriate
packs. These products will not be available at retail
outlets; hence there is exclusivity of selling rights. A
detailed computerized monthly statement of accounts,
along with the payment is sent to the consultant. This
statement also gives the names, addresses and phone nos.
of all the consultants in the group. The consultant gets a
chance to do business without any heavy investment or
liability
III TRADITIONAL VS NETWORKMARKETING
In traditional business goods and services move from one
channel to the other with the increase of prices at every
channel. A pen at the point of manufacturing will cost Rs2, the
same pen will cost Rs3 at the whole sale price, while at the
distribution it would cost Rs 4 and at retail it would cost Rs 6.
In network marketing the same pen sells to the customer at Rs
2 from the manufacturer. a) In traditional business the
manufacturer will have to meet all the advertisement cost
whether people buy his product or not while network
marketing works on very simple "word of mouth
advertisement". The manufacturer doesn’t need to pay
irrespective of whether people buy his services and products or
not b) Traditional businesses are faced with counterfeit
products competing with original products hence the producer
might compromise the price of the products to compete with
the counterfeit goods, while network marketing one deals
directly with the producer of that product or service one wants
to buy. No middlemen or conmen. c) In traditional business
there is no residual income compared to Network marketing
whereby the compensation plan allows one to earn after
building a large organization d) In traditional business there is
less emphasis on personal development, if there is then this is
tilted to support the growth of the organization not an
individual compared to network marketing where personal
development is a major ingredient to success. e) In traditional
business one will never hear about financial freedom because if
one becomes financially free, he becomes a threat to the
organization, compared to network marketing where financial
freedom is a key success factor in building a large organization
IV CHALLENGES OF NETWORKMARKETING
Network Marketing can be a great business for many, but not
everyone is suited for the business. It takes someone with
determination, and drive to become successful. That doesn’t
say that a person can’t be trained to become successful, but
90% of the people getting into Network Marketing drop out
because they expect overnight success, and without the right
training and coaching success becomes hard. The following are
few challenges of network marketing :1. Many people join
these companies thinking they'll get rich quickly and with little
effort on their part. They envision signing several of their
family and friends, and then receiving huge checks. This isn't
the case, and anyone who joins under these misconceptions,
will quickly become disappointed and quit. 2. The person
joining has no sales or business experience. This is something
that can be easily over come, if they're willing to learn these
skills, but this should be brought to their attention in the
beginning so they're aware of it. 3. Because most people who
join Network Marketing Companies already have full time
jobs, they treat their part-time business like a hobby. Building
any business requires setting goals, setting aside the time
needed to actually work for business, and it requires
professionalism. 4. Many times people sign up under a friend,
family member, or a co-worker, which is great. But do they
have any experience building a large, profitable business? Most
of the time NO! This starts a cycle that can go on and on. One
of the most important things a new person can do is find a
mentor who is active in the company and successful. Learn
from them and ask them to be the mentor. 5. Some people just
get frustrated and give up. It may not always be easy, and it
may not happen as quickly as one would like. One has to
remember that Network Marketing, it is not a 'lazy man's' way
of making money. In order to build a successful business, like
any business, one must invest a great deal of time and effort
into it. Many people have 'fallen by the wayside' because they
have been misinformed (by over enthusiastic recruitment
tactics) about the level of work that is required to generate a
decent income. But the fact is that for nearly 50 years , network
marketing has provided a perfect opportunity to people by
helping them to be self employed to create additional income
and gain better control of their lives. This innovative method of
marketing has grown into a $ 100 billion industry that includes
virtually every developed country of the world
V NETWORK MARKETING IN INDIA
The development of MLM in India is ascribed to Amway’s
entry into this business in 1995. Within a span of three years,
the firm had established itself as the largest direct selling
company. Fascinated by the success of Amway a number of
companies entered the fray with the same MLM model. Thus
market saw many well known players like Avon, AMC
cookware, Forever living products, Modicare, Tupperware and
others. Apart from these, pyramid marketing companies or
money spinning schemes masqueraded as MLM companies.
And these fake companies caused much damage to the whole
MLM market. Pyramid scheme companies have no
commercially viable product sales base. They require high
entry fees and also require to stock large non refundable
inventory. Pyramid schemes offer ‘get rich quick’ schemes,
these schemes don’t have any viable, long term business
opportunity. Whereas a Network Marketing company offers a
genuine business opportunity, discourage overstocking of
inventory and provide participants leaving the plan with an
opportunity to return unused merchandise. The legitimate
direct selling opportunities may be taken up with minimal costs
and little or no inventory investment. As India is in disarray
over the lack of MLM laws or guidance, thousands of MLM
companies which didn’t have a stable business model,
launched their business with great pomp and show and
projected a stable income pipeline. But in reality, these scam
companies never cared for the distributors and escaped silently
and suddenly after collecting huge sums of money. The
distributors were left in lurch as India lacks regulation to
control such companies. The only available regulation is the
Prize Chit and Money circulation banning act of 1978, which
seems ineffective in this context. But one has to understand
that all network marketing companies are not fakes the
distributor should be alert and smart to scrutinize these
companies before associating with them. India lacks a clear
policy on Network Marketing, which under a proper regulatory
framework could have given millions with limited means a
legitimate tool to earn a decent living and develop marketing
and management skills. The situation in India is in sharp
contrast to that in the US, most of Europe and Singapore
especially as these countries have legalized (and thriving)
Network Marketing industries — the global size of the industry
was around $110 billion in 2007— under meticulous, yet non-
intrusive regulatory frameworks. Even China now permits
Network marketing by calling it “sales away from a fixed
location” although subject to several conditions such as
minimum paid-up capital ($6.5 million) for each Network
marketing firm. Linking compensation to sales would ensure
that properly regulated MLM is not akin to a pyramid scheme,
Indian Direct Selling Association (IDSA) said in a recent
presentation to the central government. The legitimate direct
selling industry in India is clamoring for differentiation
between them and (fraudulent) pyramid/money circulation
schemes. IDSA demands legalization of the DS industry.
According to it, the correctness of the behavior of the network
marketing units can be ensured through a few a steps: link
commissions to product sales (not to more recruits as done by
‘chain companies’); give direct seller the option to exit after a
reasonable period with refund; ensure quality of products;
obviate inventory loading. In India, currently, provisions of
Sales of Goods Act, Consumer Protection Act, and those
relating to restrictive and unfair trade practices, packaging
regulations etc. mutatis mutandis apply to direct selling. It is
not otherwise clear which law — whether framed by the Union
government or the states— will apply to the network marketing
industry.
VI NETWORK MARKETING POTENTIAL
Data state that the direct selling industry has grown over the
last two decades by leaps and bounds. It has registered a
growth of almost three times, taking sales volumes in 1988
from US$ 33.32b to US$ 100b (approx.) as of now, which is
clearly demonstrative of the exponential growth potential of
the industry. Also with the given potential of the industry, there
are immense direct and indirect employment & business
opportunities to come up and benefit millions of people
worldwide. India with its unique strength of trained and
enterprising manpower offers immense potential for the direct
selling industry and this has been proved time and again by the
consistent growth of the industry over the past 13 years. For
the fiscal ended 2006-07, IDSA has over 15 lakh agents under
its belt with a total business of over Rs 4,000 crore, including
Rs 1,500 crore from selling of insurance products directly.
With the entry of reputed players like Hindustan Lever
Network (a HLL co.), LIC and the like, the seriousness in the
industry is getting more & more. Many companies now have
MLM as an important sales tool option on their charts. P
Shanker, Chairman, IDSA had said that “With a population of
one billion, it would not be difficult to say that direct selling
industry of the county would be anywhere between 10,000 cr
to 15,000 cr by 2012.
VII PRESENT SCENARIO
In United States Direct Selling Association has laid down the
code of ethics for Network Marketing companies. Europe and
Singapore have legalized Direct Selling industries. Even China
has legalized Network Market companies The over Rs 4,000-
crore Indian Direct Selling Association, comprising 16
members of domestic and global fame, have sought the Union
government’s recognition and asked to frame suitable
legislative guidelines to not only protect the industry from
mushrooming unscrupulous and fraudulent companies but also
save the agents, customers alike from debt trap and financial
losses. In order to safeguard the common public in general and
the industry in particular, the Centre should take stock of the
alarming situation and come out with suitable guidelines,
thereby not only regulating the industry in a more organised
manner but also bringing the culprits to the book. The industry
is looking forward towards the government of India and
industry to come up with a proper legislation in form of a
Direct Selling Act in the country, so as to properly organize
and regularize business in this sector. Also such legislation
would boost healthy competition and eliminate incompetent &
fraudulent players and promote level playing field in the
industry. This would also remove the negativism in the society
about MLM companies
VIII CONCLUSION
If one compares the size and magnitude of the global Network
Marketing industry with that of India’s, it is very clear that the
industry needs policy support, in the form of removal of the
regulatory ambiguity. There are over 3,500 companies globally
that use only Network marketing for sales, with 61 million
distributors aggregating sales of $110 billion. In comparison,
Indian Network Marketing industry’s turnover is just about Rs
2,500 crore (excluding insurance product sales) with 15 lakh
distributors. Obviously, there is a lot of potential for
employment in the sector provided the most important
safeguard— no payment unless product is sold— is in place
and a proper legislative framework for these companies.
References
[1[1]FEDSA (World Federation of Direct Selling
Associations), IDSA (Indian Direct Selling Association) and
HLN (Hindustan Lever Network).
[2]Multilevel Marketing –Be Alert,Be safe- Article in ICFAI
Marketing Mastermind
[3]Exploitation of relationships – Myth or Reality?
Geevarghese K. Mathews, Dr. James Manalel, Siby Zacharias
[4]One Stop MBA Forum Network Marketing – an insight into
its Indian pe.
[5]Economic times article:
Remove_policy_ambiguity_on_direct_selling_industry
Discussions:

1. Regulations pertaining to Network Marketing in

developed countries?

In United States Direct Selling Association has laid

down the code of Ethics for Network Marketing
Companies. Europe and Singapore have legalized
Direct Selling Industries. Even China has legalized
Network Marketing Companies.

2. Examples of successful Network Marketing

companies in India.

A dominant player and market leader in the fast

moving consumer goods segment, HLL forayed into
direct marketing in 1999 with a premium brand of
personal care products for women, with women
acting as consultants.

Modicare was created in 1995 as the largest and the

only Indian MLM company in the country.
Operations started in March 1996 with a portfolio
of 12 products and 300 distributors

The Tupperware Company entered India in

November 1996. It started its operations from New
Delhi. It appointed 15 distributors in the first 12
months itself