If you’re into MLM or similar network marketing, while I respect your interest, I’m not at all interested, and thank you for not pitching me, or trying to convince me.
Multi-level marketing (called network marketing by others), is a marketing strategy used by MLM companies in their business plan.
In order to understand the MLM business model it is necessary to understand how the movement of materials, information and funds across the MLM supply chain (distribution channel) is managed and coordinated.
A supply chain is an integrated network (each intermediary commonly called a “middle-man”) of retailers, distributors, transporters, storage facilities and suppliers that participate in the production, sale, and delivery of a particular product to the end customer.
When buying a product most consumers will want the best quality at the lowest cost, in the shortest lead-time, and “cutting out the middle man”, which translated means better value for money.
The removal of intermediaries in a supply chain is called disintermediation and it seems logical that the closer in the supply chain the customer is to the manufacturer, the better the value for money received by the customer.
Market transparency of the costs, functionality, competitive advantage, etc., of any product is essential for fulfilling the expectations and winning the confidence of customers, so why exactly would potential MLM customers choose an MLM product (over more traditional competition)?
The MLM network is structured to compensate members not only for the product sales they generate individually, but also for the sales of other members they have introduced to the company, creating a down-line of member distributors and a hierarchy of multiple levels (each adding a middle-man) of compensation (added costs).
In an age when supply chains are becoming lean by eliminating waste, MLM adds intermediaries.
With added commissions, bonus payments, marketing materials, costs for free samples and demo equipment, administrative fees, membership, and other added “middle-man” costs, from the beginning of the MLM supply chain through the multi-levels to delivery, I’m apprehensive of any claimed advantage or benefit for a potential customer buying a MLM product.
Members of most MLM’s must also be good recruiters and be able to recruit to profit from down-line sales.
Like some retailers asking for a dollar donation at the cash register for a charitable, or socially responsible, cause (they support), some newer MLM companies are attempting to sell and recruit by appealing to the emotions of people through aligning their products to causes.
People join a MLM company believing that by recruiting members from their sphere of influence they will gain financially when in fact it often causes lost relationships and, after subtracting all business expenses, including product purchases from the company, the large majority of MLM members also lose money.
Personally I’m going to continue specifying and selecting products via the Internet, or shopping the more traditional way at a retail outlet if I want a product right away.
Before getting involved in a MLM company ask yourself where your paying customers will come from, and how you’ll be able to convince them of the value for money you are providing with your MLM product?
How much money will you have to invest up front, how much time do you have to personally invest (your time has value so be honest with yourself), and more importantly, what will be the return on your investment (ROI)?
P.S. A “Pyramid” scheme is the practice of receiving commissions directly from recruiting new members (vs. from the sales they generate) and is illegal.