Multi-level marketing

From Academic Kids

Multi-level marketing (MLM) (also called network marketing (NM) or matrix marketing) is a business model which utilizes a combination of direct marketing and franchising. Typically, independent business owners (IBOs) become associated with a parent company in a contractor-like relationship. IBOs receive remuneration for shopping within their own business, for selling products and for expanding their network of people ("downline") doing the same. An IBO receives a percentage of the profits generated by the network of all IBOs introduced to the system by him or her, and also of the profits generated by the people introduced by those IBOs, and so on. A points system, where the points represent the volume of products sold through the IBO network, tracks rewards.

Multi-level marketing has a recognized image problem because of difficulties in making a clear distinction between legitimate network marketing and illegal "pyramid schemes" or Ponzi schemes. Nonetheless, many NM/MLM businesses operate legitimately all fifty U.S. states and more than 100 foreign countries. See List of network marketing companies for more information.

In a legitimate MLM company, commissions are only earned on the sale of products or services to the end consumer who, in many cases, is also a distributor. No money may be earned on a "sign up fee" or for recruiting alone.

Critics contend that some companies produce revenue primarily by attracting new participants, as opposed to selling products. Distributors of Amway (the world's leading company in network marketing, with annual revenue exceeding USD $1 billion) in particular often receive criticism for generating considerable revenue from selling instructional and motivational materials to its participants. The FTC filed suit against Amway in 1976 (FTC vs. Amway) but lost the case, paving the way for many companies to adopt a multi-level distribution system.

A major shift in MLM occurred during the 1980s when companies began allowing their members to focus solely on marketing rather than handling the tasks of stocking/distributing products as well as taking care of commission payments to their sales organizations. Today, most MLM companies act as fulfillment companies by taking orders, shipping products, calculating and paying commissions, etc.

Often, victims of fraudulent or illegal MLM schemes are required to purchase expensive inventories of products. These schemes are often quick to collapse, when the merchandise cannot be resold, leaving all but those at the top of the pyramid with sometimes staggering financial losses.

Contents

Companies

Some of the companies known to use multi-level marketing:

Company Lists

MLM, Party Plan, Direct Sales & Network Marketing Companies

Compensation Plans

Over the course of decades, companies have devised various MLM compensation plans:

  • Stairstep Breakaway plan. This plan features two types of distributors: managers and non-managers and three types of pay:
    • Baseshop overrides are overrides of managers from their subordinate non-managers. This is no different from any sales organisation.
    • Generational overrides are overrides of managers from managers who were previously their subordinate. Most plans compensate at least three generations of such managers.
    • Executive bonuses. Additional commission to managers who exceed a sales quota. For example, 2% of the total company sales revenue goes to a bonus pool which is shared monthly pro-rata to managers who exceed $10,000 in that month.
  • Matrix Plan. This plan limits the width of each level in a distributor's group. This creates a situation where new recruits may be placed "under" existing recruits. Some marketers take advantage of this process (called "spillover") and imply that someone can enroll in the company, take a position in the matrix and wind up with people in their organization even though they never recruit anyone.
  • Binary plan. This plan limits the width of each level to two people, usually called right and left "legs". Commissions are paid incrementally when the sales volume in each "leg" matches. For instance, if the right "leg" has people spending $5,000 on products and the left leg only has people spending $1,000 on products, you would only get paid a set amount for $1,000 (the matching amount). Other MLM plans would pay you a percentage on the entire $6,000 being spent by your organization.
  • Unilevel. This is the most common form of MLM pay plan. Available in different "flavors", this plan basically pays you a set percentage on each "level" in your organization. Typically, you are not limited on the number of people you can put on your top "level" and you may also be allowed to "place" new enrollees under others. (In this regard, it's very similiar to the "matrix" above except that there are no width restrictions.)

External links

Resources

es:Marketing multinivel ja:連鎖販売取引 lt:Daugelio lygių prekybos modelis fi:Verkostomarkkinointi sv:Pyramidfrsljning

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