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A PROJECT REPORT ON
UNIVERSITY OF MUMBAI ACADEMIC YEAR 2006 – 2007 SUBMITTED BY MEHTA NEELKANTH S. T.Y.B.M.S. [Semester V] USHA PRAVIN GANDHI COLLEGE OF MANAGEMENT VILE PARLE (W), MUMBAI - 400 056 PROJECT GUIDE MEHTA RAJIV A.
A PROJECT REPORT ON
UNIVERSITY OF MUMBAI ACADEMIC YEAR 2006 – 2007 SUBMITTED BY MEHTA NEELKANTH S. T.Y.B.M.S. [Semester V] USHA PRAVIN GANDHI COLLEGE OF MANAGEMENT VILE PARLE (W), MUMBAI - 400 056 PROJECT GUIDE MEHTA RAJIV A.
DECLARATION I, MEHTA NEELKANTH S. The student of Usha Pravin Gandhi College of Management of TYBMS [Semester V] hereby declare that I have completed my project, titled ‘NETWORK MARKETING’ in the Academic Year 2006-2007. The information submitted herein is true and original to the best of my knowledge. ________________________ Signature of Student
[MEHTA NEELKANTH S.]
CERTIFICATE I, (Mr.) MEHTA RAJIV A, hereby certify that Mr. NEELKANTH S. Mehta of Usha Pravin Gandhi College of Management of TYBMS [Semester V] has completed his project, titled ‘NETWORK MARKETING’ in the academic year 20062007. The information submitted herein is true and original to the best of my knowledge.
__________________ ___________________ Signature of the Principal, Signature of the Project guide Coordinator
This project report could not have been prepared, if not for the help and encouragement from various people. Hence, for the same reason I would like to thank my guide Mr. Rajiv Mehta. It was for his support that I got proper guidelines for preparing this project. I would like to thanks Mr. Santosh Gadigaonkar for the same. Mr. Amarjeet Ubhi, country Manager, Forever Living Products (India) PVT. LTD. Mr. Eddy Chai, Forever Living products (Taiwan), Indian Direct Selling Association, World federation of direct selling association, Robert Kiyosaki, Author, "Rich Dad Poor Dad", Richard Tan & Kay Cee si, Author, 201 ways for success in Network Marketing.
Network marketing or “MLM” as it is called, one of the most efficient ways of distributing products and services adopted by the various corporations around the world, is a 50 year old concept. But in most of the developing countries like India, the concept s relatively new; due to which there are various misconceptions regarding the concept. A clear understanding of this concept is required, so that industry and the public at large would benefit from it. The collection of various relevant data from various sources like; Indian Direct Selling Association (I.D.S.A.), book “Tai Chai – ways to success in MLM” written by Eddy Chai, Forever Living Products (India) pvt. Ltd., about the development of the concept, it’s past and present scenario, and the future prediction by the industry leaders, and finally giving certain recommendations to the industry on the analysis of data.
The analysis will remove the misconceptions regarding the industry and exactly tell how industry can be a boon to everyone in economic structure. Thus the project report will explain exactly why one needs to support and encourage MLM industry.
INTRODUCTION 09 SCOPE OF STUDY 10 - 17
Birth of MLM industry. 10 Overview. 11 World wide MLM sales volume.11 Top MLM markets.12 Global MLM sales force. 13 Products sold through MLM.14 Top 10 global MLM players. 15 India perspective. 16 Indian MLM sales volume. 16 Top 10 MLM corporations in India. 17
PROBLEM UNDER STUDY. 18 METHODOLOGY. 19 - 47
Causes of problem. 20 Dubious companies. 21 Not managed by experienced staff. 30 Exaggeration & game playing. 31 Unprofessional attitude. 32 No expenditure on advertisement. 33 Lack of proper knowledge. 34 Low success rate. 35 Actually what is MLM? 36 MLM Vs traditional business. 37 Time leverage. 38 MLM matrix 39
Types of matrix. 40 Why MLM? 41 For companies. 41 For individuals. 42
RECOMMENDATIONS. 48 - 57
Tips tp choose a good MLm organisation.48 Company. 49
Products. 50 Business plan. 51 Suggestion to MLM organisations. 52 Comply woth laws relationd to MLm industry.53 Should be managed by competitive staff.53 Better PR.53 Suggesttions to networkmarketers. 54 MLM success path 54 Tips for doing good business. 55 Solution to game playing. 56 MLM in Eddy Chai's words. 57 Biblography 58.
9 MANUFACTURER DIRECT INDIRECT SINGLE LEVEL MULTI LEVEL TRADITIONAL CHANNELS viz. wholesaler, retailer, Advertisement
END CONSUMER INTRODUCTION
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 become associated with a parent company in a contractorlike relationship. Independent business owners receive remuneration for shopping within their own business, for selling products and for expanding their network of people ("down line") doing the same Indian Direct Selling association has defined MLM as: “Multilevel marketing allows sellers to build a business through their own sales efforts and by inviting others to become sellers. Remuneration is based on a seller's personal sales AND on the combined sales of those people they have sponsored, trained and motivated.” MLM matrix
SCOPE OF STUDY
I. Birth of Network Marketing:
China, 1920s; Dr. Carl Rehnborg was working in China and began to observe that urban Chinese citizen showed sign of malnutrition, but not he poor citizen living in rural areas. His studies revealed that this was because the riches urban folks were eating polished rice, void in any nutrients critical to human diet. After many years of research and study in this field, in 1939 Dr. Carl Rehnborg setup a company called Nutrilite, to manufacture food supplements containing different vitamins and minerals vital for human body. The major problem he faced was in the marketing and the customer education relating to this product or range, since most of the people at that time had not heard about vitamins and minerals. To solve this problem he came up with another new idea in 1945, whereby he used his zealous customers as a sales force, working a system which we today know as multilevel marketing.
II. Global overview of the industry: 1. Growth of the industry in the past 10 years: in figures & in percentage growth. ? In 1988, turnover of the MLM was just about 32 Billion U.S. $. ? It touched U.S. $ 62 Billion in 1992. ? To100 Billion U.S. $ in 2004. ? The MLM industry has grown to 147% between 1994 and 2004.
2. top markets of MLM ? Combined sales of all MLM companies in U.S. was just 29 Billion $, which is just about 1 month sales on Wal-Mart. ? Achievable goal is about 3% or about 100 Billion U.S. $ for U.S.A. ? World wide sale for MLM should hit U.S. $ 1 Trillion.
Europe, 15.53% Others, 2.09% South America, 9.03% Asia, 40.46% U.S.A,
29.27% New Zeland, Austrelia, 1.08% Canada, South Africa, 0.26%
Total world wide turnover 2004 -05
US $ 99.965 Bn.
3. Global retail force: ? The growth rate in MLM sales force grew from about 12.9 million to 54.23 million in 2004, having a growth rate of 321%. ? The highest number of MLM sales force is in Japan, al around 40 million.
1. top players in the market (Globally) (2004-05)
Company Product lines HQ Established in Turnover US $ Amway corporation Health, Daily, Personal, Kitchen ware, so on. Ada, Michigan, USA 1955 4 Bn. Forever Living Products Inc. Health care, personal care, cosmetics, skincare etc... Scottsdale, Arizona, USA 1978 2.13 Bn. Nikken Co. Health Fitness & wellness. Fukuoka, Japan. 1973 1.5 Bn. Herbalife Health care &
wellness. Los Angeles, CA, USA 1979 1.6 Bn. Nu Skin Enterprise Pharmanex, health care products. Provo, UT USA 1984 1.2 Bn. Sunrider inc. Organic products, weight management, skincare. Torrance, CA, USA. 1982 Oriflamme Swedish cosmetics. Brussels, Belgium. 1967 Euros.778 Mn. 15
5. Products sold under Multi Level Marketing: ? Personal care products (cosmetics, jewelry, skin care, etc.) ? 30.8% ? Home/family care products (cleaning products, cookware,
cutlery, etc.) ? 30.5% ? Wellness (weight loss products, vitamins, etc.) ? 16.1% ? Services/other ? 14.3% ? Leisure/educational (books, videos, toys, etc.) ? 8.3% 16
III. India perspective. 1. Growth of the industry in the past 10 years: in figures & in percentage growth. Year Turnover 2001 1700 cr. 2002 1979 cr. 2003 2275 cr. 2004 2617 cr. 2005 3010 cr.
? There is an average growth rate in this industry over last 5 yease of 15%. ? By the year 2010, this turnover is expected to be over Rs. 8000 cr.
2. top MLM organizations in India (2004-05):
Company Product category HQ Years of operation Turnover 2004-05 Amway corporation Health, Daily, Personal, Kitchen ware, so on. New Delhi. 11years. Rs. 625 cr. Modicare Ltd. Health & Nutrition, Cosmetics & Skin Care, Personal Care, Laundry Care, Home Care, Auto Care, Agriculture, Food, and Water Purification. New Delhi. 7 years. Rs. 350 Cr. Forever Living Products (India) Pvt. Ltd. Health care & wellness. Mumbai. 5 years. Rs. 55.7 cr. Herbalife (India) Pvt. Ltd. Health care & wellness. Bangalore. 6 years. US $ 1.6 Bn. Oriflamme Ind
Pvt. Ltd. Cosmetics & beauty. New Delhi. 11 years. 766 million euros 18
THE PROBLEM UNDER STUDY
There is much misconception about network marketing, bad reputation, and highly abused industry. Following are the misconceptions about network marketing: 1. door- to-door salesmanship 2. Get rich quick scheme: 3. Pyramid scheme: 4. Illegal: Pyramid schemes are illegal. Some pyramid schemes try to disguise themselves as network marketing companies. Leading to a very low success rate:
I. Causes of the problem 1) Dubious companies: Some companies are not true MLM companies but are in fact pyramid schemes, set up by unscrupulous people whose only goal is to cheat as many other possible. MLM is essentially a product oriented business, no money rolling game. A. F.A.Q.s about pyramid schemes 1. What is a Pyramid Scheme? Pyramid schemes, also referred to as "chain referral", "binary compensation" or "matrix marketing" schemes, are marketing and investment frauds which reward participants for inducing other people to join the program. Pyramid schemes focus on exchange of money and recruitment. At the heart of each pyramid scheme there is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment. For each person you bring in you are promised future monetary rewards or bonuses based on your advancement up the structure.
They say you will have to do "little or no work because the people below you will". You should be aware that the actual business of sales and supervision is hard work. So if everyone is doing little or no work, how successful can a venture be?
2. How are Pyramid Schemes Disguised? These illegal money-making ventures may be disguised as games, chain letters, buying clubs, motivational companies, mail order operations, or investment organizations. Because of the similarity in structure to legitimate multi-level marketing (MLM) plans, which are legal and survive by making money off product sales to actual customers, not new recruits, pyramid schemes may occur when you are offered a distributorship or franchise to market a particular product. Your investment contract will also authorize you to sell additional franchises. Once the number of actual product buyers diminishes new recruits will focus primarily on recruiting others into the system without any realistic expectation that they can profit from retailing alone.
21 Inventory loading occurs when
a company's incentive program forces recruits to buy more products than they could ever sell, often at inflated prices Legitimate multilevel marketing plans actually sell their product to members of the general public, without requiring these consumers to pay anything extra or to join the MLM system. MLM's may pay commissions to a long string of distributors, but these commission are paid for real retail sales, not for new recruits. One indication of a pyramid structure is one which pays override commissions on more than five levels of participation. Even the largest corporations can not stretch the markups on products beyond the hierarchy of sales person, branch manager, district manager, regional manager and national manager without becoming uncompetitive with standard retail outlets. Suggested retail prices for products sold in the pyramid are almost always too high to be competitive because huge margins have to be built in to allow for commissions to be paid to down -line
distributors for item sales without compromising the company's overly generous profits. Many pyramid schemes will also advertise that they are in the "pre-launch" stage, yet they never can and never do launch They rely on widespread ignorance of basic mathematics.
3. Why do Pyramid Schemes Fail? Pyramid schemes are inherently injurious to consumers because as a mathematical certainty, they are doomed to collapse. As in the case of chain letters that require a payment, only the people at the very top make any money. Promoters of pyramid schemes stress the selling of additional franchises for a quicker return on your investment. Investors, therefore, expend their energies selling franchises rather than the product. At some point, the supply of potential investors is exhausted, leading to the inevitable collapse of the pyramid. Those at the bottom of the pyramid, the vast majority of the participants, lose money because there is no one below them. In order for a pyramid scheme to profit, there would have to be a never-ending supply of potential, and willing, participants. In reality, however, the supply of participants is limited, and each new level of participants has less chance of recruiting others and a greater chance of losing money. The diminishing odds of making money with a pyramid scheme make it a losing proposition because each time a new level rises to the top; a new level must be added to the bottom, each one at least twice as large as the one before. Pyramid schemes are based on simple mathematics: many losers pay a few winners. A nine-level pyramid, which is built when each participant gets six "friends" to join, would involve over ten million people!
23 6 36 216 1,296 7,776 46,656 279,936 1,679,616 10,077,696
4. Who are the Victims?
Most pyramid schemes seem intent on exploiting people with limited means and limited knowledge of business such as individuals who have little experience in direct sales, distributorships, or franchise enterprises or who have limited money or credit with which to establish their own businesses. Many victims of these scams sell first to their friends. When the supposed money-making opportunity goes belly up, most lose not only their money — but also their friends. The Pentagonal promotions have apparently targeted deaf people in some states while the main focus appears to be on senior citizens in others. 5. Why Would Anyone Pay to Join a Pyramid? They're sold to investors with the assurance that they are perfectly legal, approved by the IRS or a CPA, and that they are definitely "not" a pyramid scheme.
Promoters may even flaunt the fact that they are illegal and are therefore secret and exclusive. This adds to the allure and mystery of this larcenous, but seemingly harmless, act. When the expected wealth does not materialize, participants often blame their own lack of recruiting skills for the failure, rather than the original promoters who have benefited most, and almost exclusively, from their deception. The pyramid promoter is likely to persuade the investor that he is "getting in early" and that he should consider himself at the top of the matrix. Most participants don't envision themselves anywhere near the bottom layer of the pyramid. Investigators say pyramid schemes come in waves of three to six years and rise during times of economic boom by playing upon the greed and envy among those who are eager to participate in moneymaking ventures.
6. Legal Aspects
Pyramids are deceptive and participants in a pyramid, whether they mean to or not, are deceiving those they recruit. Few would pay to join if the odds stacked against them were fully explained. Because pyramid sales plans are by their very nature deceptive, they are illegal. There is a real risk that a pyramid operation will be closed down by police and the participants subject to fines and possible arrest. In Canada, the Competition Act explains the differences between multi-level marketing and pyramid selling, and sets out the
responsibilities for operators and participants in these types of plans. Multi-level marketing, when it operates within the limits set by the Competition Act, is a legal business activity, while pyramid selling is a multi-level marketing plan that incorporates various deceptive marketing practices, making it a criminal offence under the Competition Act.
It is illegal to:
Pay money for the right to receive compensation for recruiting new participants; Require a participant to buy specific products before he/she is allowed to join the plan; Sell unreasonable quantities of the product or products to participants (this practice is called inventory loading); and Refuse to allow participants to return products on reasonable commercial terms. People who break the law relating to multi-level marketing or pyramid selling can be convicted and sentenced to a fine or a prison term. Sometimes, no clear line separates illegal pyramid schemes from legitimate multilevel marketing programs. To differentiate between the two regulators in the U.S. evaluate the marketing strategy (e.g., emphasis on recruitment versus sales) and the percentage of product sold compared with the percentage of commissions granted.
26 A business venture that meets all three of these descriptions is an illegal pyramid:
You must make an investment to get the right to recruit others into the program...and When you recruit another person into the program, you receive what the law calls "consideration." That usually means money, but can be anything of value...and Your new recruits must make an investment to get the right to recruit, and they receive "consideration" for getting others to join.
B. Some case examples:
1. “The Allure of Gold”, Gold 1 & 2. For two years, American Gold Eagle offered a "Gold Matching Program" to the public: participants placed a $200 down payment on $800 worth of gold and paid the balance by receiving commissions after recruiting new participants. The original participant would pay the $200 an d then recruit two
separate "investment groups" into the Gold Matching Program (much like cells in hierarchical organizations, with the original participant at the top and with two branches diverging from the center, each branch containing three recruits). For every group of three that joined the matching program, the original participant received a $300 commission toward the purchase of the laid -away gold.
After recruiting two groups (six individuals), the original participant could take the gold but are encouraged to roll over the $600 credit into a new recruitment arrangement that offered a higher ceiling on future enrollment commissions. After being issued cease and desist orders the corporation failed amid problems with vendors which resulted in the end of gold deliveries and a swelling of anger by representatives seeking to realize the fruits of their recruiting efforts. The promoters moved on, leaving over five hundred complaints unresolved with losses of $370,000. Undaunted by past troubles, they soon offered people the opportunity to participate in the new "Gold Earning Program" ("Gold I"). Participants paid $200 toward a $400 gold coin then, by recruiting new investors, earned commissions toward the cost of the coin or payment in cash. New charges found that “Gold I” emphasized recruitment of clients, not sales of products, and thus constituted an illegal pyramid scheme. They signed a settlement agreement with the state, agreeing to pay restitution to Gold I's participants and submitting to a permanent injunction against operating pyramid schemes and making unrealistic earnings claims. Not letting an injunction stand in the way, they launched a new marketing plan, referred to imaginatively as "Gold II." Under Gold II, participants could purchase gold and jewelry from them and resell it, or they could join the "Binary Compensation Program."
To differentiate it from the earlier plans, and to at least give the impression of a legal MLM organization, they added more product lines (supplementing Gold I's gold coins with silver coins and gold jewelry); changed manuals, strengthened refund policies, and supposedly attempted to emphasize product sales over recruitment. It appears recruitment was more rewarding though, for within just three years 96,000 participants had paid $43,000,000 to join “Gold II”, which had disbursed $25,000,000 in commissions. The product line
produced sales of 12,628 coins, with a gross profit from the coins of only $552,620. The district court sentenced the owner to 135 months in prison and his wife to 121 months. Allowed to remain free until the sentence started, they created the "Freedom I" program, disappeared, and presumably are still at large. 2. Buy Your Way to the Top (case of a dubious company): A group named Equinox operated a multi-level marketing company which offered distributorships for products including water filters, vitamins, nutritional supplements, and skin care products. Their distributors ran classified ads in the "Help Wanted" sections of newspapers which implied that a salaried position was being offered. When you responded to the career ad you were instead given a sales presentation designed to recruit new distributors. They said you could earn money by selling products or recruiting but emphasized that the
real way that distributors make money is through recruiting, not through sales. You were encouraged to purchase $5,000 worth of products so you could enter the program at the manager level, to rent desk space for $300 to $500 a month, to subscribe to a phone line so you could begin recruiting others, and to attend seminars designed to train you. The seminars cost between $300 and $1000 and stressed that you could make substantial amounts of money. A very small percentage of distributors who became participants in the program actually made more money than they expended for frontend expenses, and the vast majority of people quit the program with little or no earnings. While they purported to link compensation to retail sales, they really didn't focus on the products. The structure and operation of the program was geared such that financial gains were primarily dependent upon the continued, successive recruitment of other participants, and retail sales were supposedly not required to realize such financial gains. The deceptive earnings claims were false and misleading and violated federal law. By furnishing you with promotional recruiting materials that contained false and misleading information, including the deceptive earnings claims, they supplied the means for you to break the law as well.
2) Not managed by the experienced staff: 90% of the MLM companies are managed by a not so competent staff; they don’t see their 5th anniversary. They are doomed to be failures right from the beginning. 3) Exaggeration and playing games: Many leaders exaggerate their product and marketing plans and their incomes. In spite that MLM is a legitimate business, some network marketers operate their businesses like pyramid schemes. A. Good distributors under bad leader It is a sad fact that there are groups of distributors who love MLM, but do not understand what MLM is and how it should be done, simply because they are under bad leaders. B. Type ‘A’ distributors: This is where a person grows up in an environment that demands conditional love. Conditions are always attached to love or reward given as a result; a person grows up doing things, not because work has to be done, but rather in order to please others. Type ‘A’ persons usually try to play games in the MLM business. C. What are the results for playing games? 1. Financial losses to all the downline distributors, as “playing game” involve excessive buying of products to make up for achieving pin levels or to makeup for undeserved bonuses.
2. Financial losses to the company. All good MLM companies will and buy back as much as products as possible, to limit the damage already done or having serious price cuttings. 3. Distributors then get stuck with unsold lot of products. Then the easiest way to get rid of those products is to sell them cheap. Some uplines have even been known to ask their downlines to buy from them, and not from the company, by offering prices below wholesale. 4. Potentially the most damaging; it has its effects on the good leaders who are doing business properly. Eventually breaking the morale of the company. 5. This situation can be compared to inflated, unhealthy stock markets; when the bubble bursts, people who have made money will find it difficult in adjusting the new reality. D. Detecting “game playing”: 1. When a group or upline recommend certain amount of product purchase ranging anywhere between: Rs. 40000 +. 2. When the upline recommends downline to attain certain pin
levels by purchase of certain amounts of products in short time, even though the downline doesn’t have enough of organization under him. 3. Whenever a downline is asked to purchase certain amounts of products resulting to pushup of the upline, or his qualification for certain bonus, or incentive level.
4) unprofessional attitude: The amounts of time distributors from one MLM company spend to criticize other MLM company. E.g. Amway’s marketing plan being criticized, and Amway criticizing stability of other companies. It is very important to understand that they are in the same industry. 5) Negligible/ no expenditure on advertising: It is very important to understand that MLM Company has negligible expenditure on Advertising. Reporters therefore don’t worry of loosing revenue for their newspaper. The following is the comparison between the articles of a non-MLM and MLM company. McDonald’s discreetly Apologizes over beef fat
New York, AFP Fast-food leviathan McDonald’s On Thursday offered a discreet Excuse on its U.S. Internet Web Site failing to inform customers that it seasoned its FrenchFries with beef fat. The statement follows a lawsuit Filed in early may in Seattle, in the Northwestern state of Washington, on behalf of two Hindus and a non-Hindu vegetarian claiming the restaurant chain had lied to customers for more than a decade by using beef fat in its French fries.
Amway cries foul, cops continue to raid
HYDERABAD: Even as Amway India Enterprises contended on Tuesday that the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 does not apply to the Amway business model, the Crime
Investigation Department (CID) of the Andhra Pradesh police conducted raids on some more of its offices in the state. According to CID officials, raids were conducted on the offices and godowns in Kurnool, Vijayawada and Visakhapatnam, apart from Hyderabad. CID, economic offences wing, Superintendent of Police, V C Sajjanar said two persons, Padmavathi and Ramu, involved in the Amway operations in Tirupati, were produced before a court in Hyderabad on Tuesday. 33 The Drugs Control Administration (DCA) too jumped into the picture after the CID raids. A senior official of the DCA said the staff had been instructed to collect samples of drugs, if they too were being sold through the Amway network. "Action will be initiated after getting the drugs samples are analyzed," the official said. While the CID is sticking to its contention that what Amway is indulging in is multi-level marketing which is against the Prize Chits and Money Circulation Scheme (Banning) Act, 1978, Amway India Enterprises pointed out to an official communiqué issued by the Union Ministry of Consumer Affairs, Food and Public Distribution, New Delhi on March 31, 2003 to prove that it was not on the wrong side. "The communiqué refers to the interpretation of various judgments by the Supreme Court implies that activities or direct/network/multilevel marketing do not fall within the provisions of the act," a clarification by Amway India Enterprises said. Amway also said there was no minimum or maximum business volume imposed for the distributors and incentives and commissions are paid for sale of products only
Giving Beef to a Hindu is a terrible sin. Even after such a terrible event followed by protest by “shiv sena” in Mumbai, the article appeared in NY Times in the 5th page and those too occupying only 5 X 7 cm. But a substantially big article was printed on the TOI on the 27 th sept. Following the raid on Amway, this was due to defects in its policy.
6) Lack of proper knowledge; There is no guide to choose a good MLM company. 300 odd MLM companies only 16 are registered under the Indian Direct Selling Association (I.D.S.A). (I.D.S.A.): Indian direct selling association is an association of companies in the business of direct selling in the association. The members are of high national and international repute having set standards in delivering and in following ethical business practices. It is an arm of World Federation of Direct Selling Association (W.F.D.S.A.). Main objectives: ? To protect and promote interest of direct selling industry and of consumers. ? The support and protect the character and the status of direct selling industry, and to assist and guide in maintaining qualitative standards in direct selling. ? Out of 300 – 400 odd MLM corporations in India, only 16 recommended members are:
1. Amway India 7. AMC Cookware 12. Avon Beauty 2. Forever Living 8. Hindustan Lever Network 13. Herbalife 3. ModiCare 9. Oriflame India 14. Quantum Int'l Pvt. Ltd. 4. Sun rider India 10. Direct Educational Technologies India Pvt. Ltd. 15. Tupperware India 5. Altos Enterprises Limited 11. Daehsan Trading (India) Pvt. Ltd. 16. Max New York Life
7) People that we meet in network marketing: That MLM has a low conversion ratio is a grim fact. Mark Yarnell, a well-known network marketer gave a good indication of the kind of negatives that you will get when you do prospecting. He says that out of 200 people you contact, 80 will say no when you ask them to meet up with you (REJECTION). Out 120 that say yes, only
70 will turn up (DECEPTIN). For those who turned up, 13 will become distributors; 57 will actually not be interested or will just walk out (APATHY). Of 13 persons who joined you, only one will stay and eventually will make money, other 12 will leave over time (ATTRITION). For you to succeed in this business, you need to prepare for these mental adversaries: REJECTION, DECEPTION, APATHY & ATTRITION. But with 3 – 5 like these associates one can build a very successful organization (network) that can fetch a very high income.
II. Actually what network marketing is? 1) MLM Vs. traditional business: MLM Business Traditional Business ? there is only one link between manufacturer and final consumer ? We have national agent, regional agents, and few other middle-men, then comes retailer. ? With little or no cash, you can create your own organization. ? Major requirements to do business. Viz. Capital, skills, risk factor. ? No risk ? Risk bearing capacity
Area agent Wholesaler Retailer
Traditional channel. MLM business 37
2) One of the most important reasons to join MLM is: Time Leverage
For example: General people: 8hrs/per day × 5days/per week = 40hrs/per week 40hrs/per week × 50weeks = 2000hrs/per year 2000hrs/per year × 40years = 80000hrs/your whole life. Top Corporation: 80000employees × 8hrs/per day = 640000hrs/per day. Our salary = Rs. 200/- per hour × 80000hrs. = Rs. 16 Mn. /life. Corporation’s income in a hr. = Rs. 50 X 640000 hrs. = Rs. 32 Mn/ day.
If your job pays you on hourly basis, you may alleys find it difficult to break away from making ends meet.
So: our entire life’s earnings are Top corporation’s ½ day earnings.
3) The MLM matrix
You Introduce You Introduce
4 8 16 9 27 81
Tottall 30 Tottall 120
2 + 1 = 90?
25 125 625
Tottall = 780
4) Types of network marketing matrix:
A. Uni-Level MATRIX PLANS
This is often referred to by the un-informed as the Dreaded "Pyramid". A Unilevel Matrix allows you to have Unlimited Width and Limited Depth. Simply Point let's say that you are personally responsible for signing up 10 team members. You will earn a commission on all sales generated by your 10 Team Members. (You could in fact sign up 100 or 1,000 or even 1,000,000 or more people on your first level). Now lets Say each of your 10 Team members Sign up 10. Since 10x10 is 100, you will now have 100 People on your 2nd Level. You would also earn commissions on all Sales Generated by your 2nd level. A Typical Uni-Level will pay down 5 or More Levels. If each person were to continue to get 10 this would leave 1,000 people on your 3rd Level, 10,000 People on level 4 and 100,000 People on level 5. A very promising but highly unlikely scenario.
B. FORCED MATRIX Pay Plans
A Forced Matrix is Similar to a Unilevel Matrix but it limits the amount of people each person can have in their first Level. A Very Popular Kind of forced Matrix is a 3x9 Forced Matrix. With a 3x9 Forced Matrix The Most People you can have on Level 1 is 3. Now the most people each of those 3 can have on there level 1 is 3 which leaves you 9 people on your 2nd Level, A 3x9 Matrix by the Levels
40 ? 3 ? 9 ? 27 ? 81 ? 243 ? 729
? ? ? ?
2.187 6,561 19,683 Total - 29,523
One Advantage of a Forced Matrix is Spillover. Spillover occurs when you sponsor more people then can fit on your first level. So if we use the Unilevel Example above and Assume Everyone Sponsors 10 You Would not only completely fill your 3x9 Matrix but you would actually have enough people left over to fill a 10th level of 59,049 and partially fill an 11th level of over 170,000.
C. BINARY PLANS
A Binary Plan is like a 2xInfinity Forced Mat rix with a Twist. In a Binary you would have 2 Legs. You would typically earn a commission on the Entire Volume of your weakest Leg. Many binary's have systems in place that may allow you to earn Commissions at a later (via a Carryover) on your Strongest l eg. While the pay plan is important. It clearly is only one small part of the MLM you choose to join. You should look at the whole package, Pay Plan, Product, Automated Tools. Market Size, Start Up Costs etc.
II. Why Network marketing? 1) Why do organizations prefer MLM distribution system? Difference between MLM and traditional business is as follows. MLM a. Very small salaried staff. b. No expenditure on advertisement. c. Selling and distribution expenditure variable. For instance; if the sales occurs only then the commission is payable. d. High level of personalized service. e. Greater multiplier effect. Traditional channel a. Large size salaried staff. b. Very huge expenditure on advertisement. c. Fixed selling and distribution expenditure. For instance; if the sales target is Rs. 100 Cr. And expenditure on advt. = Rs.5cr. S & D expense = Rs. 20 cr. even if the
sales is Rs. 80cr. There will be no change in the expenditure. d. Personalized service is a costly affair. e. Lesser multiplier effect. In today's world of rapid change, direct selling offers companies: a direct distribution channel that can be accessed immediately bypassing rigid and costly traditional distribution channels.
2). Why is it necessary for the individuals to join a good network marketing organization? For individuals, it is important to understand some following points: A. Three development stages of a country: I.Under-developed country 1. In an underdeveloped economy poverty prevails. 2. There are very few white-collar jobs and business is mostly conducted by small vendors. 3. You could compare this stage like the tank is filled with small fishes; that compete against each others. II.Developing country: 1. Huge capital investments required for developments such as infrastructural, industrial etc. 2. Government encourages big factories or selected few businessmen to produce goods for export and to earn foreign exchange. Which require huge investments – small vendors do no have. 3. Establishment of corporations, opportunity for selected businessmen to have their companies goes public and listed in stock markets. These corporations normally become big and very wealthy.
III.Developed country: 1. Where infrastructure is done, factories are built; people have higher standards of living. 2. Big corporation flush with money. Will begin to go into business sector that used to be the territory of small vendors. 3. The difference is that, these corporations will go into these sectors in a big way. Huge technological developments, more expertise, economies of large scale. For instance; Reliance and other multinationals are entering in the retail sector, where there were small players until now.
Currently India is in the transitional stage, from developing stage to developed stage. A tank formally of small fishes, usually survive together. But now of really big fishes are entering in tank, where big fishes are eating away small fishes. Welcome to the business world.
B. The result in the market place: In the developing and developed economy; the large corporations destroy many small and medium businesses, even those who have made sufficient money in the developing stages and are the stable. Only the sectors where the large corporations don’t want to enter are safe. The trend then becomes that instead of going into business for oneself, it appears more sensible just to buy shares of those companies, or to work for those companies. “If you can’t beat them, then join them.” We buy shares of the companies which are listed in the stock market. To increase the share price, the company will do two of the things; viz. reduce costs or increase sales. To increase sales, one either will find new market or expand the market share. When Wal-mart, reliance will enter into in to market, they will enter in a big way. The medium and small sized businesses are likely to collapse. But these entrepreneurs still need something to fulfill their entrepreneurial spirit and MLM might be to only vehicle for them.
C. Facts that one needs to face: 1. There is now little opportunity for you to be a traditional business person, as even established small companies face difficulties in surviving. How can one compete with big time multinationals… ? With listed companies, when they use the money they raise from the stock market to compete with small and marginal entrepreneurs? With economies of large scale they are able to sell a product at the cost price of the local vendors. When they can give out special deals or loss leaders every week, selling at their wholesale price to attract customers to their doorstep? When they have money to employ specialists and professional help? When they have money to set-up their shops at the best selected
locations? When they can build a one-stop shopping mall? Most people who run small and medium scaled business, are not afraid of hard work… .they are troubled by the facts that rules have changed.
2. It will be difficult to keep up with inflation and taxes, working for other people. How much was it enough for a family of four to run a house (no luxuries, just necessities) 40 years back? Ans: Rs. 100 – Rs. 200 p.m. How much is it required for the same family to run the same house today? Ans: Rs. 15000 – Rs. 20000. And how much do you think one will require 40 years from now, if you count at the same rate Ans: Rs. 500000 – Rs. 750000 The inflation rate, as this project is prepared, is about 5% p.a. If even half of what is predicted is required; you should better plan for it right now. India underdeveloped country then; and it will be a developed economy 40 years from now.
D. Globalization at only the tip of iceberg: 1. Developed economies are experiencing white collared job shifts like back office banking, auditing, financial analysis, semiconductor chip design, aeronautical design, call centers and so on, to developing economies, as there is 60%-70% reduction in costs. Bank of America is shifting 4700 credit card jobs to India. Microsoft and IBM are going to pledge over $450 million p.a. and $1billion respectively to India in next three years. India is Volvo truck’s 4th largest and fastest growing manufacturing and exporting hub. Globalization is lowering the income bar in the developed countries, to that of rest of still developing world. Big corporations in the developed countries will be able to cut costs, increase profit margins in the countries like India, China, the Philippines and the eastern European countries will benefit. Theoretically, in spite of structural unemployment the GDP of the country remains same, but with less people needed.
There are countries even cheaper than India, if jobs are outsourced here, they can be outsourced anywhere. That is why Tata, Mahindra etc are all expanding in Africa, Vietnam etc. that time is not far away when Jobs from India will be outsourced to one of these countries. Some Indian jobs have already competing with global salary standards! So the cost benefit is gradually eroding away. “The future belongs to the one who starts preparing for it from today.”
E. On the brighter side ? Several large corporations like HLL, Johnson N Johnson, Gillette, etc are trying MLM to efficiently reach out their customers. ? MLM approach helps to reduction in distribution, after sales service, and other related overheads. This enables the company to reach out the customers more effectively and more efficiently. Statistics given by “World Federation of direct Selling Association” (W.F.D.S.A) indicate worldwide growth of MLM by $10 billion in 1980s to $40 billion in 1992 to $70 billion in 1996; touch $100 billion mark in 2000. In the two biggest markets viz. India & China, network market is still in the infancy stage.
RECOMMENDATIONS AND CONCLUSIONS.
I. Traits of a good MLM company: 1) Products: Most important criteria to choose a good network marketing company. MLM companies are essentially a product driven company. Consumable products should be the primary products of any MLM company that is going to last... All good companies must have a wide range of products, not just a handful. The reason: for success in MLM business you need to have as many people you can. Therefore the product range must wide enough for these people to choose from. One may not like everything that is sold by the company. Customer satisfaction guarantees not only good product but also ensures good price and avoid turning business into a pyramid scheme. A good customer satisfaction guarantee makes easier to sell the products. Good patented products. No company is going to apply patent license for poor products. Products are sold through MLM only, not through any other
2) Company: Proven financial stability: It is always advisable to ask for established and financially stable company. The company should represent their steady growth, sales figure and sales history, ultimately projecting their future trends. Good reputation and background, strong management and established international markets in place. If it’s a new company then make sure that the owner has at least 10 years of MLM experience. Never join a company just because the owner is rich. Don’t join even if there experts employed by the company. Extensive support network: your company should offer extensive support network, for training seminars and materials, to incentives and helpful staff at regional, national and international levels. Your success depends on MLM Company’s success.
3) Business plan: What is the real bonus paid by the company? Are there multiple income opportunities? A variety of income opportunities must be offered to you, along with the advantages of working on your own schedule, either part or full time. You should earn multiple opportunities to earn money. No pass-ups: you should look for the marketing plan that rewards for your efforts. When someone you sponsored and introduced to your MLM business excels in sales, you should be rewarded and not passed up. No demotions: distributors should not be demoted due to inactivity of sales. Once you’ve been promoted to certain level you should be there for lifetime. Bonuses paid on retail cost of the product: even though you pay wholesale price of product, a quality company will still pay you on the RETAIL prices of the product. Marketing plan should be simple and foolproof, and should not change frequently.
II. Suggestion to MLM organizations: 1) Should operate legally. Should comply with all the laws. MLM companies operate under their own set of guidelines which come in every possible variety imaginable. The general looseness of
the guidelines has resulted in a large number of lawsuits from distributors who have lost substantial sums of money in the programs. The landmark legal case for the industry is the 1979 Federal Trade Commission ruling on Amway which found that although Amway engaged in deceptive practices, as long as profits were made through the sale of product, the company could continue to operate within the law. For MLM businesses to operate legally, they must meet the following criteria: 1. The company brings a product or service to the marketplace that is (a) retailable and (b) being retailed; 2. The product or service reaches the end user through direct sales representatives (independent contractors), rather than through traditional retail establishments; 3. The company's compensation plan (a) is designed to reward representatives for the sales of the product or service they make, and (b) includes a feature that additionally rewards a representative who introduces an additional representative to the company, based on the sales volume of the second representative. A business that has all these components except for 3 (b) is a singlelevel direct selling company. 3 (b) is what makes it an MLM. All of the criteria above must be met for the MLM business to be legal. Any
missing component turns it into an illegal business. For instance, if in 3. The second representative does not personally sell the product or service, the business is no longer legal. How much that percentage of sales needs to be has not been defined. If a program compensates representatives, directly or indirectly, simply for the introduction or enrollment of other participants in the program, it is considered to be a pyramid scheme which is illegal. Additionally, recent court decisions have ruled that at least 70% of all goods sold by the MLM Company must be purchased by nondistributors. Beyond understanding what an MLM is, however, there is still an incredible controversy raging about whether these companies really do what they say they do. 2) Should be managed by competitive staff: The staff of MLM Company should constantly monitor the networking activities of its distributors, to prevent game playing. They also should constantly work on the distributor training
program; upgrade it in order to suit the distributor requirements. 3) Better PR: The organization should have a better policy in order to create a favorable image of its company. IDSA registered company can enjoy the benefits of being regarded as the credible companies. The IDSA then handles the P.R of these companies.
3) Suggestion to network marketers: I. Roadmap to success in MLM: .
Cannot find people.
Can find people.
Don’t want to listen.
Want to listen.
Don’t want to do.
Want to do.
Can’t build a business.
Can build a business.
Could not leverage.
II. Tips to do a good business: 1) Always have professional attitude 2) Cultivate a pleasing personality 3) Work with others interest at heart. Help others get what they want and you will get what you want. 4) Build your organization based on proper ethics and values. 5) Be honest and transparent. Never exaggerate or make false claims regarding products or possible earnings. 6) Teach all people in your organization the same concepts of business. This will ensure sustainable growth. 7) Be passionate about the products and business. 8) Believe in yourself. Be self-confidant.
III. Solution to “game playing”: 1. Work the business in the healthy way; your bonus must reflect the number of distributors in your organization. 2. When a distributor feels that he is been dragged into the game; it
is recommended that one must listen to his upline carefully at first. After confirming that it is really game playing just ask few questions, not one at a time; altogether. “I would like to ask you a few questions.” “Why are you asking me to buy so many products at once or to make the pin level?” “How will this benefit me?” “And how will this benefit you?” “Is this the proper way to do the business?” By listening to this he might understand that you are aware of “Game playing”. 3. A good MLM company will have 25-75 product buying rule i.e. that unless the distributor has sold 75- 80% of the previous stock, he is not allowed to make a new purchase. 4. A final solution; termination of the membership of distributor playing game.
MLM in Eddy Chai’s words And god said “no” to multi level marketer: I asked god to give me bug organization. And god said, “No.” He said he gives courage And it up to me to built it. I asked god to give me knowledge to build this organization. And god said, “No.” He said he gives me wisdom And it is up to me to learn. I asked god to take away my pride so that I will learn And god said, “No.” He said it was not him to take away But for me to give it up. I asked god to give me happiness. And god said, “No.” He said he gives me blessings But happiness is up to me. I asked god to make my spirits grow And god said, “No.” He said he gives me blessings But he gave me a book to guide me. I asked god to help me love my associates As much as he loves me.
And god said, “Ah, finally you understand multi-level-marketing”
? SCOPE OF STUDY(Birth of MLM): "Tai Chai – book for success in MLM". by Eddy Chai. International statistical figures: World Federation of Direct Selling (W.F.D.S.A.). Domestic statistical figures: Indian Direct Selling association. ? METHODOLOGY. MLM concept model: Forever Living Products Int'l Inc. Types of MLM matrix: www.mlmwatchdog.com. Reasons to MLM: "Tai Chai- book for success in MLM". by Eddy Chai. ? RECOMMENDATIONS. Tips to choose a good network marketing company: (Federal Trade commission, U.S.A., (W.F.D.S.A.). MLM road map: "201 ways to make money in MLM" by Richard Tan & K.C. si. And interview with Amarjeet Ubhi.