Network Marketing Material from Wikipedia the free encyclopedia
Network marketing (or multilevel marketing; English multilevel marketing, MLM) is a concept of the sale of goods and services based on the creation of a network of independent distributors (sales agents), each of which, in addition to selling products, also has the right to attract partners with similar rights.
At the same time, the income of each participant of the network consists of commissions for the sale of products and additional rewards (bonuses), depending on the volume of sales made by the sales agents attracted by them.
1].
The scheme of the sales structure in network marketing.
The level of revenue depends on the total sales level of the distributor and the underlying branches.
Network companies may also apply slightly different schemes for paying remuneration to sales agents For example, in the UK, Amway pays remuneration depending on the volume of retail orders received for the company's products In the USA, Amway Global pays bonuses depending on the" indicators achieved during the month " (monthly productivity)[3].
Network marketing can be considered as a form of out of store retail trade, a special type of direct (personal) sales, in which the sales agents (distributors) of the manufacturer's company independently establish, first of all, on the basis of personal connections, direct contacts with potential buyers.
Sales are usually carried out at the buyer's home.
Having sold a certain product to a buyer, the distributor offers him to find new buyers for a set percentage of the sales volume; those, in turn, are offered to find new buyers on the same terms, etc.
Thus, a multi level network of buyers and sellers is created (in various network companies they are called differently partners, independent business owners, dealers, consultants, sales consultants, independent agents, etc.) [4]).
Multilevel network marketing is used by such firms as Zepter International[5], Vitamax[6], Oriflame, Talk Fusion[7][8][9], Avon Products, Neways, Faberlic, Amway, Mary Kay[10], Primerica (formerly A. L. Williams)[10], Shaklee[10], Kirby, Siberian Health Corporation [11].
The global network business is estimated at approximately $ 150-200 billion.
The largest corporations have a turnover of $ 5 to $ 9 billion per year[12].
In a number of countries — for example, in South Korea, China and the United States — there are legal restrictions on the activities of network marketing companies[13][14][15].
Content
1 History 1.1 Network Marketing in the USA 1.2 Network Marketing in Russia 1.3 Network Marketing in China 2 The attractiveness of Network Marketing 3 Principles of Operation 4 Criticism 5 See also 6 Notes 7 References
The history of network marketing dates back to 1945, when American entrepreneurs Lee S. Mytinger and William S. Casselberry became national distributors of the company "Nutrilite Products", basing their activities on the principles of network marketing, which later became widespread[10][16].
In the late 1950s, two companies were created in the United States, which by now have become the most powerful representatives of this sector of the economy — Shaklee and Amway[10] (the latter was created by Rich DeVos and Jay Van Endel in 1959 under the name "American Way Corporation").
The industry flourished in the 1980s 1990s.
By the mid 1990s, network companies offered consumers any kind of goods and services from cosmetics, underwear and art objects to car tires, household appliances, computers and long distance telephone services[16].
Network marketing in the USA At the beginning of the 2000s, formal regulation of MLM companies was introduced in six US states (Georgia, Maryland, New York, New Mexico, Wyoming and Louisiana) and Puerto Rico.
The legislation regulating the activities of MLM companies usually provides for the following requirements: the right of sales agents to break agreements with MLM companies and the obligation of companies to take back unsold products at a price not lower than 90% of the original; prohibition on the use of statements guaranteeing them a certain level of income when attracting new sales agents; prohibition on setting the minimum quantity of products that a sales agent is obliged to purchase from the company when concluding an agreement; prohibition of schemes that provide for payment only for the activities of attracting (recruiting) new sales agents.
At the same time, in many US states that do not have legislative regulation of the activities of MLM companies, there are laws prohibiting the creation and use of pyramid schemes.
On the basis of these laws, control is exercised over possible violations in the activities of MLM companies[17].
In Russia, the first practical application of the concept of network marketing dates back to the early 1990s.
The sharply worsened socio economic situation contributed to the mass attraction of people to network companies.
In the first half of the 1990s, network marketing was represented by no more than a dozen foreign companies with an assortment including biologically active food additives and cosmetics.
In the second half of the 1990s, Russian network companies began to appear, engaged in the production of their own products or the distribution of products of Russian manufacturers[18].
In the PRC, from 1998 to 2005, direct sales were banned due to the appearance of many criminal "pyramid" schemes operating under the guise of direct sales companies, in whose activities many millions of participants were involved, which resulted in mass riots and social tension[19].
Due to the ban, ten foreign direct sales companies that were allowed to operate in the PRC were forced to change the business system and sell their products through retail outlets and sales representatives[20] Since November 1, 2005, due to China's obligations to the WTO, the ban was lifted, but strict restrictions were imposed on the organization of direct sales.
Only 14 out of 200 direct sales companies operating in the country were able to pass licensing for such activities, including four Chinese and ten multinational companies (including Avon, Amway, Mary Kay Inc.).
The transition to the new scheme and obtaining licenses required additional capital investments.
For example, Amway, which started operating in China in 1995, had to spend a lot of money on rebuilding its network of 180 thousand direct sellers and switching to a new business model that provides for the presence of retail outlets, a service network, distributors and direct sellers.
Some of the former direct sellers received the status of regional distributors and official employees of the company[19].
Despite the restrictions that led to higher operating costs and lower sales, large network companies decided to continue operating in the Chinese market, based on its high potential.
By mid 2007, 14 multinational and five local companies already had licenses for direct sales[21].
Avon (China) Ltd., Nu Skin (China) Daily Use & Health Products Ltd., Pro Health (China) Daily Use & Health Products Ltd., YOFOTO Daily Use & Health Products Ltd., Oriflame Cosmetics (China) Co., Ltd.,
Kasly Ju (Tianjin) Ltd., For You Group L.L.C, Mary Kay (China) Cosmetics Ltd., Amway (China) Daily Use & Health Products Ltd., Perfect (China) Daily Use & Health Products Ltd., Guangdong Apollo (Group) Co., Ltd., Nanfang Lee Kum Kee Co., Ltd., Herbalife (China) Daily Use & Health Products Ltd., Shaklee (China) Co., Ltd Liaoning Yilishen Tinxi Group Ltd., Nanjing JOYMAIN Technology Development Ltd., New Era Health Industry (Group) Co., Ltd., Guangdong Kang Li Medicines Co., Ltd., Beijing Luo Mai Pharmaceutical Ltd.
The attractiveness of network marketing Working in a network company can be attractive for those who need additional earnings and have free time, or for those who have the opportunity to work only on a flexible schedule (students, young mothers, etc.).
According to the results of research conducted by the Direct Sales Association (eng.
The Direct Selling Association, USA), 90% of sales agents of MLM companies are employed less than 30 hours a week, and 50% - less than 10 hours a week[1].
Working in network marketing is one of the forms of private entrepreneurship.
For beginners, it can be convenient because it does not require large investments to open "your own business".
At the same time, however, the desire to become a successful entrepreneur is not enough, and only a small proportion of those who try to work in the network business stay in it for a long time and receive solid income[1].
From the point of view of MLM companies themselves, we can talk about the following advantages of network marketing[10]: the use of direct sales allows you to save on advertising and retail space; sales based on demonstrating the exclusivity of your own product can be more effective than sales through stores that offer a wide range of similar products; a company can educate loyal customers who prefer to buy only from people they know; companies stimulate an increase in sales volumes with significant commission payments to distributors.
Network companies are better able to survive economic crises than linear businesses.
Some difficulties arise for those companies that are focused on financial services or the sale of expensive goods.
During a crisis, there may even be an increase in interest in network business — people try to hedge themselves, not having a firm confidence that their workplace is safe, and often come to network marketing[12].
Network marketing allows a person to independently choose the growth rate, schedule and employment, as well as business partners.
The distributor interacts in the network on partner terms, which allows avoiding subordination relationships.
Most companies conduct
there are various trainings for distributors, including those aimed at stimulating personal development.
[12].
In network companies, people regularly receive public recognition of their results.
The improvement of personal indicators leads to an increase in the income of distributors.
But it also leads to an increase in the income of the entire company.
Therefore, in network marketing, there is usually an atmosphere of mutual assistance and partnership.
Companies regularly hold meetings where they congratulate their distributors who have reached a certain level.[12]
According to John Vaughn Aiken, the longer a person works and the more clients he has, the more income he receives from his activities.
Over time, the business begins to work for him[12].
In terms of network marketing, it is much more important not the number of personal customers, but the number of attracted distributors (referrals), the size of the created network.
Criticism of the activities of companies using network marketing methods often causes disputes in society, and MLM companies themselves from time to time become the subjects of legal proceedings.
The criticism expressed against them mainly concerns the following aspects: the similarity of network marketing with fraudulent schemes of financial pyramids; accusations of price collusion (fixing prices for the products offered); actual coercion of novice distributors to unproductive expenses at the initial stage (participation in paid training seminars, trainings and other events, purchase of training materials, etc.); emphasized emphasis on expanding the network by attracting new lower level participants, to the detriment of increasing actual sales; encouraging (and sometimes even forcing) the practice of purchasing MLM company products by distributors for their own use; the potential possibility of exploiting personal relationships as a channel for recruiting new network participants and a way to ensure sales expansion; invitations to meetings without explaining a specific goal;
not informing potential participants about possible financial risks, the potential destruction of the network due to the exit of people who fail.
the use of overly complicated compensation schemes; the use of specific rituals and techniques aimed at maintaining the enthusiasm of ordinary participants and zealous service to their company.
The activities of network marketing companies often take place outside the legal field.
The goods are not accepted back and are not exchanged, as it is required under the law on consumer rights.
Money is not returned for unrealized goods, there are cases of fraud[22].
In June 1987, an article was published in Money Magazine claiming that distributors of network companies expecting millions of dollars in revenue and selling a huge amount of goods, after deducting business related expenses, received very little profit.
Some even had to mortgage their own real estate.
Thus, in the state of Texas in the United States, 300-400 thousand dollars were invested in 1986 in the now defunct Starcom company[10].
Multi level marketing is often compared to financial pyramids.
However, an article in Money Magazine emphasizes that legitimate pyramid shaped structures in network marketing consist of distributors who make money, first of all, on the sales of a particular product personally and by people invited by them at the lower levels.
Those acting under the law include Amway, the Ada, Mich.
company, Shaklee, A. L. Williams[10].
In a lawsuit that lasted from 1975 to 1979, it was established that the Amway sales and marketing plan was not an illegal pyramid scheme.
Assistant to the chief lawyer of Florida, Fred Hochsztein, notes that some network marketing firms are legal, but many of them are not.
Illegal companies give their distributors the opportunity to make money not by selling goods, but by charging new distributors for joining the company[10].
Even legitimate companies often do not notify potential distributors of the true amount of expenses and efforts that will be required for a sustainable income in this business, while mailing lists and commercial brochures of companies contain generous promises[10].
For example, according to Amway materials, the average working distributor earns $ 76 per month[10].
Some distributors quickly change companies and sell products from several network marketing companies at once[10].
Network marketing is often criticized by representatives of the Russian Orthodox Church, who call companies that use the network concept for the sale of goods commercial cults[23][24].
In their opinion, each such company does not have its own religious teaching, but has a cult of wealth and prosperity, which is condemned.
Network companies are mixed up with New Age movements, accused of forcibly changing a person's worldview and creating psychological dependence.
Priest Sergiy Dashchenko believes: "Such psychological dependence in patristic theology is called a vice, when a person is no longer able to fix something.
In this case, the Lord Himself can have a psychotherapeutic effect through the prayers of relatives"[25].
See also Pyramid Scheme Litigation Related to Amway
Notes
1.
http://www.encyclopedia.com/doc/1G2-2687200391.html «Multilevel Marketing».
Encyclopedia of Small Business.
2007.
Encyclopedia.com 2.
↑ How does an NPA earn money (http://www.amway.co.uk/cms/opportunity/how ABO make money) 3.
How does the Amway business work?
(http://www.amway.com/en/start a business/how amway works? aid=Start+a+Business How+Amway+Works) 4.
Golubkov E. P. Marketing as a concept of market management.
"Marketing in Russia and Abroad", No. 1, 2000 (http://www.cfin.ru/press/marketing/2000-1/12.shtml) 5.
↑ Company profile of Zepter International (http://www.zepter.ru/index.php?m=110) 6.
↑ About the company Vitamax (http://vitamax.ru/vitamax/default.htm) 7.
Бизнес Business 2.0: now in video format (http://www.cnews.ru/reviews/index.shtml?2013/04/26/527185) 8.
↑ Talk Really Can Be Cheap (http://www.forbes.com/sites/quickerbettertech/2010/11/10/talk really can becheap/) 9.
↑ Direct Selling Association (http://www.dsa.org/forms/CompanyFormPublicMembers/view? id=1BE83000000A4) 10.
The Mess Called Multi Level Marketing With celebrities setting the bait, hundreds of pyramid style sales companies are raking in millions, often taking in the gullible.
(http://money.cnn.com/magazines/moneymag/moneymag archive/1987/06/01/83883/index.htm)
Link and the features of the structuring of retail chains ("Economic Review", "Marketing", No. 3, 2002) (http://www.review.uz/page/article/digest/91.htm) Law and Multi level Network Marketing (http://www.law.edu.ru/article/article.asp? articleId=158481) Specialists are required.
Payment in dollars (http://www.kp.ru/daily/22671/13270/), "Komsomolskaya Pravda", November 9, 2001 Continuation: Recruited a friend — get a percentage (http://www.kp.ru/daily/22676/13492/), "Komsomolskaya Pravda", November 16, 2001 Gshablon:Link GA Source - "https://ru.wikipedia.org/w/index.php?title=Network Marketing&oldid=64999356"
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