Learn what Multilevel Marketing is, what the concept is and what companies practice – WAU
Multilevel marketing (MMN) or network marketing is a sales model in which a reseller gains a share of the profits made by him and his reseller network. Thus, the gains can come from direct sales or recruiting new salespeople.
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Today’s article will address one of the most controversial variations in the areas of marketing and sales: multilevel marketing (MMN).
But why does this controversy exist? Is that, normally, those who practice network marketing defend tooth and nail the model. Many even become quite insistent when they present their MLM plan and invite others.
This reason, combined with ignorance and mistrust, ends up generating a significant rejection of multilevel marketing in many people.
Anyone who has exchanged an idea with the most engaged resellers of companies like Hinode and Herbalife may have had bad impressions of this type of marketing.
However, before forming an opinion on multilevel marketing, it is more interesting to know more about how it works, right?
So, let’s talk more about the concept, the advantages, the confusions that exist with the pyramid schemes and the companies that practice MLM. Follow!
What is multilevel marketing and how does it work?
Multilevel marketing (network marketing or network marketing) is a sales model in which a reseller gains a share in the profits obtained by him and his network of resellers.
It is also a modality of direct sales, which is based on personal contact between sellers and customers to sell products and services – Mary Kay is a classic example of a company that operates along these lines.
This model was created in the 1940s, in the USA, by Carl Rhenborg. Multilevel marketing was and is a evolution of traditional unilevel direct sales, which is the individual earning of commissions.
The multilevel thus came to encourage resellers, in addition to selling, to attract new distributors for a company.
It is like an opportunity for a promotion, in which the salesperson becomes a leader or a sales manager, and increases his earnings.
Double work and bigger gain
At the multilevel, a retailer needs to strive to sell its products to its normal customers (generating direct profit) and attract new sellers to your network (making an indirect profit, through the residual commission).
The work is bigger, because when you form your own team of salespeople, it is necessary to offer full support for them.
Training, guidance, awards are needed, in short, whatever is necessary to maintain an engaged network of resellers.
In the end, so much effort is rewarding, since the better prepared your team is, the greater your profits will be.
What are the advantages of this model?
This benefit may seem like a salesman’s chat, but it is undeniable that working with direct sales brings a certain freedom.
After all, if you enter this business model, you will be able to choose how many hours of the day you will dedicate to work, the type of product you want to sell and the audience to which you will sell, for example.
But it’s always good to remember that your gain will be proportional to your productivity.
Support from large companies
To work with direct sales is to enter a market consolidated by its numbers and by renowned companies.
For you to have an idea, this sector moved R $ 40.4 billion in 2016, according to a survey by the London Association of Direct Sales Companies (ABEVD).
In relation to companies, one must consider the structure that brands such as Amway, Jequiti and Herbalife can offer.
By structure, we are considering well-defined commission and bonus plans, product quality, training, respect and commitment to resellers, among other relevant points.
Scalable earnings model
This is one of the main characteristics of multilevel marketing. For example, when a reseller recruits a new distributor, that new member can, after a while, create their own network.
People who are included in the network by this new member can also form their own teams and, in this way, sales force levels multiply sequentially.
It is this scalability that characterizes network marketing and amplifies sales leaders’ earnings.
However, it is important to note that most MLM companies limit a leader’s earnings after a certain amount of multiplied levels.
This barrier is hardly more than 5 networks created. The intention is to maintain earnings based on sales, even for prevent recruitment from becoming the only revenue channel of a professional.
And the disadvantages?
Initial investment can be expensive
This is a detail that depends a lot on the person and the company chosen.
There are plans that sell through catalogs, so resellers do not need to purchase products to market them. They earn a commission on the sale.
But there are also plans, the most common ones, that require the dealer to make an initial investment or buy the products to resell at a suggested price.
In this case, there are companies that charge less than 50 reais, others have minimum plans of 130 reais, others that charge more than 200. Anyway, the amount will depend a lot on the products and kits purchased.
Anyway, this creates a certain risk, especially if they are products that the person has difficulty selling.
Creating long-term networks
Multilevel marketing is very attractive because of this possibility of gain from the creation of your own network of salespeople.
However, even salespeople with a little more experience it may take a while to create your own sales teams.
Imagine, then, for people entering this business with no sales experience? If it will be difficult to win the first customers, attracting new salespeople will become an even more complex mission.
Therefore, obtaining a good return with the creation of own reseller networks is something that will require long months, maybe a few years.
Are multilevel marketing and pyramid the same thing?
This is perhaps the main controversy surrounding the concept of multilevel marketing.
As part of a salesperson’s profit is generated through the productivity of the distributors recruited by him, many people believe it is a pyramid scheme.
But this has nothing to do with the pyramid!
In addition to being illegal in London, pyramid schemes carry three determining characteristics for their characterization:
- there are no products or services being marketed to those outside the pyramid. If there are goods, they have no market value compatible with the initial investment made to enter, that is, they serve only as an excuse;
- profit is obtained only with the entry of new members into the scheme. Whoever invests to enter can only survive in the pyramid if he can invite other people to enter. Thus, a little profit is generated for you and a lot for those at the top;
- the pyramids have an expiration date. After all, there comes a time when the base is unable to recruit more people. This interrupts the flow of money, dismantling the pyramid, since the top will not be able to support the base, which is much larger.
In addition, pyramids do not usually offer training for their “salespeople” and the processes are discontinued over time.
Below, you can see a short video made by ABEVD that explains the differences between multilevel marketing and pyramid schemes.
By the way, checking if a company is associated with ABEVD is one way of knowing if it, in fact, practices network marketing.
Another is analyzing whether her focus is on gain through sales (typical of MMN) or whether she insists on recruiting new members (characteristic of the pyramids).
To get an idea of the danger of the pyramids, just remember or know the famous case of Telexfree. The G1 portal showed how it worked and continues to this day reporting the legal consequences of this scam.
What are the known companies that practice MLM?
Well, after this little police excerpt from our text, we are going to improve the mood by talking about legal examples that have worked very well in multilevel marketing.
We selected 4 companies that show how sustainable and rewarding this business model is. Check out:
Amway, which is part of the Alticor Group, has been the world leader in this segment for some years. It is present in 100 countries and has 3 million Amway Entrepreneurs (as its resellers are called).
The company works with nutrition, beauty, personal care and household items. Among them, brands known as Nutrilite ™ and Artistry ™.
Directly from the Silvio Santos Group, Jequiti has, in recent years, gained space in this market of direct sales and multilevel marketing among beauty and perfumery products.
In addition to the traditional commissions, the program draws attention to the possibility that its consultants and sales managers can participate in SBT programs, such as Roda a Roda Jequiti, and earn prizes that can reach up to R $ 1 million.
Not to mention the incredible opportunity to meet Silvio Santos, right?
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Herbalife has collected almost 4 decades of history and is one of the largest global nutrition companies. Its products, such as supplements, shakes and protein bars, are aimed at stimulating and promoting a healthy life.
The company has also suffered from accusations and public campaigns that tried to prove that it is a pyramid. However, none of these attacks affected the company, which reinforces its direct selling character, so much so that it is one of ABEVD’s associates.
After we have explored multilevel marketing, it becomes more evident to understand the controversies that surround it.
On the other hand, we can also prove that it is a sustainable business model, based on meritocracy, productivity and the creation of solid relationships throughout the sales chain.
Anyway, mistrust with this modality can even be maintained, but those who practice it ethically and correctly, only tend to benefit themselves and the market.
For multilevel marketing to be a profitable business for salespeople, it is essential that they create good relationships with companies, customers and other resellers.
For this reason, we recommend reading our article: Relationship Marketing: what it is and why it is important for your company.