Chai Ming Poh

26^th October 2004

Nowadays, many people have changed their ways to market their products. Since the world population keeps on increasing, the costs of doing traditional marketing also keep on increasing. Hence, another type of marketing system has been introduced since few decades ago, which is known as Multi-Level Marketing (MLM).

Today, there are many people still confuse with the terms of Multi-Level Marketing and Direct Selling. Some people even still no idea with the term multi-level marketing. They thought that direct selling is the marketing system which practicing by the companies like Amway, CNI, Forever Living, Nu Skin, and so on. Actually, instead of direct selling companies, these companies are Multi-Level Marketing companies. There are many differences between direct selling and multi-level marketing.

Direct selling, from the term itself we can know that it is selling products directly from the manufacturer. This is the shortest distribution channel that we can see in our society nowadays. Direct selling is practicing by the companies such as car dealer companies and insurance agents.

Direct selling is a type of “traditional business”. People who are doing direct selling will only gain commissions from the sales that they made. Their income is only based on the sales he or she made. People whom doing direct selling need to worry about the country or even the world’s economy going on. So, it is not easy for a person to success by doing direct selling.

People who can success in this field need to have several characters. First of all, people who doing direct selling need to have a very good appearance, it make easier to attract customers. Secondly, people who doing direct selling must be very talkative, then he or she can make higher sales and gain higher commissions. Thirdly, they must have good selling skills. Besides of the characters I mentioned above, people who doing direct selling also need to be able to handle stresses. Therefore, every transaction they make must have very high profit. So that, direct selling leads to increase in price of consumer goods.

Multi-Level Marketing is also known as “network marketing” or “referral marketing”(Carroll, 2002). It has been introduced as a modern marketing system because it helps many people to earn money through a different way and it has been proven to be a very success way. That is a way of selling goods or services through distributors instead of selling products or services through the traditional distribution channels.

According to Sonu Biotech Pvt. Ltd., Multi-Level Marketing is a fifty years old industry having its presence in more than 120 countries worldwide and having an annual turnover of more than hundred billion. This industry has given self-employment to millions and millions worldwide. This business can be started with very little investment, has no risk, can be operated efficiently from home and has unlimited income potential. It would solve the major unemployment problem over the world. This business is solely done by way of recommendation of products or services through our friends, neighbours, relatives, associates and others. So, with very little effort and time, one could earn a sizeable amount of income (Sonu Biotech Pvt. Ltd).

On the other hand, multi-level marketing obtain high quality products and provide products at cheaper price. Hence, multi-level marketing will have a very bright future. Most of the world's leading economic forecasters say that shortly after the turn of the century, fully 75% of the world's consumer business will be conducted via multi-level marketing plans (Kroeker, 2004).

Multi-level marketing companies can market their products or services at cheaper price than traditional business, because it reduces the time and up-front advertising and marketing expenses of getting products and services to the end consumer. Compared to a conventional distribution method via importers, wholesalers and retailers, in multi-level marketing, there are fewer start-up costs, and fewer employees for the company to contend with in both the short and long term. This helps reduce the high operating costs and allows the savings to be used to fund research and development of quality products.

According to the statistics from Nu Skin Enterprise, there are more than 20 percent of the millionaires in U.S. made their fortune in multi-level marketing. Although thousands of people have become wealthy in as little as 2 to 3 years due to the power of multi-level marketing, it is not a "get rich quick" business. In reality, multi-level marketing is a "get-rich-slow" business for most people. It takes a lot of hard work, patience, persistence, commitment in time and money, a strong desire to succeed, and a never-never quit attitude. No business enterprise is easy, and multi-level marketing is certainly no exception.

The concept of multi-level marketing is in itself a good one and it does create a great marketing benefit. Multi-level marketing is built on a sound product or service by itself; hence it would have good sales. The distributors gain commission from their repeating sales. Unlike direct selling, multi-level marketing companies giving very low commission to their distributors. Multi-level marketing distributors just need to set up a consumer group to maintain their sales. Hence, it can be a lifelong business for anybody who interest in it. Usually, multi-level marketing companies are selling consumable products. Therefore, the distributors will gain the commission from the repeating sales. Unlike most of the direct selling sell durable products and just earn the commission once only. For example, car dealer can gain high profit on every single sale they made, but people will not keep on repeating to buy cars. By doing multi-level marketing, the distributors can gain commissions from the repeating sales made from the consumer group. Although the commission of every single product the distributors sell is low, from a group of consumers, a sizeable amount of income will be made. On the other hand, the multiplication concept which multi-level marketing holds will help distributors to make money easily.

The multiplication concept actually will leads multi-level marketing to be a pyramid scheme. Many people thought that it is harmful to the society. Actually, pyramid schemes are practicing by almost all of the organisations nowadays. For example, in school, the top of pyramid is the principal, then teachers, and the lowest parts are students. In a company, the top of pyramid is the CEO or director, then there will be several department managers, and then the lowest part will be the common workers. So, we can see that pyramid scheme is only a natural phenomenon. When pyramid scheme practiced in multi-level marketing, is not harm to people.

Even though multi-level marketing brings benefits to public, many people still cannot accept this marketing system, this may because of they were cheated by some illegal companies when multi-level marketing began to be introduced. Today, governments are very strict to the multi-level marketing companies. Some of my friends who are doing Multi-Level Marketing told me that in Malaysia, there were more than 800 multi-level marketing companies established since few decades ago. Under the control of governments, there are only few multi-level marketing companies are doing successfully. In future, I believe that there will be more companies going to market their products by using multi-level marketing system. On the other hand, there will be more and more people involve in multi-level marketing.

Generally, there is good for people to involve in multi-level marketing. The most important is how we going to choose the company. As my advice for those who are interested in this field, there are certain things that we should consider when choosing a company. First of all, the product that the company sell must be consumable product and the products are benefit to the public. Secondly, the company’s marketing plan must be fair to the distributors. Thirdly, the company must have virility capital. Lastly, the company must be a legal company. These are the major things that we should consider before we decide to involve in multi-level marketing. Doing multi-level marketing is very much better than doing direct selling.

In conclusion, multi-level marketing is not direct selling. Multi-level marketing will be a modern marketing system of future but direct selling is a marketing system that now people using. Multi-level marketing helps people to success by using the simplest but not easy way, direct selling can only give people enough money to spend within particular period of time. Multi-level marketing focus on high quality products and lowest price where as direct selling increase the price and pay less attention to the quality of products. The commission that given to the multi-level marketing distributors are from the amount that traditional business pay for advertisements, transportation, shop rental, and so on. On the other hand, the requirements to be a distributor of a multi-level marketing company are very low. Therefore, multi-level marketing is going to take over the traditional marketing system in the future.

References

Carroll R.T. (2002), Multi-level marketing (a.k.a. network marketing & referral marketing), [Internet], Available from http://skepdic.com/mlm.html [Accessed 20 October 2004]

North American Securities Administrators Association (1996), Multilevel Marketing Plans, [Internet], Available from http://www.ftc.gov/bcp/conline/pubs/invest/mlm.htm [Accessed 20 October 2004]

Sonu Biotech Pvt. Ltd. Brief History of Multi Level (Network) Marketing, [Internet], Available from http://www.sonubiotech.com/pro2.htm [Accessed 25 October 2004]

Kroeker E. (2004), Multi-Level Marketing Programs, [Internet], Available from http://www.globalwealthnow.com/freereport-01.html [Accessed 25 October 2004]