MLM or Network Marketing : The Most Powerful New Engines For the 21st Century Economy
' Success ' was the first national business magazine in the US to write positively about network marketing industry. In May 1990, its senior editor Richard Poe wrote a column called 'Network Marketing : The Most Powerful Way to Reach Consumers in the 90s.' He followed up with a cover story on network marketing called 'We Create Millionaires' in the March 1992 issue. Until that point, MLMers could expect nothing but hatchet jobs from mainstream reporters. Journalists painted the industry as a get-rich-quick scheme, a pyramid game for the greedy, the desperate, and the gullible.
Nowadays, prestigious publications from the Wall Street Journal to the New York Times have begun covering the industry with a new tone of respect. Fortune 500 corporations, such as IBM and MCI, now market products and services through third party MLM firms. CitiGroup, the largest financial services company in the world, sells mutual funds and life insurance through a network marketing subsidiary called Primerica. For the last five years, the number one offering on the American Stock Exchange, in terms of profit growth, has been Pre-Paid Legal Services --- an MLM firm.
So completely has the industry’s image been rehabilitated that MLM now counts among its champions such moral leaders as Stephen R. Covey -- the world-renowned corporate ethics guru and author of the ten-million-copy bestseller, The 7 Habits of Highly Effective People. 'Network marketing gives people a creative opportunity to set up their own business and improve themselves' Covey opines in a March 1999 cover story in Network Marketing Lifestyles magazine.
History and Development of MLM.
According to Richard Poe, MLM's evolution can be broken down into 4 waves:
Wave1 (1945-1979) - The Underground Phase
Wave 2 (1980-1989) -The Proliferation Phase
Wave 3 (1990-1999) - The Mass Market Phase
Wave 4 (2000 and beyond) - The Universal Phase.
Wave 1 began in 1945. This was the industry's Wild West phase, when neither law nor order prevailed. Con-men thrived alongside genuine visionaries. At the same time, government regulators targeted MLM companies with equal recklessness, often making up rules as they went along. The chaos of Wave 1 came to an end in 1979. After a long and acrimonious investigation, the Federal Trade Commission ruled that Amway Corporation--and, by implication, network marketing in general-- was a legitimate business, not a pyramid scheme.
Encouraged by the friendlier legal climate, the industry entered Wave 2. New technology sparked an explosion of network marketing startups in the 1980s.Thousands of new companies sprang into business overnight. Millions of Americans entered the MLM sales force. But during this phase, the technology was immature. Like those VCRs that require an Einstein to program them, Wave 2 network marketing proved too difficult and complicated for most. As with the early VCRs, the technology just wasn't ready for the market.
Wave 3. Innovations like the use of computers, management systems, and cutting edge telecommunications made MLM fully accessible to the masses for the first time. They lowered the cost of working a multilevel business, both in time and money. As a result, millions of people flocked to the industry.
Wave 4 - The '90s will be remembered as the decade when network marketing became a serious industry. According to a June 23, 1995, article in The Wall Street Journal, the total number of network marketers in the US increased 34% between 1990 and 1994 and the number of full-time distributors doubled between 1993 and 1994 alone.
It was during the 1990s that network marketing spilled over the US borders for the first times, spreading, en masse into foreign countries. Many MLM firms grew more quickly inChina, Korea, and Japan than they did in the US. Also, the closing years of the 1990s saw a quantum shift in the perception of network marketing. Suddenly, major corporations were jostling one another for access to MLM networks. Wall Street analysts praised multilevel marketing in their reports. Blue-chip companies rolled out MLM subsidiaries and formed strategic alliances with existing MLM firms. The race was on to cash in on the network marketing phenomenon.
The lesson from Franchising :
Don't be dismayed by the controversy surrounding network marketing. In its early days, franchising endured similar abuse from the press and the corporate world, and for almost identical reasons. It all started back in the 1950s, when McDonald's and a handful of other daring companies discovered that they could grow ten times faster than conventional firms. Instead of shelling out millions of dollars to build and operate new stores, they let independent 'franchisees' do it for them. And the franchisees had to pay for the privilege! It seemed like a great idea. But the media attacked like hungry barracuda. They featured destitute families who'd lost their savings through franchising schemes. Attorney general in state after state condemned the new marketing method. Some Congressmen actually tried to outlaw franchising entirely. How quickly things change! Today, franchises account for 35% of all retail sales in the US. Many are among the top-rated public companies on the New York Stock Exchange.
How does MLM Thrive and Survive?
1.The death of jobs -- In the last 10 years, millions lost their jobs through corporate mergers, acquisitions, downsizing and closings. One reason is that technology has made many jobs obsolete, from the factory worker displaced by automated production lines, to the middle manager nudged out by computerized office network. Or companies downsize because their plants have moved out of the country permanently. For whatever reasons, most of the jobs slashed will never come back.
More and more white-collar workers are being forced into what Fortune calls the contingent workforce. Consisting of temps, part-time workers, consultants, and the self-employed. The contingent workforce is growing at a staggering rate.Many of those under employed professionals are going straight into network marketing companies. MLM recruiters are hard at working reaping Corporate America's human castoffs including doctors, lawyers, CPAs, stockbrokers, and corporate presidents tired of the rat race.
Based on available data from Directing Selling Association as well as other industry sources, annual sales through MLM organizations have reached about $20 billion in the US and $80 billion worldwide. The DSA conservatively estimates that about 8 million people engage in networking, in the US alone,
2.Conventional advertising and marketing strategies no longer worked. Market share was evaporating before an onslaught of interactive media, proactive media, proactive customers, and global competition. An average American today is exposed to 145 commercial messages daily. But the chances of any one advertiser making an impact have plummeted. Armed with remote controls, today's consumers now flit from one cabe station to the next, bypassing all the commercials. As the number of media outlets proliferates --from cable TV to the Internet- advertising messages are lost in the ever-widening data stream.
The 21st century will see profound changes in shopping habits, instead of going to the store, the store will come to the consumers. Billions of dollars have been diverted from conventional retailers into catalog sales, televised home shopping, and virtual stores on the Internet. Network marketing play an ever increasing role in that shopping revolution.
AT&Twas one of the first corporate giants to get its nose bloodied by network marketers. In the five-year period beginning in 1987, AT&T lost 15% of its long -distance market share to MCI and Sprint. MCI sold its long-distance service through Amway Corporation. Sprint enjoyed similar success, marketing its service through an MLM company called Network 2000. The Network 2000 independent marketing representatives were ten times more effective in acquiring customers than Sprint's telemarketing groups.
AT&Tlearned the hard way that network marketing is a fearsome competitor. But for innovative executives, it offers opportunity as well. MLM presents a solution to one of the most critical business lesson marketers will have to learn, ‘Don't expect consumers to come to you anymore’. You'll have to reach them in the cocoon itself. In this respect no marketing method does it better than MLM. Even the most elusive Cocooner will still lend an ear to the occasional friend, relative, associate, or co-worker who recommends particular diet supplement, investment plan, or Internet service provider. If handled properly, the sales pitch raises no eyebrows and provokes no backlash. Word of mouth marketing penetrates the thickest psychological defenses, with the efficiency of a uranium-sheathed armor-piercing shell.
In a world without shopping, more and more corporation will contract with firms such asAmway to deliver their products straight to the consumer. Indeed, many brand-name companies have already taken this step. IBM for instance, is now selling Internet training programs through Big Planet, a division of NuSkin International. Dupont and Conagra teamed up in 1988 to form a bio-technology venture called DCV which launched a network marketing subsidiary called Legacy USA to sell propriety nutritional products. In May 1999, the $572-milion nutritional giant NBTY acquired a Dallas based MLM company called Dynamic Essentials Incorporated (DEI), to use as marketing arm.
Perhaps no MLM firm exemplifies the Wave 4 modal of third party distribution thanAmway. The company sells cars for GM, Chrysler, and Ford; appliances for Hotpoint and Whirlpool; and long-distance service for MCI. With its virtual mall on the Internet and its catalog of 6500 products and Corporation it is showing the way to the future. Wave 4 networkers will provide a Distribution Freeway through which thousands of client corporations will move their wares.
Another MLM Success Story -- The Merger ofCiticorp and Travellers Group Delirium hit Wall Street on April 6, 1998. For the first time in history, the Dow Jones Industrial Average soared above 9,000 points. The financial press buzzed with excitement. Yet the most intriguing part of the story went untold. Pundits completely overlooked the small but critical role that networking had played in driving the Dow to new heights.
It all began with the largest corporate merger in history, announced earlier that day--an $85 billion deal between the world's second largest bank,Citicorp, and the insurance giant Travelers Group. Together, they formed a new entity called CitiGroup, which instantly took its place as the largest financial services company in the world. CitiGroup boasted nearly $700 billion in assets and 100 million customers.
So what did network marketing have to do with all this? In fact, it lay at the core of theCitigroup merger. One of Travelers Group's most valued assets was an MLM subsidiary called Primerica. It acted as a distribution channel for a wide range of Travelers Group companies. Primerica sold everything from Smith Barney mutual funds to Commercial Credit loans and Travelers/Aetna property and casualty insurance. And it sold them with extraordinary vigor. Primerica had managed to sell nearly 50% of all outstanding Commercial Credit loans. In fact, Primerica sold more of a new series of Smith Barney Inc. funds in 1996 than Smith Barney.
TheTravelers Group, in short, had synergy. Its MLM sales force provided the perfect vehicle for moving financial services. And Travelers' numerous subsidiaries kept Primerica well supplied with offerings for its customers. With Primerica, the Wave 4 Revolution had come to Wall Street. On the surface, the mega-merger of Travelers and Citicorp looked like a consolidation of traditional corporate power--a move toward bigness rather than smallness. But in fact, Citigroup sliding inexorably toward mass privatization. It cut workforce by 6% in 1998, laying off 10,400 people. And while Citigroup's conventional payroll dwindled, its MLM sales force grew, reaching 139,000 agents by 1999. Primerica agents descended on the market like birds in a flock, targeting tiny or inaccessible niches that conventional marketers might have overlooked. Thousands of entrepreneurs acting in concert accomplished what the world's greatest financial giants could never achieve on their own.
What is a Wave 4 MLM Company?
During the first three waves, network marketing grew and thrived. Yet it always remained a kind of counterculture. Network marketers had no place in the corporate mainstream. They did not appear in financial journals or Wall Street analysts' reports. They were not mentioned in corporate boardrooms or business school symposia. But as the Wave 4 era dawns, MLM has emerged from isolation. It is widely acknowledged today as a legitimate marketing tool. Its successes are noted in the business press. To an ever-greater extent, the general public views MLM as a realistic alternative to nine of five corporate employment. In short, network marketing has joined the mainstream. Unlike MLM firms in the past, Wave 4 companies are fully integrated into the corporate economy. They provide vital services to the Fortune 500, who move goods and services through MLM'sDistribution Freeway. Wave 4 companies also provide real employment to an increasing jittery workforce, worried about downsizing. They offer a living wage for full-time effort, a reasonable income for part-time effort, and virtually unlimited earning power for the ambitious and the driven.
The simple-minded MLM concepts of the past promised these things but too often failed to deliver on them. Wave 4 companies have turned the dream into a reality. To accomplish this, they had to evolve, over the years, in 5 critical ways :
The Wave 4 company provides state-of-the-art telecommunications for its distributors, Rank-and-file representatives use voice mail and e-mail broadcasts to coordinate their activities, Video and satellite TV conferences bring corporate messages into the home. Distributors access vital data at will, by means of fax-on-demand services and Web-based information retrieval.
2. Infinite Momentum
The Wave 4 company provides opportunities for sustained growth throughout the entire life of the corporation .It does this, first of all, by opening foreign markets to the average distributor, so that rank-and -file business builders can draw from the unlimited pool of global customers. Growth is also sustained through the constant introduction of new product lines and the launching of new subsidiaries and trademarks, so that, distributors always have fresh markets to conquer.
3. Turnkey Systems
A turnkey system is any method or procedure that simplifies or automates part of the business, making it easier for ordinary people to operate, Such systems form the heart and soul of a Wave 4 company. Drop-shipping programs, for instance, automate the retailing process. Instead of stockpiling inventory, taking orders, and shipping products to customers, the Wave 4 networker just gives his PIN number to the customer, who then uses that number to order what he wants through a Web site or an 800 number, directly from the company. Prospecting for new recruits can also be automated, through recruiting videos, satellite broadcasts, and Web sites equipped with auto-responders. Many companies automate the training of new distributors by providing standardized, company-run programs.
4. Sustainable Commission
Wave 4 companies balance their compensation plan so that part-timers and high rollers alike can prosper.
5.The Touch Factor
Automation has built-in limitations. As technology accelerates, so will craving for the friendly attention of human beings. Network marketing is uniquely equipped to meet that need, since it moves products via human relationships. Wave 4 distributors will never have to worry about being replaced by advancing technology. On the contrary, Wave 4 companies continually invent new ways to complement their high tech advances with high touch service, provide by flesh-and -blood distributors.
E-Commerce explosion and Network Marketing
At the turn of the millennium, e-commerce has revealed itself as the next great economic frontier. In 1998, about 17 million Americans did $7 billion worth of shopping on the Internet, Some experts predict that by 2002, those numbers will more than triple, with at least 58 million people doing up to $41 billion worth of shopping online. Network marketers are already taking a lead role in the pending e-commerce explosion.
Industry leaders are beginning to realize that customer service will be the litmus test distinguishing tomorrow's e-commerce empires from today's fly-by nights. Customer complaints are rising even faster than sales. ' Right now customer service on the Web is really atrocious.' Web merchants are now scrambling to add a personal touch to their e-shopping sites with chatrooms and Internet telephony services. Without a live person to answer questions or solve problems, the will to buy can fade in an instant.
The following example illustrate how MLMers would play an important role in humanizing the e-commerce environment:
On March 13 1999,Amway and Microsoft Corporation announced that they were teaming up to offer what may turn out to be the largest retail Web site on the Internet: Quixtar.com. Quixtar will feature more than ten thousand different products and services. In addition to its own branded products, Quixtar is expected to offer a representive sampling of the existing Amway wares, which may include everything from Addidas sneakers and Panasonic sound systems to Amway-brand SA8 cleaning products and Artistry cosmetics.
The really exciting thing aboutQuixtar, and one reason it's so important is that it already has a huge following of loyal customers; so it's got a jump on all the other sites even before the launch.--- That's a brand new paradigm for e-commerce.
Since e-commerce exploded onto Wall Street radar screen in 1998, its chief obstacle has been attracting and keeping customers. EvenAmazon.com is still running millions of dollars in the red, despite the success of its affiliate recruiting program and lavish funding from Wall Street investors. Quixtar will be the first major e-commerce roll-out to enter the marketplace with a sizable customer base already in place--- the 3 million Amway representatives world wide. Three months before Quixtar's launch, over 200,000 people had already registered at an Amway Web site promoting Quixtar.
What really makesQuixtar different, however, is the ability of new customers to get personal service and assistance from the Quixtar representative who introduced them to the Web site.
Network marketing, as exemplified byQuixtar, may will provide the magic bullet that will finally made e-commerce universally accessible.