The assumption is based on relationships, completely bypassing advertising, including traditional media such as newspapers, outdoor banners, television or radio, and Internet media, m.in any PPC advertising, social media campaigns. Nowadays, one might be tempted to say that such marketing is irrelevant, and yet, many of us still encounter this form of marketing. So how does multi-level marketing work and how does it attract new customers?
Multi-level marketing – what is it?
Multi Level Marketing or network marketing is best known for its short name MLM. Most of us have ever met with this name and probably know, more or less, how people involved in it work. Let us, however, bring its definition a bit closer: the premise of multi-level marketing – MLM – is the sale of products and services through direct marketing. So it is based on relationships with people and WOM (Word of mouth) or viral marketing. What, on the one hand, completely differentiates multi-level marketing from other forms of marketing is that every buyer who wishes to do so can be involved in sales. Then it gains not only discounts on given products, but also a commission on sales (both its own and sales representatives taking place below in the structure). On the other hand, some issues are relatively similar to other forms of marketing, e.g. in internet marketing, where customer references and WOM opinions are equally important.
How does sales look in multi-level marketing?
The quintessence of sales in multi-level marketing are commands and a large part of business is based on them. Distributors purchase products from the company and then sell them to others. Nevertheless, sales representatives, i.e. people involved in the operation of a given MLM, can reach their clients in very different ways, using both more traditional forms and more often, they are leaning towards online solutions, for example by acting in social media.
Nevertheless, according to a report carried out for the global MLM association in 2018, direct contact still plays the largest role. As much as 74% of distributors rely on such contact, and the majority of sales are made via traditional channels (61% by phone and 50% during product presentation, e.g. at distributors’ homes). Unlike most prosperous businesses today, companies based on multi-level marketing only make limited use of sales through their website or social media.
Products or services are therefore sold by people who have often tested them on their own and want to recommend further. Everyone involved in multi-level marketing can earn in two ways:
– by employing more people who also become distributors (earning a
commission for each sale),
– by selling yourself.
People involved in sales decide themselves how they want to acquire new customers and increase their network. According to the MLM report (2018), distributors contact potential customers and sell through:
– contacts with relatives (family, friends or neighbors),
– business contacts (work friends, conferences, business events),
– social media activities,
– meetings at home and during product presentations,
– phone calls,
– other unplanned occasions,
– own website or blog,
– door-to-door sales.
Structure in multi-level marketing
A company operating in the form of MLM sells its products to distributors, also known as consultants or ambassadors, at much better prices. Discounts reach up to 60% and depend on the sales volume of a given consultant. Not without reason, multi-level marketing is also known as network marketing – because each of the distributors can encourage sales to more people, thereby benefiting from commissions and increasing their profits. Each subsequent person can also involve others, thus building a network and moving higher in the entire pyramid.
What is the most common way of recruiting new people to MLM?
For many people, joining the group of consultants and starting sales seems relatively easy. Most often, it is enough to purchase products of a certain value and register on the website of the company selling in the form of MLM. There is no obligation to set up your own business or other requirements that could make registration difficult at the beginning.
A new consultant is required not only to regularly purchase products of a given brand, but also to increase their sales in subsequent periods in order to be able to receive further discounts and take advantage of additional sales opportunities (e.g. during specially organized events or meetings).
Expanding your network of contacts and recruiting new people. A consultant can also make profits from the sale of people he recruited himself and who will be lower in the hierarchy. Additional bonuses and bonuses are dedicated to those who have extremely fast increases. By increasing their earnings and expanding the network, a given consultant has the opportunity to further develop.
Seemingly, MLM recruitment seems to be a simple path to success and high cash. Nevertheless, very often people involved in the sale of products have to resort to aggressive licks to increase their shares, which is negatively assessed by many consultants (especially beginners). Character traits play a key role here, and whether a person likes the product they are selling. According to the report, those who liked the product they sold and believed in a given product were more willingly involved in and more satisfied with working at MLM.
Multi-level marketing – working time and consultant’s duties
According to the analyzed report, over 60% of people operating in MLM have another job in full or part time, and MLM is an additional form of income, for which 45% of people devote on average 1 to 8 hours a week. Less than 30% treat work in MLM as the only form of income and very often devotes more time to it, i.e. from 8 to 30 hours a week.
The responsibilities of distributors include both acquiring new contacts and recruiting new people to the network, as well as taking care of regular customers. According to the report, distributors offer their regular customers free samples of new products, additional discounts and loyalty bonuses as well as product catalogs or special meetings to discuss current issues and help build their network.
Sales motivations in multi-level marketing
There are many reasons why more people start working as a consultant at MLM. The study participants most often agreed that working in direct sales at MLM gives many opportunities to meet new people, improve their communication skills, manage themselves over time and learn sales techniques. This type of business was also a great solution for those who work full or part time, and thanks to MLM they could earn extra money.
Respondents equally often stated that working at MLM allowed them to develop their confidence and courage.
Multilevel marketing companies motivate their distributors in various ways and encourage sales growth by offering, among others:
– cash rewards (e.g. for reaching a given sales ceiling)
– material prizes (and prizes in the form of meetings and events reserved specifically for people who have achieved a given level or reached a given level of sales),
– commissions for the sale of persons who have been awarded recruited persons,
– greater discounts on products or services.
About the controversy around multilevel marketing
Multi-level marketing has both its supporters and opponents, who spread their opinion among the closest people, thus creating an opinion on the operation of MLMs. Around the activities of companies based on multi-level marketing, there are also many controversial rumors related not only to the issue of financial pyramids, but also relationships or activities of distributors to increase sales. In the history of MLM we will encounter several cases of total fraud and unlawful activities. This is often associated with the inability to regulate the obligations and manner of work of distributors.
MLM is also often associated with the use of sales techniques that are unethical and based, for example, on the consumer’s ignorance and tricks that they simply manipulate. It should be emphasized that not every company that uses multi-level marketing has resorted to such methods, but it is something that – especially in recent years – consumers have paid special attention to.
It is estimated that most people involved in MLM lose money. Only a few people who have been operating for a relatively long time are able to build their network and profit from these activities. Therefore, many people who have tried to start their career in a company based on multi-level marketing, but have not managed to develop their network, have a very skeptical approach to the operation of such companies. The problem is also repeatedly the lack of transparency in such companies, which makes it difficult to simply calculate profit and loss.
Summary – is it profitable to develop a multi-level marketing business today?
Nowadays, it is impossible to rely solely on one marketing channel. It turns out that despite the fact that some channels do not sell directly, they play an important role in the entire purchasing process and direct the customer towards the final decision which is to buy or use the services of a given company. What’s more, focusing all your activities on direct sales may not bring the fast and pre-planned results that the entrepreneur is waiting for. Especially in times when most companies move their activities to the online world and completely give up offline sales – such as multilevel marketing. An entrepreneur who wants to develop his company and invest in additional marketing activities must consider many channels and forms of communication with customers and sales. More and more companies are leaning towards omnichannel marketing, which uses different channels to reach the recipient (both online and online).