Multi-level Marketing (MLM) is a modified version of direct selling. Only a few firms, who do not mind experimenting in reaching out to the consumers, practise it.
Avon, Amway, Oriflame, ModiCare: Avon, Amway, Orif1ame International are among the largest MLM outfits in the world. The Indian firm, ModiCare of the K.K. Modi Group also sells its range of household and personal care products through a large MLM network.
MLM utilizes multi-tiered, nonemployee sales person scum distributors to sell the products. We have seen the process to an extent in the Amway exhibit. The process begins with the recruitment of a core group of sales persons room distributors, who have to be introduced to the company by a sponsor.
Each of these distributors picks up products worth a certain sum, say Rs 1,000 at a time, and sells them directly to the consumers. After they have sold their first consignment they are allowed to pick up their next lot.
No distributor is expected to make all sales own her own. Instead, the system envisages the distributor recruiting a second rung of distributors. The distributor earns commissions at two levels. The first is the commission that accrues to her on what she sells by herself, and is made up of the difference between the distributor price and the consumer price. The second is the share that accrues to her out of the commissions earned by the distributors at the next lower level, whom she has recruited and trained. The value of the products a distributor has sold is worked out in the form of point value (PV). Supposing a first- level distributor sells products worth 100 PV on her own and has recruited six second-rung distributors, each of whom sells products worth 100 PV; she gets a commission that corresponds to 700 PV. The distributor can, if she so wishes, charge a lower price than the one suggested by the company, foregoing a part of her commission.
MLM’s plus points: The plus points of direct selling in general discussed earlier, are plus points of MLM as well. Because of the unique multi-level nature of the distribution, an MLM distribution network grows rapidly; continuously; and automatically Multiplication and growth are inherent to network marketing. MLM is, therefore, a quick, and cost-effective, method of marketing. It is specially suited to fast-moving consumer products such as special cosmetic or premium fragrances, targeted at niche markets.
MLM’s drawbacks: Being basically a direct selling model, MLM shares all its drawbacks. Its suffers some additional drawbacks on account of its peculiarity. First, like the classic chain letter, MLM is a winner while the network keeps growing unbroken. But, should the link snap at many a place, the entire distribution-cum-sales pyramid will suffer a setback. Second, in the MLM system, the distributors are quite often perceived as an irritant by the prospect. Third, distributors are also customers in most cases; losing distributors will amount to shrink-age of the customer base.
One specific minus point is that in the MLM system, the seller cannot have control over the sales persons to the desired extent as they are not employees of the company Moreover, in the MLM system; the sales persons cum distributors often reduce prices arbitrarily in order to meet their sales targets. As a result, the equity of the brand suffers.
Sometimes, some sales people use ‘high-pressure’ tactics. It spoils the reputation of brand. Many who joined Amway Network are buying Rs 1,500 worth of products just to reach the required level and keep the Network going. They may be just storing them.
MLM lays excessive emphasis on meeting people and making friends, which creates an artificial behaviour.
Sales forecasting is usually more difficult in the MLM method. So, incidence of mismatch between supplies and sales, and consequent piling up of inventories will be more in MLM.
Finally, in India, the government too does not seem to be so favorably disposed towards the MLM concept.
