CASE STUDY: CURSE OF NETWORK
MARKETING
Presented by : Abhishek chaudhary MBA 127603
Abstract
Multi-level marketing (MLM) is a purported income opportunity, in which persons recruited into a network of participants make ongoing purchases of products and services, and recruit others to do the same, and they still others, etc. in endless chains of recruitment and personal consumption, in order to qualify for commissions and bonuses and to advance upward in the hierarchy of levels in a pyramid of participants. Product purchases become the means of disguising or laundering investments in a sophisticated pyramid scheme. Typically, prospects are lured into an MLM with exaggerated product and income claims. And because the pay plan is heavily stacked in favor of those at the highest levels in the pyramid, the vast majority of participants spend more than they receive and eventually drop out, only to be replaced by a stream of similarly misled recruits, approximately 99% of whom are likewise destined to experience loss and disappointment.
Mission of the case I want you to be well informed about network marketing because ignorance in the MLM profession can cost you a lot more than money. It can also cost you your friends, family, hopes and dreams. You need the whole truth about MLM, the companies, the industry, and what it really takes to make significant income with a network marketing business! Our goal here is to bring it to you as effectively and objectively as is humanly possible
INTRODUCTION
Network marketing, is a marketing strategy which is used by sales people to distribute products via a network of other distributors, as well as direct to the public. In the past, network marketing has been the subject of a lot of criticism due to its association with pyramid selling which is now most definitely illegal. However, network marketing is not the same as pyramid selling which, put simply is just a scheme to recruit other agents to make money from their recruitment fees, which generally involves purchasing sales materials and training packs. A legitimate network marketing company will have a range of products that are just as good, and in many cases a lot better than those available in the high street. Or specialized products that are only available through a company that manufactures and distributes them through their own network of sales agents. Distributors are often referred to as associates, consultants, independent agents or independent distributor What makes network marketing so attractive is its compensation plan and how it provides an opportunity for anyone with a desire to build their own home-based business into a profitable enterprise. It does this by allowing the distributor to earn a percentage of the profits earned on the sales of the company products. Not only from direct sales to the public, but also from the sales of other distributors who have been introduced to the business. These new recruits introduced by you become part of your sales team or down line and the mor e sales they make, the more you will earn. So its in your own interest to teach and train new members of your team how to run their own business successfully and make lots of sales. The key to your success is to show your team, or down line how to duplicate your own successful sales procedures. Network marketing can be a very lucrative venture, but to have any chance of success it requires a fair amount of organizational skill and a willingness to learn. Most network marketing companies will provide good training material to help newcomers get started. But its your determination to succeed that will be the key element to how successful you can be.
Problems and issue With Multi-Level Marketing Four problem areas with MLM Market Saturation: A tutorial on market saturation hardly seems necessary in most business discussions, but with MLM, unfortunately, it is. Common sense seems to get suspended when considering if MLMs are viable, even theoretically, as a profitable means of distribution for all parties involved. This suspension is created by a heightened expectation of "easy money," but more on that later. Pyramid Structure : For most MLMs, the product is really a mere diversion from the real profit-making dynamic. To anyone familiar with MLMs, the previous discussion (which focused so much on the fact that MLMs are "doomed by design" to reach market saturation and thus put the people who are legitimately trying to sell the product into a difficult situation) may seem to miss the point. The product or service may well be good, and it might oversaturate at some point, but let's get serious. The product is not the incentive to join an MLM. Otherwise people might have shown an interest in selling this particular product or service before in the real world. The product is the excuse to attempt to legitimate the real money-making engine. It's "the cover." Intuitively, we all know what is really going on with MLMs. Just don't use the word "pyramid"! "You see, if you can convince ten people that everyone needs this product or service, even though they aren't buying similar products available in the market, and they can convince ten people, and so on, that's how you make the real money. And as long as you sell to a few people along the way, it is all legal." Maybe... But the way to make money in all this is clearly not by only selling product, otherwise you might have shown an interest in it before, through conventional market opportunities. No, the "hook" is selling others on selling others on "the dream."
Morality and Ethics: Moral Riddle: What is Ever Present but Universally Condemned? While issues of morality and ethics can be tricky to discuss, materialism and greed are universally condemned by every major religion, and even by most of the irreligious. This does not mean people are not materialistic or greedy; in fact, the common ethical call to not be so is strong evidence that we are. For most people, this means if we are going to be materialistic or greedy, we would rather not be obvious about it. Thus, Madison Avenue has subtle, highly polished ways of appealing to these vices without being heavy handed. We don't mind so much... as long as it is "veiled." This hypocrisy, while sad, is the status quo. So, Madison Avenue is trying to be ever more subtle in appearing not to be manipulating our immoral "bent" towards greed and materialist. Relationship Issues : MLMs grow by exploiting people's relationships. If you are going to be in an MLM, you swallow hard and accept this as part of "building your business." This is "networking." But to those not "in" the MLM, it seems as if friendship is merely a pretext for phoniness, friendliness is suspected as prospecting, and so on. There is no middle ground here, try as you might. While this is the most difficult point to make, it is perhaps the most important. Anyone who has any experience with an MLM has strong feelings, either for or against, and this is the problem. Polarization runs deep.
Ten Big Lies of Multilevel Marketing
Here are ten lies I have identified by observing comments and view of network business members on various blogs. Lie #1: MLM offers better opportunities than all other conventional business and professional models for making large amounts of money. Lie #2: Network marketing is the most popular and effective new way to bring products to market. Consumers like to buy products on a one-to-one basis in the MLM model. Lie #3: Eventually all products will be sold by MLM. Retail stores, shopping malls, catalogs and most forms of advertising will soon be rendered obsolete by MLM. Lie #4: MLM is a new way of life that offers happiness and fulfillment. It provides a way to attain all the good things in life. Lie #5: MLM is a spiritual movement. Lie #6: Success in MLM is easy. Friends and relatives are the natural prospects. Those who love and support you will become your life-time customers. Lie #7: You can do MLM in your spare time. As a business, it offers the greatest flexibility and personal freedom of time. A few hours a week can earn a significant supplemental income and may grow to a very large income, making other work unnecessary. Lie #8. MLM is a positive, supportive new business that affirms the human spirit and personal freedom. Lie #9. MLM is the best option for owning your own business and attaining real economic independence. Lie #10: MLM is not a pyramid scheme because products are sold.
Amway case
Amway is the largest, oldest and best known representative of multi-level marketing (MLM). It is the most prominent member of the Direct Selling Association. This icon of direct selling just announced that it has agreed to pay restitution to consumers and reform costs estimated at over $150 million. The payments are in response to consumer accusations that Amway/Quitar is operating an illegal pyramid scheme. The settlement is the largest in MLM history. Three Directors and Advisory Board members of Pyramid Scheme Alert served individually as experts or consultants in this historic class action case against Amway. The suit was filed by the law firm of Boies, Schiller & Flexner. The size of the settlement astonished some observers and the news is spreading fast. It was reported on the front page of the USATodayAmway11.05.10. About $55 million of the total is in actual cash and products as restitution for victims and legal fees. Other elements of the settlement include substantial price reductions to make retail sales feasible, and major changes in the infamous tools business that will require Amway to take greater responsibility. These schemes are run by some of Amways top recruiters and have been allowed to function as arms length, rogue operations, though highly beneficial to Amway
The issue of 99% Factor A key aspect of the suit is the charge that Amway misleads consumers with false income claims and promises for its business opportunity. Pyramid Scheme Alerts analysis of Amway payouts to distributors shows that more than 99% of all who sign up never earn a profit. When actual costs are factored, including the related tools business, some estimates put the loss rates at 99.9%. This 99% loss figure correlates with tax data gathered as early as the 1980s when the state of Wisconsin prosecuted Amway. It was also verified by data gained by federal regulators in England who sued to shut down Amway in that country just several years ago. Under terms of the settlement, Amway will be restating its income disclosure to reflect that the figure offered to consumers is a gross income not net, meaning that it is not profit and does not reflect costs that consumers incur when they pursue the scheme. (It should be noted that Amways advertised average income is also a mean, not a median, average, so it factors the high incomes of the few at the peak of the pyramid, skewing the average upward. Such a skewed average can also mislead consumers to think that the average participant actually earns a profit, masking the reality that the vast majority earn no commissions at all or no net profit.)
What is Wrong with AMWAY Business : A lot of people make money in these Multi Level Marketing business models, and they become the ambassadors of the business. They flaunt the cheques and the money they make and believe me, some of them are real!. They really do make money and we will quickly see more on that, but the point is, that the majority of the people lose lot of money and struggle in these kind of get rich quick pyramid schemes. And that happens, because there is a limit to adding people. You cant add more people in the tree after a certain point and when the tree becomes bigger, than its trouble point, its reaches a kind of saturation level when the biggest chunk of people who are at bottom lose all the money. Here is an example graph which will give you a good idea of what I am talking about.
Observation table: Shows Amway members views from various blogs
Blogs observe points self-employee Government employee Make money Lose money Drop business Continue business Satisfy with business plans Trapped in business Challenging job Pyramid structure Are you diamond level member Products are expensive Amway is scamway
Silicon India blog
Networked blogs
Amway scheme blog spot
Empower network blog
Findings on the basis of observation table : Most of the people engaged in a business are belong to Non-Government sector. There are very few members who actually make out good money; otherwise most of them loose money. People who lose money they drop out the business and some still continue with the hope to realize the loose money. Members who are failing in business are not satisfied with the business model of AMWAY. 98 % people are agreeing that they are trapped in network business. People really found it as a challenging job. All the people who lose money belong to the lower level; none of the diamond level member lose money. Product of Amway is really more expensive than any other brands. Most of the people who fail in Amway business model called AMWAY AS A SCAMWAY.
Suggestions
Its an unfortunate fact that only 3% of people in the Network Marketing Industry succeed and the rest face network marketing failure. Sound like a lot of failure.and unfortunately this is true. When you join your first MLM Company you usually get hyped up and believe that you can make this work. It sounds easy.at least the company you join make you believe sojust sign up 5 people and they sign up 5 people and the riches will come to you. If you have been part of MLM Company you know that it just does not work like thisnot even close! The hype only last short period of time and totally disappear when you realize that just talking to your warm market; friends and family is not going to make you rich. Most of them just are not interested! And if you manage to get them to join, most of them end up doing nothing and eventually drop out altogether. Therefore try to analyze the network business model before get enter into it because they seems quite attracting and easy way of making money but thats not a real picture.
Conclusion Network marketing is not dead in the 21st century. In fact, with the advent of the internet generating MLM leads has never been easier. Network marketing represents a viable business model that empowers the individual and allows them to take control of their circumstances and build the life they truly want for themselves and their families. To be successful network marketers must realize that this is a business, not a job, and they must invest the time and resources it requires to learn how to develop a lead generation system that will allow them explode their network marketing businesses in the 21st century Case signifies that many multi-level marketing offers a simple way to earn more money at less time. Its only a trap that looks quite attracting but people does not found the real picture of network business. Once they get enter into it then they found its really not easy to make out money from a business model, due to which most of the people lose money and drop the business and move out.
Reference Google scholar Journals (literature review) Blogs: Silicon India blog Websites:
http://www.networkedblogs.com/ http://www.consumerfraudreporting.org/MLM_Summary.php http://blog.studenti.it/tteisdps/mlm-lead-generation-the-network-marketing-curse/ http://m.ibosocial.com/CHARNELLE2/pressrelease.aspx?prid=223820
Networked blogs
Amway scheme blog spot
Empower network blog
