Multi-Level Marketing is one of the most controversial business models on the planet.
It was started in the 19th century and is still ignored by mainstream businesses.
Most outsiders hate Network Marketing, while Network Marketers always present it as the best-earning opportunity.
This is an unbiased post, where I going to share some insight related to Network Marketing and few solid reasons, why people hate Network Marketing.
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What is MLM?
MLM is an alternative to traditional distribution and marketing channels.
MLM eliminate supply chain entities such as retailers, wholesalers, advertiser and bring independent representatives for word of mouth marketing.
MLM company representatives can be known with following names:
- Distributor
- Associate
- Direct Seller
- Network Marketer
- Affiliates
- Member
MLM companies provide their product/services to distributors at a cheaper rate than MRP called Distributor Price (DP).
MLM is a type of Direct Selling, the second one is SLM (Single Level Marketing).
In MLM, an existing Distributor can recruit new Distributors in the downline. Whenever someone in downline purchases a company’s products, Upline gets some commission.
In SLM, recruitment is not required as the company provides only retail commission.
MLM is known with various different names such as Pyramid Selling and Chain Marketing.
But don’t get confused with MLM, Pyramid Scheme and Ponzi Scheme. MLM is a legal business model while Pyramid and Ponzi schemes are illegal money circulation schemes.
Most pyramid schemes operate as an MLM company, so it becomes hard to differentiate between legit MLM and pyramid schemes.
Types of MLM Company
MLM companies can be classified into two types.
Product Based MLM
Now, most of the genuine MLM companies are product-based. They have tangible products such as FMCG products, cosmetics, supplements, etc.
Cosmetics and wellness products give higher margins, so these products are primarily marketed by MLM companies.
Service Based MLM
Service Based MLM sells intangible products such as education courses, holiday packages, or any other online service.
Service Based MLMs are more likely to be scams, so various services such as insurance policies, vouchers, hosting and cryptocurrencies are ban from sale with MLM (In some countries).
Forex MLM and Cryptocurrency based MLM are examples of it. But they are money circulation schemes and doing MLM Scams.
Compensation Plan
Every MLM company has its own compensation structure often called an income plan.
There are various types of MLM compensation plans available such as Binary, Unilevel, Generation plan, etc.
The compensation plan decides the placement of new members in downline and commission for every member.
MLM company creates own virtual unit such as BV (Business Volume) to calculate different types of income for each member.
Why People Hate MLM?
MLM is a legal business model but due to pyramid scheme scams, MLM is called a scam.
Not only the pyramid scheme but there are several other reasons why people run away from MLM and never want to be part of it.
Low Success Rate: Some people in MLM makes extraordinary income, but their frequency is extremely low. FTC promoted research of Jon M. Taylor convey, out of 1000 MLM participants 997 never make any profit and always lose money in buying overpriced products.
Overpriced Products: MLM company require to share profit with distributors, so product costs increase, and end consumers have to pay extra to MLM companies. Few people leave MLM, cause they don’t like to sell overpriced products to their friends and family.
False claims and promises: Network Marketers and MLM companies always do false claims and promises related to products and earnings. They show MLM as the best business opportunity and defame jobs & businesses.
Full of Scams: Pyramid schemes, deceptive business tactics, overpriced products, showing fake incomes proofs and lifestyle, all are traits of MLM. All these lies eventually portray MLM as a big scam.
Not All MLM are Scam
All MLM companies and promoters are not scammers. If it was just a scam, then why regulators are allowing MLM companies to operate.
MLM is a $40 Billion business only in the USA. There are thousands of MLM companies that operate globally including China, South Korea, Japan and India.
There are some genuine MLM companies available that actually provide quality products at economical prices. To find such companies, compare the price and quality of MLM products to the retail market. If products are performing equivalent in terms of price and cost, then the MLM company is ideal for network marketers.
Bottom Line
We hope this post was helpful for you and learned something new about Multi-Level Marketing.
The world has changed rapidly. We have moved from telephone to smartphone. So people who are stuck with MLMs, can make try other business models which are more profitable and futuristic.
In Affiliate Marketing Vs Network Marketing, We found affiliate marketing is better cause e-commerce provides products at more competitive prices compared to traditional markets and MLM.
If you are still interested in interpersonal skills and retailing products, then MLM is still a good option for you. Just keep caution while selecting an MLM company.