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, practice it.
Some of the well known MLM outfits are Avon, Amway, Oriflame, ModiCare. Avon, Amway, Oriflame 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.
How does MLM Work?
MLM utilizes multi-tiered, non-employee sales persons-cum-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-cum-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 the sales by him self or her self. 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 he or 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 he/she so wishes, charge a lower price than the one suggested by the company, foregoing a part of her commission.
MLMâ€™s plus points:
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 cosmetics, or premium fragrances, targeted at niche markets.