Multilevel Marketing (MLM) -- A Futuristic Concept?
Conference proceeding of the National conference on Paradigm for Sustainable Business: People, Planet and Profit held at DOMS, IIT Roorkee on 8-9th March 2013
11 Pages Posted: 19 Sep 2015
Date Written: October 11, 2012
Abstract
Introduction
Multilevel marketing organizations (MLMs) are a rapidly growing organizational type, also known as network marketing, referring to the practice of distributing, selling or supplying products or services through various levels of independent agents (contractors, distributors, etc.). These agents are paid commissions, bonuses, discounts, dividends or other forms of consideration in return for selling products or services and/or for recruiting other agents. The MLM Company may be an individual, firm, corporation or any other type of business entity. Avon, Amway, Equinox International, Mary Kay, NuSkin and Tupperware are examples of MLMs. MLMs may be legal or illegal. MLMs become both illegal and unethical if they operate as “pyramid” or “endless-chain” schemes. If it is dependent on unlimited recruitment of endless chains of participants as primary customers then it is called “pyramid schemes.” It assumes infinite expansion in a finite market. It also assumes relatively virgin markets. As a business model, MLM (if using pyramid schemes) becomes inherently flawed, fraudulent, and unprofitable except for a few at or near the top of a pyramid of participants. It is also extremely viral and predatory, preying on the most vulnerable among us. Since an MLM operates by recruiting a network of salespeople, this type of corporation easily degenerates into unethical, fraudulent, recruitment-centered pyramid schemes. The courts are well aware of this problem and have imposed certain tests to distinguish between legal, non fraudulent MLMs and illegal pyramid of endless chain schemes. In general, MLMs must do the following to be legitimate:
1. Monitor performance of independent agents to ensure that they really are making retail sales.
2. Have buy-back policies in place so that independent contractors do not get stuck with excess product.
3. Charge low upfront-fees for the right to market the MLM product.
4. Make purchases of sales training materials completely voluntary.
As MLM is becoming a vibrant topic to be concerned in the marketing world, the study is conducted to know how this type of business model works and ethical issues involved in it to find whether it will be sustainable or not. At present the major question that arises is -- is it really futuristic? Does the MLM business have a long term future? Is it really sustainable? Can it become a preferred mode of marketing? The following study tries to address these important questions
Objectives of the study
The major objectives were framed relating to the capabilities of the participants to sell products via MLM and products/services that were provided by the companies associated with MLM. The major objectives of the study could be framed as under:
• To understand the business model and concept of multilevel marketing.
• To understand why MLM companies appear attractive.
• To study the product orientation of MLM companies.
• To identify the perception of MLM participants regarding its future prospects.
Research methodology
Research Setting
A well structured and pre-tested questionnaire was prepared for the research covering demographic questions related to respondents, some questions on multilevel organizations, some questions regarding products and services offered by MLM companies. The respondents were taken on a random basis from various cities of Rajasthan who had been using or selling MLM products.
Participants
220 respondents associated with MLM business were targeted for the study. Some of the respondents were the buyers of the products of the companies who were engaged with MLM and some of the respondents were distributors and sellers whereas some were both sellers and users of the products.
Measuring Instrument
An extensive review of literature was done before the study. A well structured questionnaire was prepared and some statements were intentionally reverse coded for the purpose of data analysis and thus, interpreted accordingly. Frequency statistics was used in order to identify the demographic characteristics of the respondents. Cluster analysis was used to reduce the complexity of data. One way ANNOVA was used to test the significance of the results .
Findings/conclusions
The expected findings from the study are as follows:
• MLM concept was futuristic and its penetration level would be higher.
• MLM companies projected their products to be better than conventional products.
• Motivation of the sales persons of MLM was high as compared to other modes of marketing.
• Attrition rate of MLM participants was higher than participants associated with any other mode of marketing.
Managerial implications
The study could be useful for multi level marketing organizations to develop strategies to sustain in the future by knowing what are the most preferred products or services available to grow and expand their business. The study could also be of great use to the public at large to understand what actually MLMs are and how one can see his/her future in this field. Marketing and sales is the only department which gives reason to any organization to be in existence in this era of cut throat competition to generate revenue. It can help the government to understand the need for regulatory body/ authority to get good results such as lower cost, high growth etc.
Limitations of the study /further research
First, this study was carried out mainly in Rajasthan; therefore, the results obtained may not be Pertinent to the country on a whole. The study can be extended to other states of India. Second, the present study has been conducted by taking a sample of 220 participants of multilevel marketing organizations/companies. But participants of only few multilevel marketing organizations/companies were used for the purpose of study. This cannot lead to the generalizability of the findings and the results may not be implied conclusively to the whole multilevel marketing organizations/companies. Finally, these limitations may decrease the ability of generalizing the results of this study to other multilevel marketing organizations/companies settings. Therefore, the conceptual and methodology limitations of this study need to be considered when designing future research.
Keywords: Illegal, multilevel marketing, recruitment, services
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