There is a lot of confusion about Multi-Level Marketing so I’m hoping that this article will help you understand the key differences.
What helps fuel the confusion is the number of names that are used interchangeably by people who don’t understand the differences themselves, some of terms being completely misleading. Names like:
Ponzi Scheme
Pyramid Scheme
Network Marketing
Multi-Level Marketing
Viral Marketing
Let’s discuss them one at a time. A Ponzi Scheme is the same as a Pyramid Scheme. People became aware of these during the early 1900′s when Charles Ponzi instigated one of these scheme’s, though the idea was first mentioned in the 1857 book ‘Little Dorrit’ by Charles Dickens.
The way it works is simple; people with some money to invest are promised a high rate of return within a few days. Other people are brought in as investors and THEIR money is used to give the FIRST investors the return (profit) on their investment. Still more people are found to invest, often by word of mouth, because the initial investors where very happy with the profits they had already made.
This goes on until no more people can be found to invest and money, at which time, the LAST group of investors is left with no return on their investment. This group by necessity, would be a much larger group than the earlier groups of people, because there had to be enough people with enough money to support the smaller groups who invested before them. Because there were more people further down the system supporting those above, the name ‘Pyramid Scheme’ was coined.
Only the originator of the scheme and the first few levels of the ‘pyramid’ get more money back than they invested. The main point to consider is that there was NEVER any PRODUCT to sell or buy; it was just a transfer of money based on promises of future returns.
Ponzi/Pyramid schemes are illegal in most countries and they are considered by most people to be, at the very least, unethical, and in my opinion completely immoral.
Network marketing is not illegal anywhere (that I know of) and works very differently indeed. In this kind of marketing, people are recruited by the originator to sell to the person’s friends and relatives, their ‘network’.
Many companies have operated this type of marketing over the years and many still do, including large insurance companies and cosmetics firms. Network marketing is little more than word-of-mouth advertising, but with the addition of a financial reward for the person recommending the product. This alone has given Network Marketing a bad name, simply because the MOTIVE of recommending the product comes into question.
The idea is that the people selling the products are using them themselves and like them so much that they recommend the products to people they know. In return for this extra business that the product manufacturer enjoys, they will pay the person recommending the product a commission, usually at the end of each month.
Multi-Level Marketing, or MLM as it is most frequently termed these days, is often confused with a Pyramid Scheme, however, in reality it’s much more like Network Marketing, in that there are still actual products available for purchase.
The main reason some people still don’t understand the difference between MLM and a Pyramid Scheme is because of the remuneration structure of MLM. There are two ways to get paid with Multi-Level Marketing; the first is selling the product directly to people, just like Network Marketing. In effect you are recommending the product because you’ve experienced its beneficial effects yourself and want others to benefit too.
The second way to be paid in a Multi-Level marketing company is to have people that are already your customers become distributors of the product themselves, because they in turn have experienced the benefits and want to promote it to THEIR friends, family and colleagues. The person who helped them become distributors will also receive a small payment based on the second-tier person. This will continue down to a certain fixed level, sometimes as low as two tiers, but often down to about 10.
One of the main reasons that MLM has had a bad reputation is because it can attract the wrong kinds of people, that is, people who maybe have no prior business experience or no sales experience. Or perhaps those that have unrealistic expectations of the amount of work involved in promoting the products and servicing their customers. MLM will also attract individuals with very little money to invest in their new business, so may already be desperate for money, and desperate people can do irrational things.
So, the real problem of MLM is the PERCEPTION of the people involved. I firmly believe that the majority of Multi-Level Marketers are good, hard-working individuals who really want to run a business of their own, but, as is always the case, the majority are tainted by the few “bad apples”, and the general perception is that a disproportionate number of these people find their way into this kind of business model.
Viral marketing brings MLM to a whole new level, no pun intended. While the internet isn’t the prime-mover in any business, it most certainly has forever changed the face of business, in particular mail-order and, you guessed it, Multi-Level Marketing.
How has it done this? Well, you’ve probably seen, or at least heard of, how fast a computer virus can spread around the world-wide-web. Well, this gives you an idea of how MLM is being leveraged by many companies, both old and new, to spread the word about their products and services.
This Viral effect is easily understood when you see how YouTube videos “go viral”. One person finds a video that she likes and tells two friends to go to the site to watch it. They both like it and EACH ONE sends it to two of their friends, and so the video spreads until it has been viewed by millions of people around the world within a matter of days, most of whom do not know the person who originally found it and sent it to her friends.
Many mainstream companies have become aware of this effect, and are capitalizing on it. They now create commercials specifically for the internet that wouldn’t pass TV censorship rules, ones that are risqué in some way. They then put these onto the various video sites such as YouTube, and consequently will often get massive amounts of advertising exposure, without the traditional costs of airing them on television.
There is also something else that compounds this already powerful effect, and that is the fact that many products are digital, such as videos, audios, software and pdf books. Because of this you can easily see how this form of product placement can also be used to sell AND SHIP the products DIRECTLY to the customer, because they can all be in downloadable format. This is like putting Multi-Level Marketing on steroids!
Another effect of the internet has been to increase the number of people willing to try MLM who are already well-versed with using the internet, but have previous resisted the idea. This is because while traditional Multi-Level Marketing meant having a lot of direct contact with your “downline” to encourage, educate and help them succeed, the internet means far less and sometimes NO direct contact is necessary. The internet and all of the software associated with it, such as email and direct-messaging, has in many cases taken the place of the phone call and the group meeting.
When you add the ‘digital products’ effect along with the viral effect of the internet, Multi-Level Marketing will can only continue to grow, and it will grow well beyond what most people can possibly imagine. Having said that, I remember a classic line from Star Wars after Luke Skywalker offers Han Solo “more money than you can imagine”; Han Solo replies “I don’t know kid, I can imagine quite a lot!”
Luke Hawthorne has been writing for over 13 years. His interests include making money, internet marketing, flying airplanes, skiing and scuba-diving.
Article Source:http://www.articlesbase.com/business-opportunities-articles/why-the-internet-has-changed-mlm-forever-830671.html
March 23rd, 2009 by Rangarajan
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