MLM, or multi-level marketing, is a concept whose meaning is not known to everyone. It is a business philosophy that consists in selling products through independent distributors. Distributors offer products directly to customers. Traditional companies operate differently: they employ employees, open sales points and wait for customers to reach them. Communication with customers takes place by means of promotion and advertising. In MLM, promotion and advertising is based mainly on the power of convincing distributors. Both approaches to business have their ardent opponents and supporters. How different are they? Let’s compare them.
MLM. Make the right choice
Business goal
The goal of any business is economic profit, increasing market share, survival. So here there is no difference between the two approaches to business.
Employees
Traditional businesses are based on a more or less complex organizational scheme. They have extensive departments not only of sales, but also HR, administrative, financial, etc. accounting. We are dealing here with divisions, degrees of subordination, promotions, social programs, etc. Due to the costs, the idea is to minimize the number of employees to the minimum number that will achieve the assumed goals. Employees are hired on a contract of employment, which determines, among other things, the time and place of work, the scope of duties, the amount of remuneration. Special education and experience are required. Hence, employment precedes the recruitment process. Full-time work is the main source of income.
It is completely different with MLM. The company signs an agreement with an independent distributor, who is admitted to the company, or actually convinced to work through another distributor. The structure of the company is a network of relations between the distributors. The cooperation agreement does not specify either time or place of work. Remuneration is determined only as a percentage of the products sold. The willingness to work is decisive. No specific knowledge or education is required. If a distributor does not sell, he does not receive remuneration. The work is usually additional work and most of it is done by women in multi-level marketing. Due to the lack of labour costs MLM companies do not limit the number of distributors.
Product
In the traditional way we can buy all products and services, both B2B and B2C. Products sold in the MLM system are mainly cosmetics, dietary supplements, household appliances, clothing, some services, other products appear exceptionally. It is a B2C sale or in fact we can say that C2C, because the company are usually represented by our good friend. Can all products be sold by MLM companies ? Surely you can sell more types of products and services than it is currently on offer. However, selling many products requires specific knowledge and skills related to consulting, selection, installation, service, certificates and permissions. An unqualified seller of such a product could lowering the image of the product, and thus, bring harm.
Sales, promotion and advertising costs
These three costs are limited to the necessary minimum in MLM. The system does not require creating sales points. The costs of reaching the customer (phone, car) are transferred to the distributor. If he makes a sale – they will be returned to him in the form of commission. The same is true for advertising costs. The idea is to transfer information about the product through the distributor. The distributor gets, of course, leaflets, catalogs, samples of goods. Usually, however, the sale is not supported by messages in the mainstream media. Usually. Often large, well-known, strong MLM companies use ads on TV, on posters, billboards, and run Internet campaigns…
Traditional companies, if possible on their budget, support sales with more or less intense advertising campaigns. This does not mean they are not building a network of distributors. However, the system is different than in the case of MLM. A distributor has a sales outlet, sales staff. The costs of promotion and advertising, depending on the arrangements, are financed by one or the other party. The number of distribution levels is also limited here.
Positioning of products
Traditional companies, when introducing a product to the market, decide to which group of recipients it is to reach and how it is to be perceived in comparison with competing products, and where it is to be available. The company may decide to introduce a product from a lower or higher shelf, with high or low price. Depending on the desired perception of the product it prepares packaging or advertising materials.
Positioning of products in multi-level marketing is always based on exceptional, unique features of the product, which is not available in any other way. Together with uniqueness goes hand in hand with high quality and a price message that is presented as extremely advantageous if compared to the price of possible substitutes.
It’s time to enter the market
In traditional business, through an intensive media campaign, you can promote the product very quickly, familiarize yourself with the market and generate sales. The question of budget. In MLM, building a network of distributors mainly takes time.
Market entry and exit costs
Due to small sales baskets (personnel, renting of premises), usually associated with long-term financial commitments, MLM is a system where it is easier to enter the market as well as to withdraw from it.
Summary
To sum up, we can say that traditional business and MLM are two different philosophies. Each of them has its pros and cons. Not all products can be sold in network marketing. MLM is a very good system for people who have a unique product and do not have much capital to promote it. It is an excellent source of additional income for people who are open-minded and social, easily establishing contacts. Traditional business requires a lot of financial commitment, but in the eyes of customers it seems more solid and durable.
Editorial staff
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