Multi-level Marketing

Multi-Level Marketing is considered to be a business model which combines directmarketing with franchising. On one hand it has allowed organizations like Amway toexpand globally, where as it has also led to lot of countries like UK, China and Australiato imposing some or other kind of restrictions on MLM. This makes the case of MLM aninteresting subject to study and hence this report tries to understand in details the conceptof MLM and its types. Also some organizations which have successfully or unsuccessfully implemented MLM have been studied. The rationale behind the ethicaland controversial issues associated to it, have been analyzed by taking into account theexpert reviews about such issues.

With these understandings and further observations and comments of industry expertsand member from MLM practitioners in India, the report studies MLM in India andcompanies using it in India. A detailed case study of at RMP which uses MLM has beencarried out. Final comments about the scope for success of MLM in India are drawn atthe end.

Introduction

It is not about competition but growth which makes Network marketing such a hit amongst people. The middle of the twentieth century was a producers market with industrial giants likeFord, IBM, GE, P&G, etc. pushing whatever they produced, into the market and forcing the consumers to buy through their marketing efforts. The late twentieth century turnedout to be a consumersmarket owing to the ever increasing competition fuelled byglobalization to a large extent, wherein, companies tried to adapt themselves according tothe requirements of the sensitive customer, and customization became the buzzword of marketing strategy. The very first decade of the twenty first century is now witnessing theconsumersmarket transform into a networkersmarket.There are networks everywhere - Distributors network, suppliers network, service providers network, client network and last but not the least, consumer

network.Everything, right from its inception to its delivery, passes through one of the abovenetworks; in short, everything sells through a network. Fig.1 Middlemen in a Conventional Marketing Distribution As can be seen from the above representation, the three elements of the value chain,collectively known as the Middlemen, take up a sizeable share of the total price thatamounts to around 60%. 4 Ms =Middlemen Make Most Money With the increasing competition as well as the retail boom taking place, these differentelements have merged to give rise to hypermarkets where there is a single middle-levelentity between the manufacturer and consumer. This form of marketing is a part of alarger domain,

called Direct Marketing, a concept which involves a minimum number of entities between the manufacturer and the customer In this context where it is clear that only the big fish will win the race, the question of survival is being raised for the common retailers and shop-owners leave aside thescope of growth. In this era, when the customer power is at its peak, and competitionhas assumed a killers role, the only way to survive is to collaborate, to complete eachother instead of trying to compete. The answer once again lies in building a Network.Routing the marketing efforts through a network is what is called Network Marketingor Direct Selling.The most cost effective way to deliver high quality products to the market is to distributethem through word-of-mouth advertising one person tells another person about a great product experience. The same way you share a story with your

neighbour about a greatmovie or restaurant. Word-of-mouth marketing is how companies that are part of theDirect Selling Industry operate. Network Marketing is the product of Prosumer Revolution that has its roots in Europeand dates back to the early 90s. Prosumer = Producer + Consumer When the consumer takes oneself up the value chain and directly becomes responsible for the production and distribution of what he himself consumes, he becomes a Prosumer.For example, when a consumer of daily use FMCG goods enters into a partnership withthe producer on a commission margin basis, and he becomes the distributor of those products, he starts prosuming.

Now, if this new distributor recruits fellow customers in the same system again on a profit-sharing/commission/incentives basis, he starts doing what is called multilevelmarketing, popularly known as network marketing.Generally, a small amount of fee (license, franchise, membership) is charged from anindividual who wants to become an independent distributor and that entitles him to carryout the operations within the flexibility of space and time. The levels of commission aredetermined by the volume of business generated by the distributor and the financialincentives model is more or less the same as that of maximum fortune 500 companies. Network marketing companies have been in existence for over 40 years. Some of thelargest corporations in the world are network marketing companies, selling a

wide varietyof products and services such as legal services, insurance, cosmetics and nutritional products. Even telecommunications giants US Print, MCI, and AT&T are bringing onmillions of new customers through network marketing companies. It's a dynamic andgrowing industry that many traditional businesses are looking at and are pursuing as analternative distribution channel.Here are some important facts about the Direct Selling Industry: It is a $100 billion global industry. It has had over 19 consecutive years of growth. It has over 50 million distributors worldwide.

 Its sales growth has outpaced growth in retail sales for the past 10 years.

Seventy-five percent of the U.S. population has purchased goods or services throughdirect sales (more than the total number of TV and internet purchases).This industry is doing a lot more than just growing, the industry is thriving. It is on theverge of explosion. There are about 20 public companies in the Direct Selling Industry.And, if you look at the results of these companies, you will see that most of them arereporting record sales and revenues. And it's not confined to one specific part of theworld Asia, North America and Europe are all growing.

"Direct selling is the perfect intellectual distribution business for today's economy. Ahome-based business doesn't require a storefront, warehouse, employees or massiveback office support operations. It only requires one person-you." -- PAUL ZANEPILZER, AUTHOR "THE NEXT MILLIONAIRES

List of top multi-level marketing companies:Amway RMP

RCM Vestige eBiz BioPerformance Cobra Group Deutsche Vermgensberatung Discovery Toys Dynamic Essentials Equinox International Excel Communications ENG Forever Living Products Freelife Fuel Freedom International Holiday Magic

Shaklee Corporation Stream Energy Success University Sunrider International Tahitian Noni International Telecom Plus The Pampered Chef USANA Health Sciences

Type Industry Founded

Private Direct selling 1959

Founder(s) Headquarters Key people

Rich DeVos Jay Van Andel Ada, Michigan United States Steve Van Andel (Chairman) Doug DeVos (President) Amway.com More than 42000 Crores

Website Yearly Turnover

The World of Amway 1996

In the table below you will find the distributor counts listed at Amway's Global village for the 40 foreign markets that Amway operates in. The

distributor counts for several of these countries have not been updated in over a year. These statistics are not provided to present an accurate picture of Amway's size in each of the foreign markets, but a general picture. However, the statistics for Amway Asia and Amway Japan are accurate. Since they are publicly held corporations, Amway does release information about the number of distributors and more accurate sales information for these entities which they are not required to do for the privately held portion of Amway. The numbers for the Amway Asia Pacific countries come from a press release, which I found by searching Alta Vista for +Amway +Asia. The distributor

counts for El Salvador, Guatemala, and Honduras were combined into one distributor count of 30,000, so I gave each country 10,000. I was unable to find the distributor counts for some countries, so they have been left blank. This table was updated with the counts from Amway in Nov 97. Amway is a direct selling company, and manufacturer that uses multi-level marketing to sell a variety of products, primarily in the health, beauty, and home care markets. Amway was founded in 1959 by Jay Van Andel and Richard DeVos. Based in Ada, Michigan, the company and family of companies under Alticor reported sales growth of 2.3%, reaching US$8.4 billion for the year ending

December 31, 2009.Its product lines include home care products, personal care products, jewelry, electronics. Nutrilite dietary supplements, water purifiers, air purifiers, insurance and cosmetics. In 2004, Health & Beauty products accounted for nearly 60% of worldwide sales.Amway conducts business through a number of affiliated companies in more than ninety countries and territories around the world. It is ranked by Forbes as one of the largest private companies in the United State and by Deloitte as one of the largest retailers in the world.

Founding
Jay Van Andel and Richard DeVos, friends since school days, had been

business partners in various endeavors including a hamburger stand, air charter service, and a sailing business. In 1949 they were introduced by Neil Maaskant (Van Andel's second cousin) to the Nutrilite Products Corporation. Nutrilite was a California-based direct sales company founded by Dr. Carl Rhenborg, developer of the first multivitamin marketed in the United States. In August 1949, after a night-long talk, DeVos and Van Andel signed up to become distributors for Nutrilite food supplements. They sold their first box the next day for $19.50, but lost interest for the next two weeks. Shortly thereafter, at the urging of Maaskant, who had become their sponsor, they traveled to Chicago to attend a Nutrilite seminar.

The meeting was at a downtown hotel, with over a hundred people in attendance. After seeing promotional filmstrips and listening to talks by company representatives and successful distributors, they decided to pursue the Nutrilite business opportunity with enthusiasm. They sold their second box of supplements on their return trip to Michigan, and rapidly proceeded to develop their new business further. Needed. In 1949, DeVos and Van Andel had formed Ja-Ri Corporation (abbreviated from their respective first names) for importing wooden goods from South American countries; after their trip to the Nutrilite seminar, they dropped this business and Ja-Ri became their Nutrilite distributorship.

In addition to profits on each product sold, Nutrilite also offered commission on the sales of products by new distributors introduced to the company by existing distributorsa system today known as multi-level marketing or network marketing. By 1958, DeVos and Van Andel had built an organization of over 5,000 distributors. However, following concerns about the stability of Nutrilite, in April 1959 they and some of their top distributors formed The American Way Association to represent the distributors and look for additional products to market. Their first product was called Frisk, a concentrated organic cleaner developed by a scientist in Ohio. DeVos and Van Andel bought the rights to manufacture and distribute Frisk, and later changed the name to LOC (Liquid

Organic Concentrate). They subsequently formed Amway Sales Corporation to procure and inventory products and to handle the sales and marketing plan, and Amway Services Corporation to handle insurance and other benefits for distributors (Amway being an abbreviation of American Way). In 1960 they purchased a 50% share in Atco Manufacturing Company in Detroit, the original manufacturers of LOC, and changed its name to Amway

Manufacturing Corporation.
In 1964 the Amway Sales Corporation, Amway Services Corporation, and Amway Manufacturing Corporation merged to form a single entity, Amway Corporation

Amway bought control of Nutrilite in 1972 and full ownership in 1994. International expansion Amway expanded overseas to Australia in 1971, to Europe in 1973, to parts of Asia in 1974, to Japan in 1979, to Latin America in 1985, to China in 1995, to Africa in 1997, to India and Scandinavia in 1998, to Russia in 2005, and to Vietnam in 2008. Quixtar In 1999 the founders of the Amway corporation established a new holding company, named Alticor, and launched three new companies, 1) a sister (and separate) Internet-focused company named Quixtar, 2) Access Business Group, and

3) Pyxis Innovations. Pyxis, later replaced by Fulton Innovation, pursued research and development and Access Business Group handled manufacturing and logistics, for Amway, Quixtar, and third party clients. After virtually all Amway distributors in North America switched to Quixtar, Alticor elected to close Amway North America after 2001. The main difference was that all distributors, now called Independent Business Owners (IBO) could order directly from Amway on the internet, rather than from their upline "direct distributor", and have products shipped directly to their home. The Amway name continued being used in the rest of the world, and the home

of the Orlando Magic was named the Amway Arena in 2005. The Orlando Magic is owned by Amway founder Richard DeVos. In 2006, Quixtar published The Quixtar Independent Business Owner Compensation Plan, in which the company reported that the average monthly gross income for "Active" IBOs was $115. In June 2007 it was announced that the Quixtar brand would be phased out over an 18 to 24 month period in favor of a unified Amway brand worldwide. That name is Amway Global.

Declaration
This is to certify that I Prince Singh

S/O Mr. Pankaj Singh has completed the employment project. This is not the copy of any other project. It is prepared by me only under the guidance of Mr. Neeraj Patharkar.

Certificate
This is to certify that Prince Singh of

B.A. Management 2nd semester, BSSS college, Habibganj, Bhopal has completed A study on Multi-level Marketing Business in our organization successfully.

Acknowledgement
I feel immense pleasure and satisfaction in presenting my project on the Multi-level Marketing

Business. In this project I have collected data/information from Amway India. I express my sincere thanks to them. I sincerely acknowledge the guidance and inspiration given by our respected Mr. Neeraj Patharkar and Fr. Joseph P.P. Last but not the least, I really appreciate and respect the help and cooperation provided to me by my family and friends. Prince Singh

Project report on:

Multi-level Marketing Business
B.A. Management 2nd semester

Project report submitted to:

Mr. Neeraj Patharkar

Bhopal School Of Social Sciences

Signature(Guide) _______________ Signature(Student) _______________

Name of the guide: Name of the student: Mr. Neeraj Patharkar Prince Singh