Multi-level marketing

Network marketing ( also network marketing, multi -level marketing (MLM ), network marketing or multi-level marketing ) is a special form of direct selling. In contrast to classical direct sales, customers are encouraged to recruit as Independent Distributors more customers. Depending on the structure of network marketing systems can be an illegal pyramid scheme same or such claim to be network marketing.

• 3.1 Activities of membership
• 3.2 Scientific reception

• 4.1 USA
• 4.2 DACH countries
• 4.3 products and companies
• 4.4 consumer goods and capital goods markets 4.4.1 Consumer direct sales
• 4.4.2 Customer Relationship Management

• 6.1 Competence
• 6.2 abuse of trust
• 6.3 allocating their acquisition cost to the public
• 6.4 Recruitment of business partners
• 6.5 Entrepreneurial Risk

Features

Customers can also work as an independent consultant and resell the products at the same time. Since almost all network marketing companies provide their customers some high premiums for the recruitment of new customers, a closeness is given to banned pyramid schemes. It depends on the exact configuration of the system, whether the advertising of new customers / members or the product sale is in the foreground.

Another feature is the strictly vertical structure of the distribution network, the figurative one upside down, widely branched tree corresponds. This structure leads to a wide branched distribution system with independent consultants.

The name of the organizational structure as a network is not correct insofar as the individual points are horizontally, vertically and diagonally connected together in a network and interact with each other. With network here is rather the kind of distribution meant: The sale will take place in the personal environment of the consultant. This has set up with the increasing size of its structure a larger social network to attract new consultants for themselves or the company. The cross-linking pattern similar to the behavior of users of social networking sites, like Facebook, XING, MeinVZ. Potential members for consideration or not "invited" members to join the organization.

Special form of direct selling

In the classical direct sales usually proprietary, specialized field staff are employed (own staff). These sell directly to the customer with the elimination of middlemen. The staff at network marketing are a growing network of independent and self- responsible laity acting ( external staff ) who work full-time or nebenerwerblich as a reseller or intermediary. In comparison, the number of field staff in direct sales is low, so the cost portion of the distribution may be less direct-sales operations.

Since the sellers are permanent in classic direct selling companies, they are paid only in part based on performance. Employees in marketing networks, however, carry a far higher economic risk because their remuneration depends solely on sales or Anwerbeerfolg.

Contrast to the Referral Marketing

The referral marketing is indeed a part actively promoted and desired, but no directed marketing measure ( viral marketing ). A steering is difficult because the dissemination of recommendations based on unexpected contacts of ( satisfied ) customers. The main objective is therefore not to persuade customers to attracting new customers, but to build a positive image by higher than average customer satisfaction. In addition, referral marketing is only one measure among many for most companies.

Organizational structure

The organizational structure of the network marketing is similar to a pyramid graphically with a decreasing upward number of network members ( mediating customers or business partners). Main differences with classical companies are in the flat network marketing hierarchies since the previous network nodes have no formal authority. However, companies will exhibit significantly less hierarchical levels.

The immediate seller will - depending on the compensation plan - a certain part of the total commission paid. The conveyor (English " to sponsor " = promote ), who recruited him, gets on the sales of customers acquired by him commercial agent a fee for service or extra commission ( partially, the condition that this is at least a commission level higher up than the respective sales representatives themselves ). Each level, if any, are hereby assigned unique commission shares, with promotion to the next higher level in most network marketing companies is subject to certain weekly, monthly or semi-annual sales (see hierarchical structures in wholesale - Country Director, Head of Department, Head of Department, team leader, seller).

The often confused hereby concept of " pyramid scheme " is used for an illegal variant of network marketing in which the acquisition of new staff or player stands in the foreground, and not the actual sales of products or services. From the perspective of network marketing companies in the reason for the confusion is the lack of willingness of the " newcomers " who are not willing to acquire the nature of the business, in order to avoid unfair methods. Critics argue, however, that aggressive, sometimes unfair methods of advertising for products and new employees have already been created in many network marketing systems and the responsibility for it deported only on the bottom, executive levels.

A writer wants to sell a book for € 100 100,000 times. On orders of 10,000 copies he gives 60 % discount. Instead of setting off on a quest to 100,000 friends, he wins 10 distribution partners. The partners are looking for another 10 sub- distributor to whom they grant 40 % discount. In three other stages with 30%, 20 % and 10 % reduction of the retailers must sell only 10 copies at a price of 100 €. The sale proceeds of € 1,000 he has € 100.

Are all books sold, the author has earned 40 % of the total turnover of € 10 million, each of the 10 main partners at least 2% ( € 200 000 ). The number crunching makes it difficult to identify between sellers and end buyers.

In another typical form of organization according to a defined career plan only a fraction of the commissions will be paid directly. The remainder is distributed within the organization. Through experience or achievements, members are promoted to a higher level and get entitled to bonuses. The number of steps varies from company to company. The Ergo Pro ( formerly HMI) a beginner for his mediations only about a quarter of the commission. The predominant proportion of the remuneration distributed to representatives of the organization above the career stage of the mediator for the care and training, office expenses, training and education and motivation work according to a well-defined career plan.

The Ergo Pro- commission plan with 6 steps:

• Level A - Representatives candidate ( REPA )
• Level 1 - representative (REP )
• Level 2 - Senior Representative ( LREP )
• Stage 3 - main representative ( HREP )
• Level 4 - Chief Representative ( CREP )
• Level 5 - Directorate representative of the Level 5 ( DREP )
• Level 6 - Directorate representative of the level 6 ( DREP )

Source: Internal information HMI 2006.

A "unit " corresponds to a contract turnover of 520 € (example: € 100 monthly premium, 30 year term = € 36,000 = 69.23 retail)

Development

Customer retention and customer acquisition by means of recommendations is seen commercially historically not new. Commercial travelers of antiquity as well as local craftsmen and clerks took advantage of personal recommendations from their customers to grow their business.

A first operationalization learned the referral business with the advent of large direct sales organizations in the U.S. in the 1950s and 1960s. While the former industrial mass production on the one hand in the traditional trading business took their sales channel via the dealers and retailers, some manufacturers began to market their products without middlemen directly to the end customer, using structured, hierarchically organized representatives spacious.

During this period, two similar, yet distinctly different forms of distribution, which later also evolved quite differently. Firstly, the direct sales, in which a company using its own field staff vorführte its products to customers and selling. Secondly, the network marketing in which a company offers its customers a marketing plan offered in which they could operate as an independent consultant and resell the products themselves. As a pioneer and role model in direct sales applies Vorwerk. As a pioneer in network marketing, however, applies Amway.

The personal recommendation presented originally represents a strategic cost advantage since the nationwide expensive advertising has been saved. This advantage is lost with time rapidly, notably in the network marketing, which has become a costly form of marketing because of the very large number of self-employed consultant.

Interest groups

In the U.S., the industry association Direct Selling Association ( DSA) combines claims to more than 200 companies of direct selling. In other English-speaking countries other associations exist with the same name.

The European umbrella organization SELDIA - The European Direct Selling Association was founded in 1991 under the name of the Federation of European Direct Selling Associations " - founded in 2011 FEDSA FEDSA changed its name to SELDIA and is the leading association of the direct selling industry in Europe..

In Germany, the Federal Association of Network Marketing Association ( BVNM ) was founded in April 2004. He sees himself as a neutral representation of working in Germany in the field of network marketing companies and self-employed. In Switzerland, the Swiss Association of Network Marketing ( SVNM ) pursues the same objectives.

In the world industry association, the World Federation of Direct Selling Associations ( WFDSA ) 60 national industry associations are united claims to be.

Scientific reception

With the analysis of network marketing deal only a few chambers and universities. Usually they speak of warnings against unscrupulous business practices. Thus, the Stuttgart Chamber of Commerce provides information on specific forms and their differentiation from illegal business practices, while the Hamburg Chamber of Commerce works out mark of dubious network marketing company.

In science, the subject is only slightly illuminated: At the University of Münster, the Institute of Retail Management and network marketing exists under the direction of Dieter Ahlert. Claudia wrote in 2008 a large dissertation entitled Multi -level marketing - Identity and Ideology in network marketing, the results of which are presented in the network. Further publications on the subject, see the section literature.

At the Fachhochschule Worms Michael Zacharias did a study in collaboration with the Economic Chamber of Upper Austria created, in his book " Network Marketing - Career and Vocation " is located. In contrast, in the network are circulating numerous rumors and false information on further studies.

Market shares

The global market share of the network marketing industry's total retail is well below 1 percent. Information of the world industry association World Federation of Direct Selling Associations According to 2011 153.727 million U.S. dollars have been implemented in direct sales. Of this total, 20% ( ~ 30 billion ) to the U.S., followed by Japan with 16%.

USA

In the U.S., the share of sales through direct sales is 0.75 % of the total retail volume. Average sales growth in direct sales was there for the years 2001 to 2010 was 1.2% per year, and was usually lower than the growth rate of total retail trade in the same period.

The majority of retailers in the U.S. white, female, more than 30 hours per week, and sell in network marketing businesses. The number of employees is 15.8 million, of which she has fallen in 2010 compared to last year. Overall, the growth of the number of employees averaged 3.8% between 2001 and 2010.

DACH countries

2011 was generated by the direct sales 3.743 billion U.S. dollars in Germany, 261 million U.S. dollars in Austria and 485 million U.S. dollars in Switzerland. In the same year 284 906 employees in Austria and Switzerland 14,600 12,210 worked in Germany in direct sales.

Products and companies

Known multi-level marketing in the financial services sector ( financial sales ) generally occur as a direct sales via sales representatives:

• German Vermögensberatung
• HMI Organization ( Seven- hierarchy)
• Swiss Life Select
• OVB Holding

See also: earlier Investors Overseas Services

Known multi-level marketing in other areas:

• Amway
• Avon Products
• Forever Living Products
• Lyoness
• Nu Skin
• Herbalife
• LR Health & Beauty Systems

In the USA in 2005 marketed product groups

• 33.6 % Cosmetics, Toiletries and Accessories
• 26.8 % household
• 19.1% vitamin, dietary and nutritional supplements
• 15.0 % Services and Miscellaneous
• 5.0% Leisure, books and toys

See also: List of multi-level marketing companies in the U.S.

Consumer goods and capital goods markets

Consumer direct sales

In the consumer area of ​​network marketing is often designed as a commercial sales. Some providers do not include proprietary trading operation in networking as a relatively new sub-form of network marketing. They advertise that here ostensibly absolutely no sale takes place, since only a recommendation of the products or / s is made and the customer then ordered directly from the company. In the financial services sector and the tourism industry, this is given normative basis of the service property of the products. However, in the consumer network marketing distribution partners buys only a month his own use, in order not to lose his right to the commission of recruited by him sub-agent, and not even with the goods. This has the ethical advantage that no representative of high capital commitments is economically ruined. Commissions and bonuses, however, as measured by the revenue generated and thus quite regularly on the sales success of the recommender. For this purpose, the end user is encouraged to make his direct order at the factory always naming the representative number of the consultant. The statement here is no sale would take place, that is at least misleading here.

Customer Relationship Management

The capital goods sector network marketing is far less offensive, not operated primarily in the depth of a free trade representative structure with several levels. The so-called Customer Relationship Management (Eng. customer relationship management ), which is implemented through the relevant CRM software systems, sees itself as a database application for products that are structured and, where appropriate automated collection of all customer contacts, technical order data, trading operations and thus the recommendation Connections requires. These data support through its permanent and comprehensive availability, the coordinated work of various, mostly tenured client advisors and possibly engineers or lawyers of the planning and preparation of personal customer visits to the creation of supply texts and the connection with ERP systems to automated mailing campaigns and commission calculation.

Compared to institutional customers, commercial customers and authorities gaining the recommendation mainly because of a great importance because trade addresses are hardly to be regarded even as a trade secret. Address books are distributed on CD and on the Internet, unlike even in the seventies of the last century, today. The result is a very high number of contacts in the direction of commercial or freelance and official decision makers, which in turn take as a countermeasure high efforts to block unwanted contact attempts.

Furthermore CRM systems sales leadership and management provide the ability to monitor the level of recommendation of individual customers and to optimize. This common especially in the capital goods sales acquisition also serves the assessment of clients, as good recommender can be very relevant well as so-called multipliers with low turnover or profit margins (see: customer value ). Thus, the evaluation of the performance of the individual salesperson is included with and may also be involved as a basis for performance-based payment.

In the measurement of customer value is trying to include the value of further recommendations. This value depends on how strong is the influence of the transmitter. Also included factors such as the satisfaction of the transmitter and how strong its properties as an opinion leader ( Opinion - leader) are pronounced.

Compatibility with Islam

Network Marketing is compatible only under certain conditions with the Islamic trade schools. In general, any interest rate transactions in Islam is prohibited. Thus, an active participation in any network marketing companies that offer financial and insurance products, incompatible with religion. Revenue from the multilevel compensation system but it considered income from a rental business and are not prohibited per se. Therefore special attention to the products and services should be directed to the compatibility with Islam. Network marketing companies that deal in alcohol ( such as wine) are also excluded. Similar to the legal prohibition of pyramid schemes in Islam only to participate in network marketing business allows that sell products or provide services which respond to a recognized benefit.

Criticism

Competence

In network marketing for consumer advisors do not need certain conditions such as a school or vocational qualification. You are responsible as dealers or agents from the beginning for their own commercial, social and commercial applications and are usually of non-traders who earn the money in his so-called upline to them, guided. As an upline or structure higher in the hierarchy are all standing on a sales representative and called downline or an employee all under him commercial agent.

The internal training is limited in general to product training, information for using the order forms and so-called personal training without recognized qualification. However, these are not carried out by trained psychologists or teachers, but by selling experienced sales representatives on the basis of empirical knowledge. For his training, in particular gem in the financial services area. EU Directive 2002/92/EC (European Mediation Directive ), or as a medical practitioner for advice for healthy nutritional supplements of the representatives is responsible.

However, at the vendor advertising the possibilities of high merit in many network marketing companies are represented by setting up its own representative structure and commissions by lower levels as the authoritative elements. That is why many network marketing companies are moving in the border region to illegal progressive customer acquisition, without, however, clearly this can be assigned.

Since 2005, Austria has a new law requiring every potential employee (eg VFG, pension finance company ) required to identify themselves with the commercial number for the customer. It is an offense (from € 11,000 ) to go to the market without being able to identify themselves as a certified insurance salesman. To get the commercial number you need to take an intensive course and a test at the WK, only then do you get his business alone and must go to the market.

Abuse of trust

Critics argue also that network marketing for consumer goods often misused personal trust relationships in order to market dubious, nonsensical and / or overpriced products. The products and services offered by unscrupulous companies often do not meet the promised effects or economic success. In many cases, stands at the suggestion of health effects caused by the products offered by marketing networks accusations of charlatanism and quackery in the room.

It is precisely in the area of ​​food supplements and cosmetic products such as noni, despite often high purity rare overall effects of the promised one. Scientific tests demonstrate no effects.

The neurologist Professor Stohr warns example, before anti -aging products that are offered both in network marketing as well as on various teleshopping channels, and means products such as natural earth, Himalayan salt or apple cider vinegar to be largely ineffective and pure profiteering. The use of hormones such as testosterone or melatonin against aging, he even called dangerous.

In contrast to the capital goods market or for medical advice the customer service extends the network distribution of consumer goods and financial services usually according to standardized guidelines sale, in contrast to the store or pharmacy retail creating a personal relationship is more pronounced. So can be sold on the personal relationships of trust also dubious and overpriced products, which it would be difficult or impossible to sell in conventional distribution channels. So come, for example, by leading test laboratories for water filters to the conclusion that this, if not even harmful in Germany superfluous, since they already give predominantly after a short use more germs and pollutants, as they filter out.

Within network marketing distributors such devices but sold with personal counseling among friends and mostly without food technology skills with a high share of commission for up to more than 500 €. Similar questionable information and trading practices from sales eg OPC, noni or aloe vera products or insurance known.

Regardless of the quality of the products or advice, some critics, it seems questionable to use personal contacts targeted for profit. The impact on social relations is significant. Family members, friends and acquaintances are unasked addressed with offers and advertising, where they often do not use the defense mechanisms otherwise used, due to the personal relationship. This justifies the added value and success of the sales form, but can be judged as morally dubious. Not infrequently, acquaintances and friends turn on network representatives in order to avoid the unwanted advertising.

Passing on the acquisition costs to the public

Legitimate network marketing companies require their dealers to comply with anti - spam regulations, and to point out that UCE and Usenet spam is not only forbidden, but are liable to prosecution. Nevertheless, a significant proportion of spam on promotions of network marketing employees is declining.

A typical feature for network advertising is that the activity is not described in detail. It is advertised by terms such as " work from home ", " independence " and " flexible scheduling "; at the same time be very high incomes, such as " 500-6000 € per month," promised. Also in job advertisements in print media, on leaflets and stickers are advertised in a similar manner for marketing networks; Here, however, the advertisers pay their own costs, as in conventional distribution channels also, the revenues are generated in part by pressure, which is why network marketing is often criticized. Chance even pressure is applied to make initial investments and to create a warehouse. Here, interested parties can sometimes lure of hotel events with high commission promises.

However, the absolute share of commission per share of sales usually takes upwards from within the structure. The cumulative total commission, however, increases with the number of recruited directly or indirectly Seller about the individual steps considerably. The parties shall in principle any salaries or similar solid, non-performance related payments.

Network marketing ads de.markt.arbeit in the Job newsgroups and furious discussions and comments between the displays were the reason why these ads newsgroups had to be converted to moderated newsgroups in 1998 and were forbidden by explicit ads that payments to of the work or the contractor to the employer or client are linked.

The abuse newsgroups and the sending of network marketing spam in the " cold market " apply to many network companies now make as unprofessional and ineffective, so it is also discouraged by these methods.

Recruitment of business partners

The success of network marketing depends on the quality and number of persons who are recruited by individual dealers or agents (" sponsored "). The advertising usually begins first with relatives, friends and acquaintances ( "warm market "), which are increasingly seen as potential customers.

For classified ads can not be seen in general, whether it is legitimate offers of marketing networks or illegal pyramid schemes. Reputable companies clarify new traders about the realities of self-employment under the provisions of commercial law. Since network marketing originally developed in the USA, dealers are also in the German-speaking part, known as " supervisor ", " team leader ", " Director" or "Vice President", which internally is to say something about the position and revenue sizes of individual traders.

Entrepreneurial risk

Unlike a company with full-time employees that pays salaries and thus would suffer by appointing inappropriate, unsuccessful employee losses, the result for a network marketing company, no such risk. It comes with no financial risk, when in addition to successful business partners and those are recruited who fail. People who are active in a network marketing as traders or agents, carry the entrepreneurial risk alone and achieve only commissions and profits from its trading range, as well as commissions from their downline.

The recruitment of additional partners used in network marketing to build its own distribution network to capitalize on the turnover of this seller in addition to certain distribution keys distributed by the company bonus payments and / or performance fees. A revenue -related compensation due to professional qualifications or academic work and professional skills is not provided. Every network marketing staff in the consumer area gets so regardless of his resume and his experience first the same contract and then qualified by its results for higher positions in the company. The network marketing in the capital goods market, however, requires advanced IT and software skills to the operation and evaluation of CRM systems.

From this relationship out there is only conditional needs to consider the suitability of the enlisted consumer representatives; Instead, there is a considerable incentive, as many people, even those without business training and sales talent to recruit, who can judge neither the product properties in the worst case still possess knowledge of commercial law and the customer-oriented management of sales calls. Since the new network marketing staff here sell mostly in the personal environment and recruit, especially the number of newly recruited person is critical, their circle of acquaintances can be skimmed off. However unsuitable business partner cost the network marketing employees time and money on recruitment and the process of programming each subordinate employee.

In organizations where the Netzwerk-Marketing-Mitarbeiter/Verkäufer itself acts as a middleman and buy goods must to drive them, is also taken into account that business partners sit on the products and do not manage to make a profit. Lowbrow persons, such as the unemployed who are not in a desperate financial situation as a buyer in question, sometimes promising positions in the corporate hierarchy are offered, which are of course only be reached after appropriate sales success. The business risk is, however, due to the different concepts of different sizes at different network marketing companies. If the earnings generated from the profit margin is a financial risk is to sit on the goods to remain in the pure referral marketing employee has no financial risk.

As soon as your own so-called downline or structure has been made to turn self-employed commercial agents, there is the risk of cessation of hired employees. Since (611 ff BGB cf. § service contract law ), and thus are in the network marketing no activity no obligation revenue obligation, employees in network marketing have increased interest from causing as much revenue within their " downline ".

Due to often non-existent knowledge of customer treatment, management, sales, sales techniques and leadership and a lack of training, training on the part of the sponsor / company, lack of own drive of the employee, but also for reasons that lie in the absorption strategy of the distribution system, the fluctuation in Marketing networks generally high. The risks remain with the independent employees.

Companies in the network marketing often do not have potential business partners to the risk of market saturation. It is often the impression that, each additional level of downline would find enough people who want to buy that product. With exponentially increasing number of retailers saturation can be achieved quickly ( parallel to the illegal pyramid scheme ). Newcomers make fast to the limit of market saturation when the private environment has been exhausted.

Earning opportunities

The actual income of members, can only be estimated because not all direct sellers are required to disclose financial data. In fact, the earning potential for employees are sometimes enormous. Who will reach the highest performance level of commissions with a few thousand sales reps can earn up to 20,000 € gross per month. This gross income (~ 0.1 %) reached only by a very small fraction of the recruiter. The vast majority of the members earned little or nothing. Former members report net losses, as the cost of training, seminars, motivational materials and travel expenses have exceeded the gross income.

In addition, some companies offer savings as rebates when purchasing the products.

A fee, also called the franchise network license fee falls - as opposed to the registration fee (also called registration or activation fee ) - in some network marketing companies every year. It is levied by some distributors for the administrative costs of a distributor. Among them, for example, falls a commission statement or even a dedicated website.

The earning opportunities are strongly influenced by the compensation plan type used and its design in detail. Much of the frustration of network marketers is based on the ignorance of this factor and lack of knowledge about the different compensation plan types.