Out of the blue, you receive a phone call from your long lost friend asking to catch up after a long hiatus. You decide to meet your friend after all – a chance to reconnect and exchange gossip.
However, at the meeting, you find yourself buying a hundred ringgits’ worth of merchandise from your friend. It wasn’t gossip that was exchanged, but rather a business dealing! Additionally, you’re even considering asking your friend (now your business partner) about the requirements for becoming a consultant and joining the company.
What exactly happened?
Multi-level Marketing – The Definition
To summarise, multi-level marketing (MLM), also known as network, direct or referral marketing, is a distribution-based marketing approach that sells products and services through a pyramid-shaped commission system using a non-salaried workforce.
In this type of marketing system, marketing and sales reps are compensated not just for their own sales, but also for the sales of other salespeople they recruit (often referred to as one’s “downline”).
Note: Not to be confused with “pyramid schemes”. Unlike pyramid schemes, MLM is a legitimate business opportunity.
Multi-level Marketing & Its Application In Business Growth
Recruiting is how most multi-level marketing programmes function. You are invited to become a distributor (or consultant or associate) of the company’s products, either through another distributor of the company’s products or through a publicly advertised meeting.
Fundamentally, existing distributors are encouraged to recruit new distributors through the multi-level marketing (MLM) strategy and distributors are paid commissions on sales earned by themselves and their downline teams.
Multi-level marketing has the advantage of allowing businesses to establish a broad customer base with low sales costs. A pyramid scheme is commonly confused with multi-level marketing, though the former is illegal. Person-to-person sales are how MLM organisations offer their products and services. This means you’re selling to other people directly, whether from your home, a customer’s house, or online.
Many distributors with extensive downline teams don’t even sell their own products. They can earn enough money from the sales of their downline teams. Existing distributors are successfully motivated to grow or increase their downline teams thanks to the commission system (how convenient!). It essentially allows the company to hire more salespeople, giving it access to a broader customer base.
Big brands such as Avon, Herbalife, Amway also operate under multi-level marketing business strategy. You might want to have a look at them to see how they’ve grown their brand.