Concept of multi level marketing

Multi-level marketing is the distribution of goods to the final consumers by developing dealer networks. This is also known as ‘Network Marketing’ or ‘Structure Marketing.’ The concept of Multi-level marketing was first introduced in the USA.

Here, the goods do not pass through the layers of intermediaries but reach directly to the end-users. The traditional method of selling through retailers is not adopted here, rather the sales take place through a network of independent dealers.

How does multi-level marketing differ from traditional marketing

Multi-level marketing differs from traditional marketing in many ways:

• The way goods are distributed.
• The way the distributor network is developed.
• And the way these distributors are paid.

Unlike traditional marketing, the goods are sold to the final consumers without the involvement of intermediaries. In traditional marketing, the sales team is recruited by the company but in multi-level marketing the dealers further recruit members and enhance the company’s network. The salespeople in Multi-level marketing are not the employees of the company, rather they are self-employed with no pre-decided sales targets to meet. They are not liable to promote the company’s products. The sales team in traditional marketing is paid commission on units sold by them, but in multi-level marketing, the dealers are paid commission not only on the units sold by them but also on the sales made by the members recruited by them.

Pros and cons of multi-level marketing

The investment requirements for Multi-level marketing are low. The companies save heavily on product promotion costs and employee recruitment costs. Moreover, the transactions are done in cash so no problem of debts arises. Not much training is required for the members so it saves on training costs also. However, the disadvantages include no direct contact between the company and consumers, lack of commitment from the sales team, and inability to forecast demand and adjust inventory.

Difference between multi-level marketing and mass marketing

1. The concept: Multi-level marketing is a marketing technique where products are sold directly to the final consumers through a network of independent dealers. The dealers further appoint dealers and form a network. However, mass marketing is a marketing technique where the same marketing mix is offered to a very large group of customers who are homogenous in their demands.
2. The target: The multi level marketing targets individual consumers who are profitable to the company. The objective of the company here is customer retention. However, in mass marketing, the company targets all customers who are similar in some demographics and the objective is to attract more and more customers.
3. The promotion: Multi-level marketing involves no expenditure on advertising the product as the product is promoted by the members through word-of-mouth communication. However, mass marketing involves heavy expenditure on advertising as the message needs to be communicated to the masses.
4. The distribution process: The multi-level marketing works through developing a dealer network. The existing dealers further recruit their relatives, friends and acquaintances to promote the company’s products. These dealers are often called members and these members do not work as employees of the company they are promoting. However, under mass marketing, the salespeople are the employees of the company and are recruited by the company’s Human Resources (HR) department through a proper recruitment process.
5. The reach: Through multi level marketing businesses reach the end-users of the products while through mass marketing it can reach only the customers. Moreover, mass marketing involves the services of intermediaries for distributing the products to the customers whereas MLM involves independent dealers who directly reach the final consumers of the products.

References

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