Multi Level Marketing and Network Marketing explained - vital information for the potential new MLM recruit.
The MLM Advertising Conundrum
Advertising growth example
Let's just say I was the very first distributor for my MLM. I would have a virgin market and a dynamite product. I could talk to anybody at all and if I was good enough with my presentation, I could make a fortune. I wouldn't even have to advertise if I didn't want to. But twenty years down the track, when I become, say, the one millionth distributor, I have competition. A lot of competition. Advertising is an essential part of my networking business.
Let's look at group advertising expenditure for a moment. Say I spend $600 in a month in "virgin" territory and bring in three business builders. Under my tutelage, each of them should also be able to spend $600 and each bring in three people the following month. In my second month, I have increased MY group's advertising expenditure from $600.00 to $2400.00 for the month. In geometric growth logic, the following month the expenditure would be $7,800.00. By June, it would be $218,400.00, and by December, all being equal, it would be $159,432,000.00 for the month.
Who benefits most from this state of affairs?
As whatever my downline members achieve from their expenditure helps improve MY business and income, I would really get a benefit from ALL of the money spent, no matter how small the outcome. Each of my first line members would get the benefit of what they spend and what their total downline members spend and the amount lessens for each distributor down the line. I get $159,432,000.00 worth of advertising and the lowest member will get $600.00 worth of advertising!
There were people in my MLM group who achieved consecutive months of 10,000 points from recruiting over a period of 6 months or more, so it's not an impossible scenario for one person to be able to bring in 3 or more people a month for extended periods of time. The problem only comes when many of your downline try to do the same and fail because the amount of money they are individually spending cannot compete with the overall money being spent in the media by the group.
What is interesting here in this example, is that I would still only be spending $600 a month on my own behalf, but I would be getting the eventual income benefit from over $159,000,000.00 spent by my group in advertising. Such a budget would annihilate my competition (including many existing members of my own group who didn't get a benefit), and create market saturation overnight. Why would I worry if I lost a few of my group because their responses were low? All the new people would be in my group anyway, wouldn't they?
Get the idea?
Can this state of affairs be sustained?
Quite obviously, NO! New recruits very quickly become my own strongest competition, because they are trying to do exactly as I am doing, with the same marketing tools and advice at their disposal. Pretty soon I will have to double or treble my advertising, change my advertising localities and devise other advertising methods, just to maintain my own position and personal growth.
Let's assume that I can do that. Will my downline be able to? Will they even think of it? Or will some/many of them feel that the competition they are creating for themselves is just a downright stupid thing to do to themselves and stop advertising altogether? You can bet that once they begin to understand what's happening they will think twice about going on with it. Even if they don't fully comprehend the reason, lack of results will dishearten them anyway. What happens then? They cannot keep up their personal volumes to qualify for the commissions, royalties and bonuses. (Creating this personal volume by retailing has its own difficulties. Over-saturation in any area will also result in a degraded perception by, and a decreasing availability of, retail customers).
Analysing advertising results
One way a distributor can get an indication as to whether or not a market area is saturated is by measuring the response rate to his advertising and adjusting ad placements to suit. This is a hit or miss way of doing things, as one cannot tell who might choose to advertise in any area in the next issue period. It's generally not possible for an individual distributor to avoid advertising in publications that are saturated with advertising when MLM activity is high.
To illustrate this, take the example of my own area in the last month or so (last quarter, 2002). We have 3 weekly publications delivered free to our home each week, two weekly newspapers and a glossy magazine style publication. The best-read and most widely distributed newspaper one week recently contained 2 display ads (exactly the same but placed by different distributors), and 12 classified column ads for recruiting for my MLM. Not one of these ads was placed by a local person. Every ad was placed by people from other localities who were trying to recruit people in this area. (One issue a few months ago contained 23 classified ads for recruiting for my MLM!)
Can each of these advertisers realistically expect a return for their advertising dollars? Are they aware of the quantity of ads hitting this area? I'll give you 2 to 1 that in the majority they don't know these things. How can I be sure? Because I know that next week approximately the same number of ads will be there again, but in the main they will be placed by different people, meaning that this week's advertisers were disappointed with their results.
Our local daily paper carries additional ads every day! And our capital city paper, more again.
The bubble will eventually burst. The "wave" will collapse. People will gradually realise they are in a no-win situation and give up, just like so many before them. (Note: The bubble actually burst in my area some 18 months after this was written. For some time now, the ads have resolved themselves down to 1 or 2 per week, mainly for retail sales).
Some time later, when sufficient time has elapsed perhaps for young people to grow a little older and become available in the marketplace, or perhaps when older people are affected by major retrenchments in business or some such occurrence, then the system will "feel" this state of affairs and automatically go back into attack mode in the area again. And there we have illustrated the MLM cycle of events. For a Reader's comment on this type of occurrence click here
The competition doesn't stop at just your own group
The greater problem is that I have about one million competitors from all over the world in my own MLM who are trying to do the same thing as I'm doing. Can we all succeed?
Sadly, both history and the math proves it cannot happen. But still, I suspect that perhaps tens of thousands of people are brought into the business every year by enthusiastic distributors offering the promise of health, wealth and lifestyle improvement.
What happens to these people if the total number of distributors remains relatively static over a period of years? They "fail". They drop out. Do they refund their product orders? As explained, in the great majority, NO. In the main these people simply slip into business inactivity and either use the products themselves, or eventually dispose of them to others, often at discounted prices. If every new person who "failed" actually refunded their product purchases, there is no doubt in my mind that my MLM would quickly feel the financial effects.
It is currently not an unusual occurrence to see a dozen or more recruiting advertisements for my MLM in the classified columns of many newspapers in Australia. Not to mention the display ads that are used by some in an attempt to beat others who are simply using the classifieds. As to the internet, WOW! Hundreds of millions of email messages promoting my MLM and others in a great variety of ways, most of them just SPAM, are sent to people all around the world EVERY WEEK! Knowing this, would YOU like to add your money to the advertising pool?
In essence, the battle goes to the strongest, the fittest, and the most dedicated - and it won't go against you if you have a good amount of money to play with either.
And while the people at the bottom, still steeped in ignorance, fight for their very existence, much less their business growth, the people at the top levels push their downlines to do even more. You see, as I've shown, every single new distributor, whether they stay in the business or not, will benefit an upline member to some degree, but not necessarily will a new sign-up greatly benefit the individual who paid out the money for advertising and did all the work to bring them in. All too often their costs outweigh their income for a very lengthy period.
In essence, people who can't compete are disposable.
Get the picture?