The American Dilemma and How We Can Fix It

Posts tagged ‘Multi-level marketing’

ON FACEBOOK AND MARKETING

If you have read anything about how to market goods or services in today’s cyber world, you are bound to find the following statement:  “You need to be on the social networks.”

Well, before delving into what all of that means let’s take a step back in time and see how things were done before we were all internet connected.  (This was at a time when snail mail was the only mail).

I remember picking up the current copy of “Galaxy Science Fiction Magazine” and quickly reading all the stories.  I was fourteen at the time.  At the back of the issue were some advertisements – one of which promised that if I only sent them $2.95 they would turn me into the most successful mail order marketer that either the Milky Way or Andromeda Galaxy had ever seen.  So, of course, I sent off for this information.

Well, about two weeks later I received a packet of material which was poorly printed and talked in vague generalities about finding a product which appealed to a large group of people, stocking an inventory and, of course purchasing a mailing list from their company.  The information was general in nature and essentially useless.  I learned a lesson.

I learned another lesson shortly afterward.  Most of the money that was made in mail order was made by people selling other people information on how to be successful in mail order.

Years later, one of the applicants of my executive search business who had met with me and given me her resume was involved with a company which sold its products, water filters, through a system known as Multi-Level Marketing.  The concept was a simple one and had, in my mind, a great deal of validity.

As this lady, Janet pointed out, a company could distribute its products via two means.  One was by paying to advertise those products in magazines, radio and television.  Or they could use “word of mouth” advertising which is where MLM came into the picture.

Janet went on to cite a number of successful companies which had grown to their present size by using the MLM model.  Among these were Amway, Avon Products and Nu Skin.

Instead of spending money advertising their product, her company took the money it saved and paid it to its distributors.  But the real benefit and potential for those distributors came not only from the profit on their personal sales of water filters, but that they would earn an override on people they brought into the company as distributors and on people that those distributors brought into the company.  I believe this went on for five generations of distributors – but the details really don’t matter – all MLM companies have similar sorts of compensation plans.  It’s the principle of how they operate that I am trying to communicate to you.

I saw nothing wrong with that logic and I was particularly impressed with Janet’s statement (which I did check out) that the MLM industry had created more millionaires than any other in the history of mankind.  That was a very powerful argument for why I should want to get involved.  Incidentally, that data was courtesy of the Direct Selling Association – the trade group to which MLM companies belong.

So Janet invited me to an “opportunity meeting” and I attended and became a water filter distributor.  I purchased the requisite number of filters to get started and I became part of her “down line”.  Over a period of months I sold those filters and recruited people who became part of my down line and on whom I earned a small commission.  I made my money back and then some, but I am not sure if the time that I invested would have come out to the minimum wage at the time.

I learned two lessons from this experience.

First, if you were going to make money in MLM you needed to have a product which was consumable and for which there would be regular repeat business.  That is why so many companies in the industry sell vitamins or detergents or beauty care products.

Second, the people who had become millionaires because of MLM were people who had probably started in another MLM company or perhaps several, had built a large down line with those companies – sometimes numbering twenty or thirty thousand – and then when a new MLM company came along with a new product would jump to that company, bringing their down line with them and making a huge profit from that single transaction and the sales which ensued the first few months after the new product began being marketed.

A third lesson, but one which I already knew was that we all say that we want to be successful – but few of us are willing to put forth the effort necessary to accomplish that.  I figured that if I recruited five distributors to help build our business, only one would have the gumption to stick with it.  I was wrong.  It was more like one out of ten.  We all know the old saw, “A chain is only as good as its weakest link”.  It is very true and it applies directly to MLM companies and the people who join up.

Early this week after last Friday’s Facebook IPO, some negative news has been circulating about whether the company really has the potential to be the profit maker it has been touted to be.  The reason I bring this into this post is because I see a tremendous similarity between the social network companies and MLM companies.  Remember today’s current advice on internet marketing – you have to be on the social networks in order to succeed.  Facebook now has 900 Million active users – but that still represents less than 15% of the people on earth – so they obviously have room to grow.

Because of the similarity in marketing strategies between the social networks and MLM, I tried to give you some background on the latter.  Odds are that you already know about the former.  And having prepared you in that way would like to present the ultimate MLM company and show you how the results are destined to turn out.

If you don’t believe that we have an obsession with youth and beauty, you have only to turn on your television after regular programming is done for the day.  You are most likely to encounter at least one infomercial for some beauty cream product, some dietary supplement to help you lose weight or a program of aerobic instruction which will help you tone and firm.  We have been concerned about looking good and feeling good and living longer at least since Ponce de Leon began his quest for the Fountain of Youth.

So I present “Eternal Life” – the latest release in MLM companies.  Here’s the product and the marketing plan.

Eternal Life has developed an amazing pill.  The day you take your first dose any and all ailments which you have acquired will be cured.  If you have missing teeth, they will be replaced with healthy new ones.  If you have failing kidneys, they will be repaired.  If you have cancer it will cease to be.  No matter what ailment you have it will be gone.  (Do you think there would be a large market for this product?  But,  as they say on the infomercials, “Wait.  There’s more – much, much more).

In addition to eradicating all your infirmities, each day you take the pill, a year of aging will disappear from your appearance – until you look as you did when you were twenty-five and you will continue to look that age as long as you take your daily pill and meet the other two requirements for being a distributor.

First, you must pay one dollar a month for the Eternal Life supplement.

Second, you must recruit one (but only one) new distributor per month.

The downside to this relationship is that if you fail to meet both these obligations, you will again begin to age but at a rate of five years per day and the ultimate consequence, of course, will be death.

Of course, you as the first distributor eagerly sign up for this program.  Your lumbago and rheumatoid arthritis have been bothering you no end – and you once again look forward to being able to eat corn on the cob without everything slipping under your dentures.  You are 85 years old.

So you take your first pill and, just as advertised, no more pain and your original teeth are in place.  As you continue to take your daily dose of Eternal Life the changes to your appearance start to manifest themselves to everyone at the retirement community where you and Zelda have moved.  Mrs. Warchinsky keeps complimenting you on how good you’re looking – “What are you doing to yourself?  You look like a 60 year old.”

At the end of the month, naturally your recruit your wife Zelda into the program and each of you pay your dollar for the month’s dosage.  Of course, Zelda experiences the exact same results you did.  (The people in the retirement community can talk about nothing other than your transformation).  They all want to know what’s going on.  But you keep silent so that you are not overrun by a horde of people in wheel chairs each wanting to sign up.

At the end of one year, you’ve ushered in to the program your dearest relatives and closest friends – as have those you recruited.  There are now, out of earth’s teeming seven billion population, a mere 2,048 people who have benefited from Eternal Life’s product.

You obviously want to continue your relationship with this miracle product – as do all the people you and they have signed up – and at the end of year two, you are surprised that the number of Eternal Life consumers has grown to a substantial 8,050,688.  That is the power of monthly doubling.  But, not to worry, you’re less than ten percent the size of Facebook.

And then comes year three.  Things move along smoothly until month eight.  In order for everyone to meet their obligation they would need to recruit 2.2 billion people, making a total group of over 4.4 billion.  The only problem is that more than half the world’s  population is under the age of 25.  So many of the participants fail in their contractual obligation and begin to see the entire process reverse.  The next month, there is no one on earth left to recruit.  In a month, half of us are dead of old age.

In some parts of town this marketing strategy is known as a Ponzi scheme.  On Wall Street, the polite – but no less damning phrase – refers to this as “The Greater Fool Theory”.

Will Facebook be able to continue its growth infinitely.  The answer, of course, is no.  It can’t do that because there is not an infinite supply of new subscribers.  So the question is can it find new revenue sources for which its users are willing to pay?  For example, what about a modest “user” fee to maintain an account – say five dollars per month.  Even if it lost half its users, that would still result in an annual revenue stream of $25 Billion.

Will Facebook adopt that strategy?  Well, nobody yet knows.  But it is clear that now that it is a publically traded company it is going to have to adapt from its original model.  We’ll see how they do that.

Meanwhile, it’s time for me to take my magic pill.

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