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When you hear someone such
as Donald Trump suggest network marketing is a terrific home based
business vehicle for the average person, what reaction do you have?
Do you find yourself
feeling skeptical or hold a negative opinion of the industry?
If you already participate
in network marketing, do you sometimes feel embarrassed to admit it?
Or, if you’re not in it
yet, are you embarrassed to admit you are seriously considering it?
If so … why?
What is it about your
beliefs around network marketing that lead you to have these
feelings?
To put these feelings into
some context, let's take a look at the industry of network
marketing.
Network Marketing Today
Network marketing is a
+$100 billion dollar per year industry which represents an
accessible way for the average person to launch a legitimate
business with the potential of generating very substantial income.
It offers the opportunity
to launch a business on a part-time basis, and then growing that
into a full-time (or more) income. And it requires the least amount
of start-up capital and ongoing operating expense of virtually any
legitimate business model.
It is responsible for
enabling the creation of an untold number of millionaires.
Paul Zane Pilzer, a world
renowned economist and college professor, goes so far as to predict
that over 10 million new millionaires will be created through
network marketing over the next 10 years.
If this is true, why on
earth would you feel ashamed or embarrassed to be part of this
industry?
Well, there’s a lot
of history behind network marketing. So let’s review that history for
a few moments and perhaps it will shed some light on where a lot of
your feelings and attitudes around the industry may have come from.
The History Of Network
Marketing
Network Marketing as a
means of product distribution – which is really all that it is – has
been around literally forever.
You can go back through
history and the establishment of trade routes and find examples of
traders who distributed goods, food, and fur, face-to-face, on
behalf of various backers. Sometimes these backers were rulers of a
country, sometimes they were powerful individuals, and sometimes
they were large businesses or companies.
The North American
history of the notion of direct selling can be traced back to the
1600’s. For example, the Voyageurs established fur trading routes
and posts on behalf of the Hudson Bay Company. The Hudson Bay
Company itself relied upon the influence of Prince Rupert, who was
the cousin of King Charles II, to acquire the Royal Charter which,
in May, 1670 granted the lands of the Hudson Bay watershed to "the
Governor and Company of Adventurers of England trading into Hudson
Bay."
In New England, in the mid
1700’s, began the phenomenon of the Yankee Peddler, in which
peddlers would travel in their cart home to home throughout the
countryside, selling their wares.
From there evolved the
concept of the door-to-door salesman. The Watkins Company was
launched in 1868, selling a popular liniment. The late 1800s saw
the spawning of new companies employing door-to-door salesmen to
distribute bibles, books, spices, remedies, perfumes, tonics and the
like. The California Perfume Company, which later became better
known as Avon, was founded in the late 1800s.
The Fuller Brush Company
debuted in the early 1900s and it was Alfred Fuller who is credited
with transforming door-to-door direct selling into something
different. Rather than positioning himself as a salesman who sold
brushes and focusing on the features of the brushes, he instead
focused his attention on selling the benefits of his brushes to the
consumers.
This is referred to as
“empowering the consumer”.
His entire company vision
was crafted in the context of the service he was able to provide to
his customer. The approach was revolutionary.
The early 1900’s also saw
the emergence of vacuum cleaner and encyclopedia companies such as
Electrolux, World Book and Britannica.
It was a new age.
The term “network
marketing” specifically is 20th century creation.
Its genesis lies in the
post World War era of the late 40s and early 50s. This was the
dawning of the era of the subdivision in which genuine neighborhoods
flourished with their own circle of trusting relationships and
backyard barbeques.
It is out of this trend
that the term “belly to belly” marketing – or warm market as you may
better recognize it – was coined.
A company named California
Vitamins came to the realization that many of their new sales
recruits were in fact friends and family of their existing sales
force. These new recruits’ primary motivation to becoming a sales
associate was that they wanted the products for themselves at the
wholesale cost.
That led the company to
recognize it was easier to build a sales force with a lot of people
who sell a small amount of product, than it was to find a small
number of top sellers who would move mountains of product.
And so California Vitamins
designed a revolutionary sales compensation model encouraging their
salespeople to invite new representatives from satisfied customers,
most of whom were family and friends. Each of those new
representatives in turn had the same right to offer the product and
opportunity to become a representative to others.
This allowed the sales
force to grow exponentially. The company rewarded its
representatives for the sales produced by their entire group – or
network – of sales representatives. And so multi-level marketing
was born.
It was also during this
time that the home party plan was introduced.
The original party plan
was the Stanley Hostess Party Plan, by Stanley Home Products. The
focus of the party plan was to demonstrate the myriad of uses and
benefits of the products right in the home. Out of the original
Stanley dealer roster came the founders of such future marketing
program giants as Mary Kay and Tupperware.
The introduction of the
multi-level, person-to-person sales program in the mid 1950s
coincided with another pair of new giants arriving on the scene.
First, Shaklee was launched. Then, a couple of years later, in
1959, came the birth of Amway.
The term multi-level
marketing, or MLM, became a part of the industry lexicon.
And the direct selling
industry would never be the same.
The popular notion that
MLM companies really gained steam in the mid 1970s when the US
Federal Trade Commission (FTC) charged that Amway and its
multi-level marketing structure constituted an illegal pyramid.
This made lots of
headlines in the mainstream press.
In fact, in 1979 the court
sided with Amway and deemed its multi-level marketing structure
valid and legal and that its model represented a legitimate business
opportunity.
Out of that court
decision, the “Amway Safeguard Rule” set the legal standard for
direct selling, multi-level, and network marketing based companies
going forward.
However, the myth of all
MLMs being pyramids lives on.
Amway and its multi-level
structure were targeted by the FTC partly in response to a
proliferation of pyramid programs in the 1970s. In these illegal
pyramids, money was the only commodity or “value” that moved through
the program. There was no underlying product or service.
Schemes were developed
whose only purpose was specifically to recruit others into the
program. It was the emergence of several high profile schemes that
led to a rash of regulatory requirements and the ultimate targeting
of MLM as a structure. It also led to the clarification of
speculative or fraudulent schemes and legitimate direct sales
activities.
The Amway Safeguard Rule
identifies three key points which ensure the validity of the
opportunity. It was the existence of these three points as part of
the Amway structure that led the court to conclude the business was
not an illegal pyramid.
These therefore are
important criteria with which to assess any network marketing or MLM
opportunity and establish whether it is in fact legal as opposed to
“one of those pyramid scams”.
-
Does the opportunity require the retail
sale of products or services before one can qualify for any
recruiting commissions or sales?
-
Does the opportunity have
a mechanism in place to prevent the stockpiling of inventory of
physical products with no intention of reselling?
-
Does the opportunity offer
representatives who choose to leave a buy-back provision on unsold,
unopened inventory or products?
The term “network
marketing” became popular in the 1980s.
It was partly coined as a
way of getting away from the stigma of MLM.
Ultimately, direct sales
and multi-level marketing are distinct subsets within the overall
network marketing industry. In simplistic terms, they can be
defined this way:
Direct selling is where the profit or commission for a retail
sale is paid to one person.
Multi-level marketing is where the profit or commission for a
retail sale is shared with an up-line (or recruiter). Typically
there are also bonuses paid based on recruiting activity, so long as
the recruiting is accompanied with ongoing retail sales activity.
Finally, network marketing
gained a strong degree of legitimacy in the 1990s and into the 21st
century.
A number of very well
known and respected authors and business people began to lend their
public endorsement to the industry. People such as Brian Tracy,
Robert Kiyosaki, Paul Zane Pilzer, Jim Rohn, and even Donald Trump
began to openly talk about the merits of the industry and, in fact,
encouraged people to consider it.
At the same time, network
marketing morphed into a proven, preferred method of product
distribution by some of the largest companies on the planet.
Corporations came to the
conclusion that network marketing, as a distribution channel,
offered many advantages, not the least of which is that it’s lower
cost.
Commissions are only paid
on the sale of product or services and the structure allows the
companies to offload much of the time and training requirements onto
its representatives, who are incented to train the new
representative they recruit.
In particular for new
product launches, network marketing distribution allowed companies
to avoid costly traditional advertising campaigns.
Pretty soon
telecommunications companies, travel companies, satellite providers,
financial services companies, and many other industries joined the
party. Today there are literally thousands upon thousands of
network marketing based companies operating throughout the world.
Today, network marketing
is a +$100 billion dollar industry.
So there you have it,
we’ve come full circle.
So now let me ask you this
question. Do you still feel as though there is a reason to feel
ashamed or embarrassed to admit you are involved in or considering
getting inv network
marketing?
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