When it comes to money-making, we are often lured by the path of least resistance. We often take the surest, fastest way to earn money. Sometimes, in the case of MLM prospecting, these choices would prove to be failures.
You might have experienced receiving a phone call from a stranger, inviting you to a seminar or a lunch discussion. On some occasions, the caller may recruit you to sell a certain product while promising large profits. This is called MLM prospecting. It is a marketing method solely based on employee referrals and word of mouth. It usually involves a pyramidal structure of sellers, growing exponentially from top to bottom. Sellers usually earn through two methods: achieving quota sales of the product or recruiting new members to the business venture.
While it seems too good to be true, many analysts have warned against the proliferation of MLM companies in the business world. It has been described as unethical, exploiting personal relationships for monetary gain. Others have described MLM companies as deceptive and exploitative, promising profits they cannot deliver and unloading the company’s losses on the bottom part of the hierarchy when the venture goes kaput. The exponential growth of sellers also leads to market saturation; that is, there is a glut of sellers to provide products and services for buyers. Market saturation greatly affects the bottom part of the organization as their failure to make sales is tantamount to losses in profit and capital.
On an economic standpoint, MLM prospecting goes against the laws of supply and demand. It adheres to a naïve philosophy that there is an infinite demand for the product they are selling. In reality, however, the demand is finite. Therefore, acting on the premise that the market is infinite may lead to a collapse in the company. This is because unsold items translate into losses that often cannot be compensated by revenue from sales. This almost always results in the company going bankrupt or being shut down.
There are also doubts as to why the MLM method is used at all. Many critics argue that if the product these companies sell are so great, then how come traditional marketing strategies aren’t applied to it? Indeed, if commodities like apples and oranges need only one grocer to sell themselves, how much more a product that claims to rejuvenate aging skin or protect against life-threatening diseases? With a little traditional advertising, such products would practically sell themselves.
Despite all this criticism against MLM prospecting, it remains to be a lucrative way of business in the US. To promote fair trade, some states declared a law saying that legitimate companies and their distributors must earn from the sales of their product and not from relationship referrals. In no way, also, will the company force distributors to take more than they can sell or recruit others to join the fold. Companies violating these stipulations stand to be declared as illegitimate pyramiding companies. While a few exceptional companies have proved to be good MLM practitioners, a hundred others continue to be threats to people who are led on by empty promises of a quick buck.
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February 25th, 2010 at 1:13 pm
Thanks
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