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Network marketing amid economic uncertainty

/ 05:01 AM September 10, 2021

Beware of illegal multilevel marketing practices

Entrepreneurs and employees adversely affected by the COVID-19 pandemic need a way to earn substitute income quick. One option is to start a multilevel marketing (MLM) distributor business, also known as network marketing.

The value proposition or upsides of MLM? There are quite a few, including: No rent; no large capital necessary; no qualifications required like minimum education degree, age, or work background; no franchise fee unlike in the franchising business; and then the psychic reward from seeing downlines succeeding.

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Big idea

The big idea is simple. Instead of companies paying a large amount to traditional distributors and wholesalers, and allocating another budget for mass media advertising, MLM companies reallocate trade margins and advertising for MLM compensation payoff, a win-win proposition between the company and their MLM independent distributors, who serve as both distribution channel as well as communication channel. Different products will then have different equivalent compensation payouts, quite similar to what would have been spent in the more traditional way of distribution and advertising. For instance, beauty care products pay more in MLM compensation because the advertising spend in traditional store retailing is a lot more than appliances, but it also has a lot more established and quality brands sold at very competitive prices in stores.

To exploit a large payout, MLM distributors need to create and maintain a pipeline of qualified prospects, spend the required time and effort to do the business of both selling products and sponsoring others to do the business, and have people and leadership skills to convert newcomers into successful distributors in a duplicable manner. Most legitimate MLM companies in the Philippines do not grant credit to its distributors.

FEATURED STORIES

MLM companies have low entry barriers with either free or low registration fees, and low exit barriers with specific product return policy defined. If there are high entry fees and no return policy, avoid joining these companies as they may be disguising themselves as legitimate MLM organizations but are either pyramiding schemes or selling unregistered investments (business centers where one can sign up and pay multiple times) which are illegal and unsustainable.

Computerization

The idea of MLM grew with increasing computerization, changing lifestyles, as well as the decision of Fair Trade Commission in the United States declaring the stair step breakaway compensation plan in MLM legitimate in 1979.

I have written many times about legitimate MLM, as well as illegal pyramiding and unregistered investments and readers are requested to check my past articles with extensive explanations, including the eight-point test. In particular, I recommend these posts:

“Investment Scam Spotting”: business.inquirer.net/282779/investment-scam-spotting (published November 2019)

“Beware of Binary-Type Pyramiding”: business.inquirer.net/260208/beware-of-binary-type-pyramiding (published November 2018).

—CONTRIBUTED

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