THE POWER OF INFLUENCE AND TEAM-WORK IN A MULTI-LEVEL MARKETING ORGANIZATION

INTRODUCTION:
In the world of business there are many different approaches taken in order to influence the sale. Some businesses take the big box store approach selling and advertising their merchandise through a larger entity such as a Wal-Mart, Home Depot or Best Buy. Some take an exclusive approach selling their merchandise only through exclusive retailors such as Nordstrom’s. With these types of businesses there is always a middle man between the manufacturer and the final customer. In a direct marketing organization the middle man (the retailor) is shut out.
In the direct marketing approach a sales associate serves as the representative for the company and goes directly to the customers to deliver the necessary product to them. Many different kinds of business take this approach from painting services to health supplements. This form a business is similar to that of the old traveling salesman who goes from home to home hopefully selling a product that will help sell itself. Typically advertising is not done by this individual but by word of mouth among the friends of the buyers. Many sales people conduct social “mixers” where they have groups of friends gather in a party like setting to show the product. This allows the salesman to create a mob mentality with the sale helping the group sell themselves and maximizing his/her earning potential without using an unreasonable amount of time.
In big box stores and retail establishments with brick and mortar locations recruitment is done in- house where people who would like to work with them come to the location or go to the website and submit a resume or a job application in order to get a position there, Sometimes though, in a direct marketing organization there is no brick and mortar location they can go in order to apply. Many now have websites but it’s likely that many people have never heard of the company. These companies only sell via word of mouth not with billboards, not with television ads and not with full page newspaper clippings. So how do businesses like these recruit new representatives? The same way they sell their product direct sales.
Many of the companies that use direct marketing use a complementary strategy to recruit new sales people; they recruit via word of mouth. Hiring new employees by having current employees recruit friends and family to help build their personal business and work on their team. Whenever somebody recruits a new member for their team that member becomes a part of their “downline.” The original recruiter then gets a portion of the profits this person generates and that of those down his/her downline as well. This makeup is referred to as that of a Multi-Level Marketing (MLM) organization and today over 70% of direct sales are done within MLM organizations (Bhattacharya, 2000). In a Multi-level marketing organization each individual has an Upline and a Downline. The Upline consists of the person who recruited him/her and the person who recruited that person etc. all the way up to the CEO or Owner of the organization. In these organizations typically there are no bosses or presidents. Employees do not get fired, but their success depends on the amount of work they want to do to be successful. Most do not do enough, but promises of potential riches keep them coming back for more. Now many may feel as if this sounds like a pyramid scheme, and it does. According to the US Federal Trade Commission the one distinguishing characteristic between an MLM and a pyramid scheme is that MLM’s lead with the product whereas a pyramid scheme leads with the business. Compensation for MLM companies is based on volume of products and individual distributor sells directly and through his/her network while pyramid schemes compensate those distributors mostly for recruiting others then charge them high fees to join (Scheer, 2006).
In a pyramid scheme the new recruits are influenced into buying into the company for some large initial investment. In a pyramid scheme “distributors rarely sell products to outside customers, only to other new distributors they bring in, who must bring more recruits in to make money” (O’Donnell 2011). These individuals are then told to go out and recruit others to do the same with promises of large pay-days when their network grows large enough. In most of these organizations the incentive for selling the business is much more than that for selling the business. Those at the bottom are encouraged to attend conferences and events they must pay for along with more selling materials which may soon leave them with a large investment and many times nothing to show for it. “New entrants are “effectively required” to purchase more products and event tickets from the high level distributors.” (O’ Donnell, 2011). Once the scheme is developed those at the top will be made very wealthy off the investments made by those at the bottom and those at the bottom of the pyramid will likely have spent a significant amount more than they earned.
In a Multi-level marketing organization conversely those who buy in do not buy in for astronomical amounts and they gain a lot of their investment back because of high commission rates. The direct sales approach is best when the product is something that is not readily available or is unique. “The "direct selling" in multilevel marketing is needed in countries with "primitive distribution systems and limited choices in retail stores," but its potential is "seriously limited" here.” (O’Donnell, 2011) This statement is true unless the product is something unique enough within its market. Many companies fall into a pyramid scheme in developed countries because of the fact that many of the products which are not unique are readily available in big box stores for a much lower cost.
Business analysts say MLM’s act opposite to economic cycles because it is attractive to be an independent business owner especially when you can do something that requires no experience, no education, and barely any start-up capital when other forms of employment are scarce. (Cahn n.d.) A majority of MLM workers are part-time and the typical MLM distributor is changing from the lower middle class worker to the middle to upper class. Average “start-up cost” for an individual distributor is only $90. As one distributor said “Could you afford a McDonald’s franchise at around $500,000? I sure couldn’t. But I can afford an Amway franchise at around $100 to $200.”(Roha, 1991)
MLM’s also thrive in areas where social interaction is most friendly like in the Sun-Belt, the Bible Belt and California. (Roha, 1991) These organizations typically mold into exclusive social groups which meet at events like parties, meetings, rallies and conventions. These events are usually party-like in nature cheering, singing and applauding. Relationships in these organizations are very close knit and people are very involved in each other’s lives. For some this phenomenon is seen as an oddity because there is minimum pay and huge involvement by many. As such MLM’s receive a lot of criticism for being like a “quasi-religion” or a cult. But typically an MLM team is made up of many friends and relatives and the close social proximity of the friends and co-workers determines the social satisfaction from the job itself. (Bhattacharya, 2000)
Companies that have an MLM organization sell many different types of products/services. The most famous of which is Amway. Amway specializes in a variety of different goods but is in trouble here in the US because many similar products can now be bought in stores at much lower prices. Because of this people now can only make money in this company by buying products then convincing other people to join and buy lots of products and selling materials. Recently Amway settled a $55 million dollar class-action lawsuit with former distributors because of its evolution into a pyramid scheme due to this competition (O’Donnell 2011). Other companies include Vector which sells Cutco knives; College Pro, which sells painting services; Mary Kay and Avon, which sell cosmetics; and the Pampered Chef, which sells kitchen gear.
A large segment of MLM organizations are actually health supplement companies. Supplement companies do well in this format because each product can be marketed as unique in the market, most of the population has a weak grasp of science so anybody can sell them, and prices can be justified with the false claims due to lack of federal regulation. In 1994 the US Congress passed the Dietary Supplement and Health Education Act (DSHEA) which allowed supplement companies to be free from regulation from the FDA. This law says that the FDA must be able to prove a supplement is unsafe to regulate it, which places difficulties on the agency that it cannot afford to use its resources on. This lack of organized regulation has helped the supplement market bloom in the last 18 years because companies can now post false claims with unsubstantiated evidence and justify high prices with these claims. The most successful MLM style supplement companies normally back their claims with studies from universities, and third party labs. Examples of these more successful companies include Herbalife, Juice Plus, Nu Skin, the now dissolved Metabolife, and the company I work with Advocare.
Advocare International is a supplement company established in 1993 by Charles Ragus. The name comes from Ragus idea of being an Advocate who cares. Ragus himself actually started as a Herbalife distributor though in the 80’s. The corporate headquarters in is Plano, Texas and employs just 247 people which is typical of MLM’s as many of the distributors are independent and not actually employed by the company. The company has over 100,000 independent distributors. Several of the Advocare products are backed by the Informed Choice certification program which is an organization that regularly tests supplements for substances that are considered prohibited in sport.
Advocare like any MLM company comes with its share of criticisms. In 2008 Olympic swimmer Jessica Hardy was notified she tested positive for the drug clenbuterol or clen. Clenbuterol is a bronchodilator used by body builders in conjunction with aspirin to help raise the body temperature a couple degrees to increase energy expenditure; Hardy sued Advocare saying her supplements were tainted and Advocare countersued Hardy for making false claims. An arbitration hearing reduced Hardy’s suspension after acknowledging that her supplements were tainted. Another common criticism is of Advocare’s weight loss program “the 24 day challenge” is that the program is safe but it would be a result of the nutrition program and not necessarily the supplements. Finally like many MLM’s the main criticism is that the organization comes from a religious backing. Many distributors use faith and religion to help push product. This is common theme with MLM’s “endowing consumable items (is) a fixture of multi-level marketing” (Cahn, n.d.) David Chidester illustrates this in his book “Plastic Religion” about Tupperware.
When choosing to work with an MLM there are many things a person may want to be aware of beforehand. First and foremost look at the product. Is it priced competitively? Will you be able to sell it? Does the company guarantee customer satisfaction? Is the product consumable? Is there a repurchase program for unsold product? Then a prospective worker has to look at the company. Be wary of companies that charge lots to join, have been around for less than three years and those that charge fees for training. Finally one must look at the compensation plan. Can you make a profit from the sale of product? How many levels of downline distributors do you get compensated for in bonuses and commissions? What extra expenses will you have? (Roha, 1991) These are things you’ll have to ask yourself in order to avoid being in the 90% who fail working for these companies.
To understand why I would risk being a part of a MLM with all these potential issues you need to know a little about my personal background. In between high school and college I saw a newspaper ad called work for students offering more than $12 an hour. Thinking this was a significant amount of money at the time I jumped at the opportunity. I was to work with the Vector Marketing company, the distributor of Cutco knives.
My role when I started my business was to work as a trainee, I was quickly promoted 4 times to the rank of advisor. The business offers incentives as you increase your level of sales you get an increase in commissions, to the point you can make up to 50% of what you sell. My role quickly went from trainee to trainer and I was training new employees how to succeed in the business. I was very successful in my summer with Cutco selling knives to friends and relatives and soon to a long list of people I didn’t know as well. The only reason I stopped was because I started college and decided that I no longer had the time to dedicate myself to such a business.
I attended the University of Washington and earned a Bachelor’s degree in Cell, Molecular and Developmental Biology and another Bachelor’s in Psychology. My biology group then helped me with my first gym job selling supplements at the front desk of 24 Hour Fitness in downtown Seattle. Because of my science background I did lots of research into the different supplements and substances that are used to help change a person’s body composition and when I became a Personal Trainer this knowledge became that much more important as it would help my clients get to their goals quicker and safer if I knew to choose the right supplements. As a trainer it is my job to wade through the false claims and advertisements and see exactly what is true and what supplement does what it claims and contains what it says it does. Advocare’s Informed Choice certified supplements, lack of relative controversy, and products backed by peer reviewed research gives me the confidence I need to be able to sell these products to my clients.
Their main program the “24 day challenge” is great for me and my clients because research has shown it takes 21 days for somebody to create a habit and the healthy eating program associated with this supplementation program is a great way to get people to change their perspective of how to eat healthy. The hardest thing about putting somebody on a nutrition and diet program is holding them to it for longer than a couple weeks. With the Advocare 24 day challenge people get used to not only eating the right foods but to eating with frequency and timing their meals properly around their workouts. As such many of my clients have had great success on the program losing 10-15 lbs and 5%-6% body fat.
Many times I have seen friends have great success with companies such as this. I’ve also seen others fail miserably. The question I’d like to ask is why some succeed where so many others do poorly in MLM companies. What is the key? How do some make it big while others cannot? My hypothesis is that the make-up of the distributor’s individual team and support group is what leads to the successes. With a great team made up of several business builders a person can do well working with their downline and maximizing their success.
PROBLEM STATEMENT: What aspects of team building and support are needed in order for an individual to be successful in a MLM organization?
LITERATURE REVIEW Some of these literature pieces speak to the success of MLM workers whereas others speak of failures.
Source One: Some Multilevel Salespeople ask: What Profits? by Jayne O’Donnell The focus of this article is a couple who did not do well with Amway and the dangers of working with an MLM company. Between Amway’s marketing materials and meetings this couple ended up spending a lot more than they earned. People in the business who did not attend these meeting or buy the materials were often looked down upon by the higher level distributors. This experience mirrors that of many distributors who then filed a class-action lawsuit against the company that cost Amway over $100 million. With the growth of discounters like Wal-Mart and Amazon few people need to buy things from Amway distributors any more, and the prices, with a large amount of commission going to distributors, are no longer competitive. Active Amway distributors earn an average of only $115 dollars a month and just .26% make more than $40,000 a year. What Amway really sold is opportunity and false hope. High level distributors would run conferences and charge new distributors to attend. Since the settlement Amway has taken steps to help new distributors and to monitor the high level distributors. Now Amway spends more than 10 million a year to help train new distributors and have changed the literature to prohibit false claims and “dream selling.” Source Two: Consuming Class: Multilevel Marketing in Neoliberal Mexico by Peter S. Cahn This article follows the life of a woman named Esperanza who sells Omnilife nutritional supplements in Mexico. Omnilife and other MLM companies flourish in Mexico due to the ideas that people are free to build their own businesses and be their own bosses, this idea of entrepreneurship and decentralization are very favorable to the Mexicans because of their neoliberal beliefs. That and the strong social and religious culture helps these companies do well. When the author first met Esperanza she spoke of the products she sold and how they mixed ancient herbs with advanced current technologies to create 80 different powders. She then shared different experiences with the listeners that she had with the products such as a pregnancy after menopause and a cure for her arthritis. Others shared their miracle stories as well aligning their claims with the protestant testimonials of the rebirth of Christ. The article goes on to say that many of the distributors dropout and many do not build the networks necessary to achieve the financial success they have dreamed of. In one study in the US they found there is no correlation with commitment and success in these businesses. Later the author ran into Esperanza again sharing a space with a daughter’s eatery close to the Omnilife wholesale center. At this location she turned the restaurant into a display and support center for Omnilife supplements. At this point Esperanza was doing well, having won trips and meeting several other devoted distributors. She had now built a network of 66 distributors around the state and spent lots of time working to find new recruits. Her big issue though was keeping those recruits motivated and so her downline sales diminished. This lack of downline sales effected Esperanza years later as her paychecks dropped. Her checks dropped by 60% because she spent the money earned rather than reinvesting it to build the business saying her not being a good sponsor is the reason she could not successfully reach the “diamond” level of sales. To build her business back up she concluded she must start again but this time build a strong support group. Unfortunately her plan of working at a new support center with the help of several distributors fell through and she eventually fell into the same rut that many distributors do and eventually just went back to selling supplements instead of concentrating on building a successful team. The article concludes saying the appeal of MLM towards women is the allure of flashy things and the idea of working within the middle class, with new cars, clothes and makeup. Also the ability of a woman to be free of man and government influence can be very appealing as well especially in areas where women’s rights are a recent development.
Source Three: Socialization in network marketing organizations: is it cult behavior? By Patralekha Bhattacharya and Krishna Kumar Mehta In network marketing organizations or NMO’s business meetings are less like the business meetings we commonly associate the phrase with and are more like social events. People associated with these businesses seem to make little money but they spend a lot of time and money doing activities with the business. Many critics suggest this is cult like behavior and that NMO’s cause people to act irrationally due to some level of mind control. This paper goes on to describe the history and definition of a cult and explains that for one to maximize satisfaction within an organization they must achieve satisfaction both through social and economic means. To produce the appropriate amount of income from these organizations requires one to be dependent on both. Individual need to spend effort meeting and maintaining social contacts, helping others achieve their social and economic means, and devote their resources to help themselves and others succeed and feel motivated. Source Four: The Ups and Downs of “Downlines” By R. Roha and A. Blum This article, written in 1991, is about the successes and failures of people who work in MLM companies. It starts with the description of how MLM’s work and how the distributer is compensated. Then goes on to describe the lives of two distributors Mary Cudahy who sells Lady Remington Fashion Jewelry and The Kuhn’s who sell Nu Skin cosmetics. Mary has a team of 25 distributors working with her and she is doing well making more at her MLM at 20-30 hrs a month than she is at her other job working 30hrs a week. The Kuhn’s on the other hand started well but had a high initial buy-in and have had a problem holding on to distributors due to the high turnover. The couple invested lots of money into expanding their business but they soon found themselves buying lots of product themselves in order to continue getting their bonuses, and are now bankrupt.
The average MLM distributor only reasonably makes $200-$400 a month and the turnover is high because many just do it to earn a couple extra dollars or are between more established full time jobs. The way to really build a business is to build a large active downline with several active breakaway groups. But to keep a large flourishing business one must recruit and support their team throughout the process.
Source Five: Greening up the Downline, Multi-Level Marketing Comes of age by Roddy Scheer Greening up the downline speaks not just the potentials for making profits in an MLM company but also of how MLM businesses are moving towards being “greener” or environmentally friendly. One requirement for doing well in an MLM is to believe in what you’re selling. MLM and environmentalism work hand in hand and to do well an MLM company must be responsible because the last thing they would want is another source of controversy. It then goes on to warn people of those that MLM’s are difficult to do well in and not all green companies are really as they say and a distributor should do their research beforehand.
Source Six: Purchasing Behavior in Embedded Markets by J. Frezen and H. Davis This paper analyzes the social influence of sales. The basic premise is the stronger the bond between the buyer and the seller the higher the likelihood of the sale. This study specifically looks at the relationships developed in direct selling multilevel marketing type organizations because the buyers are usually the friends and family of the seller. The study first looks at the degree of social relationship of the two parties and then presents the buyer with something and they saw that invites to the direct selling party only bought if they actually needed the product being sold or they had a strong relationship with the person conducting the sale. This implies that the degree of relationship the person has with the seller may influence the buyer. The implications of such research are that by having people of a similar demographic selling to those who are marketed towards will result in greater sales. The reasoning behind this is that members of a similar age, education or social groups tend to form better relationships with those who are like themselves. Social capitalism is just as much of a factor in revenue generation as economic capitalism.
ANALYSIS:
So what does it take to be successful in a MLM organization? According to the previous described articles the single most important thing is member to member support. Many fail in these organizations because either their sponsor is unavailable or does not have the tools to give the new distributor the confidence to succeed. This attribute goes back on the individual and their ability to manage. This was discussed the first week of class where although the sponsor does not feel accountable for the new subject, they are. Without these feelings of accountability and support the new distributor will most likely fail. The best way to really support the downline is to lead with a vision and education. As stated in the lecture “high performance culture (HPC) starts at the top of the organization and directly involves how the purpose and values of the organization are communicated to the employees. If a sponsor can show the distributors in his or her downline how to succeed; either by doing it themselves, or by giving them the tools and showing them the vision, then they will succeed themselves. Many times, as seen in the description of the Kuhn’s (Roha 1990), the sponsor loses sight of their own vision and their downline does as well. By educating those in the downline of the importance of the product and the product benefits the sponsor can not only help the distributor with his/her sales, but also maintain the reputable nature of the product by not making false uneducated claims as Esperanza did in the article about MLM’s in Mexico. (Cahn n.d.) Leading by education helps the distributors build confidence in their manager as well and as such they will be more likely to come to that person if times get hard and success doesn’t follow as it should. Team building, the principle topic of chapter 7 in the textbook Organizational Behavior, is the next thing a manager wants to do. Because of the turnover in the MLM’s team building is a constant cycle but by building the team appropriately you can also limit the turnover in the organization. An ineffective MLM team or breakaway group as described in the Roha and Blum article will be continuously in the storming phase because of the inability to form long standing relationships due to the turnover. Conversely an effective team will be able to take on new members quickly and integrate them into the circle appropriately to build the strength of the team which is always in the norming or performing phase. When Esperanza was running the support center near the distribution center is an example of such a team. As mentioned in the Frezen and Davis text effective social organization and relationships will only help with overall revenue generation and as mentioned in the Bhattacharya and Mehta text a strong team is not only socially satisfied but is also economically satisfied. The final ingredient of a great team based on my analysis of the text, lecture and the literature is the trust in the one doing the management. Fiedler’s leadership contingency view, outlined in chapter 13 of the text, says leaders can be directive, supportive, achievement-oriented and participative. According to research done by Hershey and Blanchard a leader must be able to match the followers and conform to lead the group best. The best way to do so is by capturing the trust of the followers. If the members of the MLM distributor’s downline trust their sponsor and his product they will not only be less likely to deflect, they will also be more likely to build their own downlines as well.
SOLUTIONS:
With the rapid changes in technology and availability of resources it can be hard to work in a direct sales corporation. All around us we have a plethora of resources and technology that allow people to criticize these businesses. Now more than ever it is important that a team be strong to deflect outside influence. According to the text and there are several strategies or solutions that can be taken to make one successful in an MLM organization.
One such solution is to become as educated of the product and the business as possible. This will not only instill confidence in you to help bolster your sales but will also influence those you are working with to either do the same or to use you as a dependent resource to bolster your own. Just being an expert in your craft can be enough to influence others to join in your personal mission. This is kind of a “If you build it they will come” solution where if you build the appropriate amount of knowledge of the situation you will guarantee yourself the amount of profit you wish to have because you will have a team that trusts and praises you.
The next solution is to focus resources and energy on recruiting new people. With this you hope that eventually your team will take care of itself and your will at some point find someone who will want to work as hard as you do to build a team. Although the team will always be in turmoil it may be that someday it will be large enough to support itself and at that point you will no longer have to work so hard to recruit. In this solution you will likely build your team with false hopes and promises.
The final and preferable solution is to build the team from the inside out. You start with a strong core and educate them on how to grow their own teams. You then support them and their teams through various activates and seminars that will build their confidence in you and the product and that trust will be conveyed to not only the team but also all the way to the customer as well. With a well-rounded team, a reputable product, and a strong support group; turnover will be low, morale high and sales even higher.
REFLECTION:
My time with Advocare has just barely begun. I actually started working with them just after we started this class. But through this project it has given me the ability to research not only the company I’m about to get more involved in but also the common pitfalls many fall into when developing a team for a business such as this. To learn from others mistakes will (hopefully) make me into a much greater leader than before and allow me to take the business to a place where many first time distributors can only imagine.
References:
Bhattacharya, Patralekha. Mehta, Krishna Kumar (2000).Socialization in network marketing organizations: is it cult behavior?. Journal of Socio-Economics 29. 361-374
Chan, Peter S.(n.d.) Consuming Class: Multilevel Marketers in Neoliberal Mexico. Cultural Anthropology 23:3. 429-452
Frenzen J, Davis H. (June 1990)Purchasing Behavior in Embedded Markets. Journal Of Consumer Research [serial online].;17(1):1-12.
Koch, H.L., Johnson D.W.(2008). Are Home-based Sales Representatives Aware and Proactive regarding Security Risks in the Internet Era? Journal of Internet Commerce. 3. 379-402
O’Donnell, Jayne (2011). Some Multilevel Salespeople Ask: What Profits?. USA Today
Roha R, Blum A. (November 1991) The ups and downs of `downlines.'. Kiplinger's Personal Finance Magazine [serial online];45(11):63.
Scheer, R. (July 2006). Greening up the downline Multi-level Marketing Comes of Age. E Magazine pg. 54-55
Schermerhorn, Hunt, Osborn, Uhl- Bien.(2010) Organizational Behavior. John Wiley & Sons Inc. 11 edition
Temple, Norman J. (2010) The Marketing of Dietary Supplements in North America: The Emperor Is (Almost) Naked. The Journal of Alternative and Complementary Medicine 16. 803-808