The most obvious difference is that the wholesalers and retailers in the above-mentioned network are replaced by distributors. Each distributor may supply other distributors, supply consumers, and supply himself.
The paint manufacturer looks for existing wholesalers to whom he can sell his product, and likewise the wholesalers will supply existing retailers. In MLM every distributor has been personally introduced to the business by an existing distributor. In the conventional business the salespersons, and they are self employed.
Figure 1 shows the traditional supply route from manufacturer to consumer. Customers are supplied at a single level only, that is by the retailers. Now look at the fundamental difference with MLM, in figure 2. The only suppliers other then the manufacturer are the independent distributors, and they sell to consumers at every level of the organization: hence the term multi-level marketing’.
Alternatively, the organization can be represented as a network of distributors, each one joined with a line to the distributor who introduced him, as in figure 3. The marketing, that is the advertising, promotion demonstration and sale of goods, takes place at every point of the network; hence the alternative name, network marketing.’
These illustrations are of course extremely simplified, but they should suffice to explain the basics of the MLM concept.
Alternatively, the organization can be represented as a network of distributors, each one joined with a line to the distributor who introduced him, as in figure 3. The marketing, that is the advertising, promotion demonstration and sale of goods, takes place at every point of the network; hence the alternative name, network marketing.’
These illustrations are of course extremely simplified, but they should suffice to explain the basics of the MLM concept.
When a new MLM company wishes to introduce a product into the market place it will firstly choose a nucleus of enthusiastic people in key areas and teach them everything about the product and the marketing plan to be used (every one is different and various types will be examined later). The company will then assist these original distributors to sponsor (recruit) further distributors, and so on , by putting on seminars and business opportunity meetings around the country. The rate of growth of the company’s sales depends entirely on the success of their distributor force in selling the product and sponsoring and training more distributors.
Reference: Multi-Level marketing: Peter Clothier