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BONUS CASES
BONUS CASE 10-1
Multilevel Marketing
Multilevel marketing often doesn’t get the respect it deserves in marketing literature. When multilevel marketing companies succeed, their growth is often unbelievable. At least six multilevel marketing
companies have reached the $500 million level in sales.
Multilevel marketing companies work like this: The founders begin by recruiting a few good
people to go out and find managers to sell their products and to recruit other supervisors. These supervisors then recruit additional salespeople. That is, 20 people recruit 6 people each. That means 120 salespeople. Those people then recruit 6 people each, and you have 720 salespeople. If in turn those people all
recruit 6 people, you then have almost 5,000 salespeople. All supervisors earn commissions on what they
sell as well as on what everyone under them sells. When you get thousands of salespeople selling for you,
commissions can be quite large. One company promotes the fact that 1% from 100 salespeople is as good
as 100% from one successful salesperson. Companies often add new products or expand to other countries to keep a continuous growth pattern.
Distribution under multilevel marketing is relatively easy. Often the salespeople will carry inventory in their own homes and deliver products as ordered. Many companies also offer direct shipping to
customers using UPS or other delivery firms.
Marketers cannot ignore the success of this sales and distribution strategy. Nu Skin (a seller of
health and beauty products) alone will soon have $1 billion in sales. Looking for more growth, the company started a new division, Interior Design Nutrition, to make and sell vitamins and weight-control
products. Amway, perhaps one of the most well-known multilevel marketers, has chosen the international
route for growth; recently, its sales of home and personal care products increased by over $1 billion in
one year.
DISCUSSION QUESTIONS FOR BONUS CASE 10-1
1.
Amway and others have been successful in Japan. To what other countries could you lead such
companies so that you could become a top earner?
2.
What will happen as multilevel marketing distributors begin selling and recruiting others using
the latest in technology such as the Internet?
3.
Why do you suppose multilevel marketing hasn’t received the same acceptance as other retail innovations such as catalog sales? What could the companies do to improve their image?
4.
If multilevel marketing works so well for beauty and health care products, why not use the same
concept to sell other products?
ANSWERS TO DISCUSSION QUESTIONS FOR BONUS CASE 10-1
1.
Amway and others have been successful in Japan. To what other countries could you lead such
companies so that you could become a top earner?
CHAPTER 10: Marketing: Place and Promotion
10.1
Many developing countries would have the consumer purchasing power for network marketing to
be successful. Central and Southern American countries come to mind, as do the Eastern European countries formerly a part of the Soviet Union.
2.
What will happen as multilevel marketing distributors begin selling and recruiting others using
the latest in technology such as the Internet?
It will be interesting to see what answers your students come up with. So much of network marketing is dependent on personal sales that impersonal Internet selling does not seem feasible. Many network marketers use telemarketing rather than in-home visits. There may be other possibilities.
3.
Why do you suppose multilevel marketing hasn’t received the same acceptance as other retail innovations such as catalog sales? What could the companies do to improve their image?
Unfortunately, many multilevel marketing schemes have been little more than fraud. The term
“pyramid sales” still evokes the image of unscrupulous marketers and risky investments. In order to make
multilevel marketing more acceptable, salespeople will need to convince customers of the value of their
product. One easy way to start would be to offer a money back guarantee in writing.
4.
If multilevel marketing works so well for beauty and health care products, why not use the same
concept to sell other products?
Any product with a high profit margin is a possible candidate for multilevel marketing. There are
some products that people would rather buy in the store (for example, feminine hygiene products) and
don’t want to face a human. Others have a high time utility, and the distribution lag would be a problem.
Americans, however, are very creative in their approach to competition, so anything is possible.
10.2
INTRODUCTION TO BUSINESS: Instructor’s Resource Manual