The Future Demise of MLM?

The End of MLM?

The reason why this particular stream of MLM will ultimately vanish, subsumed into more conventional direct response, mass marketing systems, is twofold.

It will become indistinguishable from those other systems, and will lose any remaining perceived competitive advantage to consumers

It will fall victim to the demands of stockholders – especially those represented by fund managers of large financial institutions

When it becomes impossible to distinguish between MLM companies from which you can order direct on line, pay by credit card or direct debit, and enjoy home delivery, with web-based and telephone customer support, and other on line providers of the same kinds of products and services – especially those offering customer loyalty or other affiliate or associate-style programs – it becomes difficult for consumers to determine what, if any, benefit they gain from one company over another.

Because of the huge investments required to service this kind of customer base, and the intense competition that will arise, putting further pressure on prices and profit margins, few MLM companies will be able to escape the need to list publicly on the stock market. Once that occurs, the following scenario is just a question of time.

How this stream of MLM will simply disappear

FM = Fund Manager for major investment institution.
CEO = Chief Executive Officer of publicly-listed MLM company that employs technology to service its massive consumer database.

FM: I've been studying the figures for this last quarter. What's this "distributor network" it keeps referring to? Seems to me they get a disproprotionate amount of revenues. Almost 50% according to the report.

CEO: Those are the folks out there who distribute our products. They get
rewarded for introducing new customers and distributors.

FM: You mean we’re running one of those pyramid selling schemes?

CEO: No… not at all. It’s a legitimate network marketing operation. Perfectly legal and above board.

FM: Well… I don’t know. We have a number of very conservative investors who wouldn’t be comfortable with anything that even looks like one of those deals. I’ll need to check it out thoroughly.

CEO: My people will be happy to provide you with any information you need. There’s no problem.

FM: Anyway, I thought we dealt directly with our customers? They order direct and we ship direct?

CEO: True... but we pay them residual income for having introduced new customers and new distributors. They only earn it if the volume is supported by repeat sales each month.

FM: Well... according to the latest figures, 93% of our sales are direct to our customers. We have all our customers databased. Why do we need this network any more?

CEO: Because they introduce more customers and distributors. That's how we get our growth.

FM: But according to the figures, the vast majority do nothing. Many don't even buy from us regularly.

CEO: If that's the case, they gain no benefit... they get paid only on the volume generated by their downlines.

FM: Well... we invest in a number of companies -- major retailers -- who have pretty strong growth through more conventional direct response promotion to their databases. It seems to me that this network is consuming a whole pile of revenues that could be better used to reward our stockholders and support our stock price.

CEO: I’m not sure I agree with you on that. Our network has been very loyal over the years.

FM: That’s another point… how long do they get rewarded for introducing a new customer?

CEO: Permanently. That’s one of the attractions of network marketing.

FM: PERMANENTLY?? Are you kidding? That’s absurd… NO sales people I ever heard of get permanent residuals just for introducing a customer. Do we have agreements or contracts with these people?

CEO: We sure do.

FM: Are those agreements permanent or renewable?

CEO: Annual renewal -- they pay a renewal fee each year. That's how we weed out the dead wood.

FM: Do those agreements stipulate that we have to renew their distributorships every year?

CEO: Well... no. There are no guarantees of continuity.

FM: Is there anything in those agreements that prevents us from terminating them at the end of the current period?

CEO: Umm... no. I guess not.

FM: Better put it on the agenda for the next Board meeting, okay?

CEO: It's going to cause us some pain -- the bigger distributors earning six and seven figure incomes will band together to challenge it in court. Could bring us adverse media coverage.

FM: Let 'em. We can outlast 'em financially. And any court I know of in the equity arena will agree that they've had more than a fair return on their initial introductions. As for negative publicity, the media has never liked that MLM stuff… they’ll jump at the chance to stick the boots in again. Not a problem. And certainly worth a try. Our stockholders will sure appreciate our efforts to get them a better return on investment, at least, so we can't really lose, can we?

CEO: Well... I don't feel good about this. Our people will see it as a betrayal of trust.

FM: "Our" people? You work for us. "Our" people are the stockholders. And if we DON'T do this, they'll sure see it as a betrayal of THEIR trust, don't you think? Sounds like you need to sort out which side of the fence you’re on here. Before the next Board meeting would be wise, I suggest.

You can imagine the rest.

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