Myth of Door-to-Door Selling

sunandaC

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The MLM sales model is said to be composed of thousands of "door to door" resellers. This claim contradicts the everyday experience of most people. The door-to-door salesperson is nowhere to be found in the modern American neighborhood. Few people are at home during the day or have time in the evening to entertain sales representatives. Security concerns do not support door-to-door sales. The internet, mass distribution, big-box discount stores, mail order catalogues and telemarketing all have contributed to the demise of the door-to-door salesperson. Beyond these broad indicators, a confluence of ten factors within the MLM business model and inherent in its practices weighs against MLM sales representatives being able to retail their products or services "door to door." The factors negating retailing are matched to others that encourage recruiting. They include:
1. Inadequate Gross Profit and High Price of Products Restrict Retailing
Nikken, for example, offers only a maximum of only 20% gross profit on suggested retail prices of its entire product line. Considering the costs involved and the nature of the products, this small gross profit is an inadequate incentive to support necessary investments by distributors in retail marketing.

Out of this potential maximum of 20% gross profit, a distributor must finance the tasks of
prospecting, making sales presentations, ongoing business investments, providing customer support and marketing literature, providing free samples, carrying some inventory, at least for demonstrations, and making some deliveries of the product (unless the product is purchased from Nikken directly). He/she may have to collect payment and take back returned goods as required.

Other costs that must be covered by this small gross profit include business licensing, accounting (Nikken itself charges accounting fees ranging from $24 to $360 a year depending on rank), travel, phone, computer and other technology fees, etc.

A retail margin of at least 50% or (100% or more mark-up over wholesale cost) is needed to cover product and operating costs and allow for a reasonable profit. Companies such as Avon offer retail margins of this amount.

Beyond an inadequate gross margin, the retail-selling price must be competitive to comparable products. A perusal of MLM goods reveals many to be far more expensive than comparable goods sold in stores.

2. Limited Choice to Consumer Reduces Retailing Opportunity
Choice is restricted in the direct "person-to-person" method of selling and more people prefer to purchase goods of this type in stores where there is wider choice and no pressure upon personal relationship.

3. Marketing Policies Restrict Retailing
Most MLMs place severe restrictions on the marketing activities, which raise retail sales costs and limit the exposure of the sales people. These restrictions include strict prohibitions against displays in retail stores and mass advertising. Additionally, the MLM company itself does not engage in national advertising to support the brand or educate the customer about the product or the company. This burden and cost are carried entirely by the individual sales representative.

4. No Retail Sales Training Offered
The typical MLM company offers little training or support for retail selling. The focus and priority are placed on training, motivating and rewarding the recruitment of more and more sales people.

5. Nature of Products Makes Retailing Difficult
Some MLM products are controversial in nature. For many years, MLMs marketed weight loss products containing the now-banned supplement ephedrine. Referring to Nikken's products that use "therapeutic magnets," a perusal of the Internet turns up disputes about the value and efficacy of magnet technology, including scientific challenges and lawsuits. These controversies and challenges result in increased sales effort and time and the need for greater product knowledge and training. In other cases, the MLM products are undifferentiated "me-too" products in the "pills, potions and lotions" categories that characterize large sectors of the MLM business.

6. Competitive Product Availability Prohibits Retailing
Many MLM products are available at lower cost from other sales outlets, including retail stores and the Internet. Nikken-branded products, for example, are also available from current and exdistributors at discounted prices.

7. Proliferation of Distributors Dilutes Retail Sales Opportunity
A characteristic of nearly all MLM sales and marketing is that they advise sales representatives to solicit their closest friends and relatives to also become distributors. This is equivalent to a McDonalds' franchise owner seeking to set up competitive stores on the same street. The proliferation of additional distributors within the same social or geographical market must inevitably lead to retail discounting, a scenario that would severely damage retail sales efforts.

A strategy of encouraging each distributor to authorize more local competitors would only make business sense if overrides from the new competitor’s investments were paid to the recruiter by the franchisor and outweighed the loss of retail business that the additional competitors would cause. This is precisely what the MLM compensation programs do.

8. Greater Long Term Benefits from Recruitment than Retailing
A sale by a MLM distributor to a retail customer is a one-time event with no assurance of any future purchases of that company's products and no assurance that the end-user will purchase more of the MLM goods from that distributor. A newly recruited distributor, on the other hand, is effectively locked into the sponsorship structure, and all future purchases of that new recruit will accrue benefits to the distributor who did the initial recruiting. Additionally, the new recruit, as opposed to the end-user, is often exposed to the MLM company's promotions and materials to enter an automatic monthly ordering program, recruit more distributors, buy additional inventory, etc., which the individual end-user is not.

9. Top-Loaded Pay Plan Rewards Recruiting
Most MLMs use a clever pay plan that pays more money – per sale – to the "upline" than to the people actually doing the work of selling the product or recruiting new sales people. So, in addition to the structure limiting the number of winners to a tiny few, the pay plan also insures that whatever money the "losers" invest goes immediately to those at the top. This is necessary since most of the recruits will quit in less than a year after experiencing significant financial losses.

10. Advancement Tied to Recruiting
Whatever opportunity exists in the scheme for profitability is based on being positioned high on the chain. Recruiting is the only way to advance to the higher levels where the leveraged high incomes can be gained.
 
The MLM sales model is said to be composed of thousands of "door to door" resellers. This claim contradicts the everyday experience of most people. The door-to-door salesperson is nowhere to be found in the modern American neighborhood. Few people are at home during the day or have time in the evening to entertain sales representatives. Security concerns do not support door-to-door sales. The internet, mass distribution, big-box discount stores, mail order catalogues and telemarketing all have contributed to the demise of the door-to-door salesperson. Beyond these broad indicators, a confluence of ten factors within the MLM business model and inherent in its practices weighs against MLM sales representatives being able to retail their products or services "door to door." The factors negating retailing are matched to others that encourage recruiting. They include:
1. Inadequate Gross Profit and High Price of Products Restrict Retailing
Nikken, for example, offers only a maximum of only 20% gross profit on suggested retail prices of its entire product line. Considering the costs involved and the nature of the products, this small gross profit is an inadequate incentive to support necessary investments by distributors in retail marketing.

Out of this potential maximum of 20% gross profit, a distributor must finance the tasks of
prospecting, making sales presentations, ongoing business investments, providing customer support and marketing literature, providing free samples, carrying some inventory, at least for demonstrations, and making some deliveries of the product (unless the product is purchased from Nikken directly). He/she may have to collect payment and take back returned goods as required.

Other costs that must be covered by this small gross profit include business licensing, accounting (Nikken itself charges accounting fees ranging from $24 to $360 a year depending on rank), travel, phone, computer and other technology fees, etc.

A retail margin of at least 50% or (100% or more mark-up over wholesale cost) is needed to cover product and operating costs and allow for a reasonable profit. Companies such as Avon offer retail margins of this amount.

Beyond an inadequate gross margin, the retail-selling price must be competitive to comparable products. A perusal of MLM goods reveals many to be far more expensive than comparable goods sold in stores.

2. Limited Choice to Consumer Reduces Retailing Opportunity
Choice is restricted in the direct "person-to-person" method of selling and more people prefer to purchase goods of this type in stores where there is wider choice and no pressure upon personal relationship.

3. Marketing Policies Restrict Retailing
Most MLMs place severe restrictions on the marketing activities, which raise retail sales costs and limit the exposure of the sales people. These restrictions include strict prohibitions against displays in retail stores and mass advertising. Additionally, the MLM company itself does not engage in national advertising to support the brand or educate the customer about the product or the company. This burden and cost are carried entirely by the individual sales representative.

4. No Retail Sales Training Offered
The typical MLM company offers little training or support for retail selling. The focus and priority are placed on training, motivating and rewarding the recruitment of more and more sales people.

5. Nature of Products Makes Retailing Difficult
Some MLM products are controversial in nature. For many years, MLMs marketed weight loss products containing the now-banned supplement ephedrine. Referring to Nikken's products that use "therapeutic magnets," a perusal of the Internet turns up disputes about the value and efficacy of magnet technology, including scientific challenges and lawsuits. These controversies and challenges result in increased sales effort and time and the need for greater product knowledge and training. In other cases, the MLM products are undifferentiated "me-too" products in the "pills, potions and lotions" categories that characterize large sectors of the MLM business.

6. Competitive Product Availability Prohibits Retailing
Many MLM products are available at lower cost from other sales outlets, including retail stores and the Internet. Nikken-branded products, for example, are also available from current and exdistributors at discounted prices.

7. Proliferation of Distributors Dilutes Retail Sales Opportunity
A characteristic of nearly all MLM sales and marketing is that they advise sales representatives to solicit their closest friends and relatives to also become distributors. This is equivalent to a McDonalds' franchise owner seeking to set up competitive stores on the same street. The proliferation of additional distributors within the same social or geographical market must inevitably lead to retail discounting, a scenario that would severely damage retail sales efforts.

A strategy of encouraging each distributor to authorize more local competitors would only make business sense if overrides from the new competitor’s investments were paid to the recruiter by the franchisor and outweighed the loss of retail business that the additional competitors would cause. This is precisely what the MLM compensation programs do.

8. Greater Long Term Benefits from Recruitment than Retailing
A sale by a MLM distributor to a retail customer is a one-time event with no assurance of any future purchases of that company's products and no assurance that the end-user will purchase more of the MLM goods from that distributor. A newly recruited distributor, on the other hand, is effectively locked into the sponsorship structure, and all future purchases of that new recruit will accrue benefits to the distributor who did the initial recruiting. Additionally, the new recruit, as opposed to the end-user, is often exposed to the MLM company's promotions and materials to enter an automatic monthly ordering program, recruit more distributors, buy additional inventory, etc., which the individual end-user is not.

9. Top-Loaded Pay Plan Rewards Recruiting
Most MLMs use a clever pay plan that pays more money – per sale – to the "upline" than to the people actually doing the work of selling the product or recruiting new sales people. So, in addition to the structure limiting the number of winners to a tiny few, the pay plan also insures that whatever money the "losers" invest goes immediately to those at the top. This is necessary since most of the recruits will quit in less than a year after experiencing significant financial losses.

10. Advancement Tied to Recruiting
Whatever opportunity exists in the scheme for profitability is based on being positioned high on the chain. Recruiting is the only way to advance to the higher levels where the leveraged high incomes can be gained.

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