Abstract: these considerations, a new paradigm known as

Abstract:

Marketing
is a highly relevant activity for every business. Many individuals trust that
marketing is just about promoting or sales. Be that as it may, marketing is
everything an organization does to obtain customers/clients and keep up an
association with them. Marketing activities include understanding target
customers’ needs and wants, planning and designing of new product, its
production, pricing, promotion and distribution. Keeping in mind these
considerations, a new paradigm known as direct selling was designed which came
into existence in 1800s and has now changed the way of thinking of individuals.
It refers to selling of goods and services to consumers who are away from a fixed
retail outlet, generally at their homes, workplace etc. through an explanation
and demonstration of the product by sellers. In this paper, an ample view of
Multilevel Marketing as a prevalent model of Direct Selling is described.

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Key words: Marketing,
Direct Selling, Multilevel Marketing, Network Marketing, MLM.

Introduction:

Philip Kotler
defined “Marketing as a process by which Individuals and group obtains what
they need and want by creation and exchanging products and value with others”.
A business may have many objectives including that of making profits. But on
deeper analysis, it is seen that the most sensible objective of the business
must be consumer satisfaction. Successful marketing companies continuously
monitor customer’s needs, wants and preferences.

With globalization, world has become an open market,
that provides abundance of avenues to the marketers, to cope up with the
cut-throat competition. As the Business Enviornment become
more and more competetive, companies are forced to push themselves to very edge
of their capabilities. One
of the major objectives of any organization under this changed market
environment is to be competitive and thereby capture the market. Successful
marketing depends upon addressing a number of key issues. These include: what a
company is going to produce, how it is going to charge, how it is going to
deliver its products or services to the customer and how it is going to tell
its customers about its product and services. These issues are dealt with marketing
mix decisions which reflects the practices adopted by the marketer in persuade
of its marketing strategy. Traditionally, these considerations were known as
the 4 P’s- Product, Price, Place and Promotion. As marketing became a more
sophisticated discipline, a fifth ‘P’ was added- People. And recently, two
further P’s were added, Process and Physical evidence. These considerations are
known as 7 P’s of Marketing. The three P’s namely Process, People and Physical
evidence are related to service marketing.

The
Conventional System of marketing has
some defects regarding distribution channel, promotion and pricing. It involved
intermediaries who stand between the manufacturer and the final consumer. The
company also had to incur large advertisement and other promotional expenses.
All these expenses were added in the cost resulting in extra increase in price.
To get rid of these defects, there felt a need of new marketing strategy that
establishes direct relationship between the producer and consumer. The
innovative method so developed is Direct
Marketing. It seeks to achieve the goal of direct relationship between the
producer and consumer by using various communication tools like cell phone text
messaging, email, interactive consumer websites, online display ads etc. It
eliminates the intermediaries in the distribution channel. One of the major
forms of Direct Marketing is Direct
Selling.

Direct selling refers to the
selling of goods and services to consumers who are away from a fixed retail
outlet, generally at their homes, workplace etc. through an explanation and
demonstration of the product by sellers. Single-level
and Multi-level marketing are prevalent models in the direct selling
industry. In single level Marketing, the direct seller get reward in the form
of commission, bonus or retail mark up through the sales they make. Their main
aim is to enhance the sales level only whereas in Multilevel Marketing (MLM),
each direct seller can further recruit new distributors and create a down line
of direct and indirect distributors/sellers. They sell their products to the
consumers to receive commissions and bonuses for their own sales as well as
made by their downline direct sellers. Multi Level Marketing is also known as
Channel Marketing, Network Marketing or Referral Marketing.

Person
to Person (P2P) Marketing and Party
Plan Groups
are the main methods used for direct selling. Majority of the direct sales
across the world takes place through face to face communication. P2P direct
selling is the interaction between salesperson and customer for promoting the
product sale. This method can use both single-level and multi-level marketing.
However, in Party Plan, social events are organized where products and services
are promoted and offered for sale. This method mostly uses multilevel
marketing. Sales people host events themselves and also approach other people
to host events during which the products are demonstrated and sold. In return
the host is given a part of the revenue from the goods sold. The salesperson is
paid a commission on the sales or on the sales made by the sales people
recruited by him/her.

Now a
days, MLM has become increasingly used method in order to enhance the small and
large companies performance. It is one such form of marketing through which
marketers try to persuade the consumers by giving personalized touch. It
provides strong cues to catch the attention of consumers as it is all concerned
about the practices of distributing, putting up for sale, or delivering
products and services by means of self-employed agents, where these agents are
given compensations, bonus, discounts, dividends or additional perquisites for
the job of selling products and services and for employing further agents.

 

MULTILEVEL
MARKETING CONCEPT

 

Figure.1 The concept of MLM

                                                                                     Source:
Hosan et.al

 

It is the strongest and ultra-modern
procedure of marketing which gives the opportunity of making self income to an individual.
It is such type of marketing process by which customer/consumer can earn
commission creating new customers through marketing. In MLM, person obtains a
designation of distributor or consumer-seller through buying and selling simultaneously.
It eliminates the chain of middlemen by providing goods directly to ultimate
consumer. It is teamwork. In MLM system only one network team-worker is allowed
to marketing avoiding more middlemen.

How MLM Works:

 

Figure.2 MLM network
expansion

Source:Carmichael (1995) as quoted in Charoenrungsiriand
Oonsuphab
(2010)

 

 

The whole company’s distribution process starts from the producer
and ends with final users. Every MLM company has its own product line which it
sells to other individual distributors (1 in the figure 2). At first,
individual distributors use the products, then expand the products to other
interested consumers (2 in the figure 2). At this level, some consumers might
be interested and want to become company’s distributors known as down-line of
the first distributor. These down-lines will further sell products to other and
expand company’s business network (3 in the figure) (Carmichael, 1995).

Moreover, MLM distributors can gain money from company by two
ways. First, distributors can get commission from sales made by them as well as from sales made by their recruit.
Secondly, they get reward by creating or expanding the business network.

 

 

Figure.3 Down-line system of
MLM

Source:Carmichael (1995) as quoted in Charoenrungsiri and Oonsuphab (2010)

 

Figure.3 depicts how
MLM distributors usually work with other members or recruits and earn the
reward. An MLM distributor is responsible for two things; first is to sell
products himself and another is to recruit down-lines to become parts of
network. In the beginning he will be a product user and if he likes those
products, he may decide to become a MLM company distributor and recommend those
products to other people. Then, he will present and/or sell products to his
friends, neighbors, colleagues, acquaintances or even strangers. If they buy
for themselves, then we call them as end users, but if they join as
distributors, they are known as down-lines. His responsibility towards the down-lines is to share his knowledge about
products, how to sales them and also, the way to create their down-line network
(1 in the figure 3). In this level he will have chance to gain bonus for his
promotion (as becoming an up-line with particular amount of down-line as
company’s requirement). The bonus or reward is usually paid in money with
different rates depend on the level attained. Then, the second level
distributor will train and share knowledge to the next levels (2 and 3 in
the figure 3) and the process continues. (Carmichael, 1995)

              It is about a 50 years old industry. According
to Network Marketing Emporium over 150,000 people worldwide, are joining an MLM
company each and every year. This business provides a perfect vehicle to enjoy
our life and offers the best career opportunity. There are no barriers to race,
age or experience. Anybody can join MLM any time and can also quit easily.

 

MULTILEVEL
MARKETING INDIAN SCENARIO

In India, the direct selling industry came into
existence in early 1980 but soon after 1990s, country had opened up to global
markets and the industry expanded. In the pre-liberalization era, Direct
Selling was usually in the form of various chit fund companies like Sahara
India. These had a system of agents, who simultaneously mobilized deposits and
appointed sub-agents for further deposit mobilization. Companies such as Eureka
Forbes and Cease-Fire pioneered the direct selling system in the country with a
sales force that was trained to make direct house-to-house sales. But
after liberalization and globalization, many companies entered in India and
Direct Selling become fastest growing non-store retailing formats.  

 

In
India, MLM was conspicuous during mid-90. Amway was first global direct selling
company to enter India in the year 1995. Amway India, who manufactures and
sells world-class consumer products, was established in 1995. It had started
its commercial operations in 1998. Over 450 products, particularly concentrated
on wellness and beauty, health, food supplements etc. are sold.

Oriflame
International started MLM operations in India in 1996. Oriflame is one of the
rapidly growing cosmetics firms in the world. This was followed by the entry of
Avon India in late 1996. Avon is the number one beauty Direct Seller in the
World, a Beauty Icon and one of the world’s largest micro-lenders. Avon extends
credit to numerous sales representatives on its first order across the globe.

         Tupperware also entered
in 1996, with a product portfolio having plastic food storage and serving
containers. Franchisee of Tupperware requires zero investment. Tupperware
adopted party plan approach for promotions, disseminate information and sale.  Herbalife entered in India in 1999. Herbalife
product line includes snacks and protein shakes, fitness and energy drinks, a
complete bath and body care line and nutritional, vitamins supplements etc.

Avon, Amway India, Oriflame, Tupperware and few Indian companies
such as Hindustan lever network, Modicare are the main MLM players in the
Indian market. Other MLM companies in India are team lifecare, Conybio, Indian
Noni, Nascent retails, RMP infotec, Stemtech India, Secure life, RCM business,
Vestige, Big Banyan Tree, Altos, AMC Cookware, Jafra, Klink etc.

The market size of direct selling industry reaches approx. INR
72 billion in 2013 and has a target to hit the market size of INR 645 billion 2025. The above
mentioned, evolution of direct selling industry in India is clarified in fig.5.

       

Figure.5
Evolution of Direct Selling in India

Source:
IDSA, PHD Chamber, ICREAR, Direct Selling News, Industry Discussions

Taken at a glance, the year on year growth of
IDSA since 2006, shows a fluctuating trend. The growth rate rose from 9% to 27%
from 2006-07 to 2010-11. From the year 2011-12 to 2013-14, it shows a downward
trend and reached to 4.3%. Then, again in 2014-15, it again started rising and
reached to a growth rate of 6.5%. In 2015-16, it again fall
and reached to 4.4%.  The reasons behind
this steep decrease in the growth rate from year 2010 to 2016 were multiplicity of
regulatory bodies, hard to build trust and confidence among consumers since there
were only few consumers who had their relatives/friends/neighbors as Direct
Sellers. High incidence of fraudulent
companies, slowdown in demand, absence of regulatory law/guidelines, lack of training
and orientation for leaders, political risks, poor logistics and distribution
channels thus eroding image of genuine Direct Selling players, misinterpretation
of Direct Selling and MLM with Pyramid and Ponzi Schemes, declining foreign
investments, complex process for registration of Direct Sellers hindered their
participation.

 

Fig 8: Y-O-Y growth of Indian Direct Selling Industry
Since 2006

Source: PHD Research Bureau, compiled from Annual
Surveys of India’s Direct Selling Industry 2015-16

 

1.3.2.1
Industry Scenario:

 

Figure.9 Direct
Selling Industry’s Trend in Gross Sales (INR Million)

Source:
PHD Research Bureau, Annual Survey of India’s Direct Selling Industry 2015-16

 

Fig.
9 shows the gross sales by direct selling industry stands at INR 83,085 million
in 2015-16 as compared to INR 79,583 million in 2014-15, INR 74,722 million in
2013-14 and INR 71,641 million in 2012-13 respectively. It has registered a
growth rate of 4.4 % in 2015-16 as compared to 6.5% in 2014-15.

1.3.2.2
Comparison of Market Share and Growth Rate:

As shown in table.5 the comparison made region wise
in terms of share in gross revenue and

growth rate (Y-O-Y), the Northern region contributes
largest share in the gross sales revenue of Direct Selling at 30%, followed by
Southern region at 21%, Western region 17% and North Eastern region at 13% during
2015-16.

 

Table.5
Region wise comparison

 

 
Region

2015-16

2014-15

Share in gross
revenue (in %)

Y-O-Y Growth Rate
(in %)

Share in gross
revenue (in %)

Y-O-Y Growth Rate
(in %)

 

Southern Region

21

(-)4.7

23

(-)1.8

 

Northern Region

30

4.4

30

10

 

Eastern Region

19

10.2

18

6.5

 

Western Region

17

10.9

16

6.4

 

North Eastern region

13

4.4

13

15.4

 

Source: PHD Research
Bureau, Annual Survey of India’s Direct Selling Industry 2015-16

 

Product
Category Offered

Direct
Selling Industry provides diverse range of products, majority of which required
personal

interaction
as well as demonstration such as health and wellness, cosmetic, personal care,
beauty

care
etc. Many companies in India have introduced and flooded wide range of products
for everyone irrespective of gender, age etc. Marketing strategies have
increased consumer awareness about hygiene and cleanliness in urban and rural
areas which has led to increase in demand for homecare and home improvement
products. Rising inclination towards healthy lifestyle has made
Wellness/Healthcare contributing largest share in revenue in DS.

 

Reasons
Why MLM is Gaining Popularity in India

1. Self
Employment Opportunities and Women Empowerment

The
industry offers self-employment opportunities to a large number of people,
especially to women by providing financial independence and flexibility of
working hours. As shown in fig.10, the active direct sellers of IDSA have
increased from 39, 29,105 in 2014-15 to around 40, 31,262 in 2015-16
representing a Y-O-Y growth of 2.6% over the last year. The female constitute
to be a significant part of this industry. The share of women in total base of
Direct Sellers base stands at about 58% in 2015-16, while share of men stands
at 42% during the same period(IDSA direct 2016). DS gives flexibility to manage
their time and balance their work and personal life.

 

Figure.10
Number of Direct Sellers

Source:
PHD Research Bureau, Annual Survey of India’s Direct Selling Industry 2015-16

 

2. Increase
in Product Reach

In
India, nearly 70 % of population lives in rural areas as compare to urban
areas. FMCG market

is still
untapped with only 34 % sales in rural areas as shown in fig.11,Many direct
selling companies are now expanding their reach and trying to capture those
areas so as to increase its market size by providing knowledge about different
products and services.

 

Figure.11 Percentage of FMCG consumption
in rural and urban areas in 2012-13

Source: kpmg.com

 

 

3. Outsourcing
from small and medium enterprises (SMEs)

 

Many
direct selling companies in India outsource micro, small and medium enterprises
for manufacturing products domestically. In 2011, nearly two-third of the
products sold by direct selling companies was sourced through MSMEs. They impart
the manufacturing know-how, technology and processes along with right equipment
and machines to enable the SMEs to produce leading products. Induced by these
initiatives, many SMEs have now developed capabilities to fulfill the needs of other
leading companies and thus, promoting India as a manufacturing destination.
Fig. 12 reveals that out of total manufacturing MSMEs constitute 65% as compare
to self owned facilities of direct selling companies which constitute 35%.

Figure.12 Contribution in manufacturing

Source:
kpmg.com

4. Contribution to Social Causes

The
direct selling industry has made significant contribution to social causes like
health and human services, environmental protection, women empowerment and
children protection and education rights like Avon set-up the Breast Cancer Crusade
to raise awareness about the disease in India. The Amway Opportunity foundation
currently has two projects – National Project for the Blind and Project Sunrise
providing education opportunities to the underprivileged. The Herbalife Family Foundation
aims at providing good nutrition to children in the country.

 

5. Contribution
to Government Revenue

The direct selling industry enhances the government
revenue in the form of direct and indirect tax contributions through corporate income taxes,
import duties and VAT. The total tax paid by the IDSA Direct Selling Entities
(member) amounts to INR 12,583 million in 2015-16 as compared to INR 11,715
million in 2014-15. The tax paid by the IDSA Direct Selling Entities (member)
has increased to about 7.4% in 2015-16 over 2014-15. The percentage of total
taxes including both direct tax and indirect tax in gross sales by the IDSA
Direct Selling Entities has increased to 23.3% in 2015-16 as against 23.1% in
2014-15.  Table 6 shows the contribution
to govt. revenue by DS entities:

 

                       Table 6:  Taxes paid by IDSA Direct Selling Entities
(member

Year                                          (%
share in gross sales by IDSA Direct Selling Entities)

2015-16                                                                 
23.3

2014-15                                                                 
23.1

2013-14                                                                 
22.7

2012-13                                                                 
22.4

2011-12                                                                 
21.8

2010-11                                                                  21.5

Source: PHD Research Bureau, Annual
Survey of India’s Direct Selling Industry 2015-16

CONCLUSION

The
concept of MLM possess many characteristics like it is an income opportunity, it is not a type
of marketing but a compensation plan, it is a way of distributing products/services
and further recruitment of members is done in order to form a chain, it is a
team work, the selling of goods/services is made through independent sales
person known as distributors or members, the members get compensations,
bonuses, discounts, dividends or other perquisites for selling products,
services and for employing other members, it is a non store retailing/ away
from fixed location, instead of incurring sales promotion cost and massive
media advertisement, the savings are directly passed on to consumers, product
reaches consumers at wholesale prices, it is most suitable for unique and
unconventional products, it includes developing, building and maintaining
strong relationships with stakeholders and consumers for high profitability, it
is also referred as Direct Marketing, Distribution Marketing, Network
Marketing, Home Based Marketing, Face to Face Marketing, Structure Marketing,
Teamwork Marketing, Holiday Business and Referral Marketing. In India, MLM
showed a tremendous growth during last few years in terms of market size,
growth rate etc. Self Employment Opportunities, Women Empowerment, Contribution to Social Causes, Contribution
to Government Revenue etc. forms the main reasons of gaining popularity among
Indians. The popularity, steep growth and wider range of product category
available in MLM industry is creating a thrill among small and large scale
industries to opt Multilevel Marketing as one of their marketing practice to
make their products popular among individuals and ultimately boom the level of
sales.