Hatching A New Distributor Avenue
Direct Selling Through the MLM Party Plan
An Alternative To Traditional Marketing
Wealth Builder Magazine
by Michael L. Sheffield
CEO The Sheffield Group
More and more traditional marketing companies offering consumer products are turning to Direct Marketing concepts such as mail order, direct mail, infomercials, telemarketing and even e-commerce on the Internet in an attempt to maintain brand name loyalty or recapture the minds and dollars of their established customer base. But, no other method of reaching out to current and potential customers has the proven life cycle success of direct selling.
Direct selling has its roots firmly planted in the seedbed of American colonial capitalism. The "Yankee Peddler" was a marketing phenomenon of the colonial period — a drummer who went from community to community selling household goods and farm implements. He was the 17th century version of the Fuller Brush, Tupperware, or Amway salesperson.
Today, according to the Direct Selling Association (DSA), the look of direct sales companies is changing rapidly. The one-on-one sale is being replaced by group sales through Party Plan techniques combined with the aggressive business building structure of Multi-Level Marketing. The Multi-Level Marketing industry legitimized by Amway (the legendary grandfather of the Networking Industry) during the 1960's has matured into the mainstream world market. Companies and products, which have traditionally been sold through "conventional" distribution channels (people going to the product), are now recognizing the potential of Multi-Level Marketing's ability to achieve spectacular sales momentum. The Chairman of the marketing department at Long Island University, Dr. Srikumar Rao, a student of Multi-Level Marketing Companies for over two decades said that, "Multi-Level Marketing has an enormous power to create wealth." It is singly this phenomenon which has attracted the attention of businesses ranging from small private companies to those in the Fortune 500 category, all seeking a better marketing solution which at the same time offers the hope of an exciting bottom line.
One example is A.L. Williams Insurance which became a Multi-Level Marketing company in 1984. Traditional insurance companies were shocked when this company’s army of independent sales reps consumed their market share. By 1988 A.L. Williams had recorded a record breaking $96 BILLION worth of insurance business placing them as the most productive insurance agency in America. This company was subsequently purchased by Primerica Insurance and then by The Travelers.
The next shock waves were sent through AT&T. Over the last few years AT&T has lost over 15% of its long distance market to competitors like US Sprint, and MCI, both who had early successes in expanding their market share through associations with a Multi-Level Marketing sales force. Today, Excel Communications and other aggressive MLM companies are cutting into the business of Sprint and MCI. Even Coca-Cola has sold a small soft drink dispensing machine through the Amway Corporation. Service Master, Gillette, Colgate-Palmolive, Avon, Dupont, Home Shopping Network Direct, Texas Instrument and even AOL have all experimented with or embraced the concept of direct selling through the Party Plan group selling concept, Multi-Level Marketing or both.
Why? Because direct marketing/direct sales hybrids using Party Plan combined with Multi-Level Marketing is the wave of the future. Since manufacturing costs have fallen so much in the past two decades, distribution now represents 85% of the value of goods at retail. Therefore, the greatest opportunities in the first decade of the new century await those who reduce the cost of distribution while increasing direct interaction with the consumer.
There are probably few women over thirty years old that have never attended a home party offered by Tupperware, Home Interiors, Discovery Toys, Longaberger Baskets, Mary Kay or any number of other well established and successful direct sales/Party Plan companies. While in the past Party Plan companies were structured in the direct sales model with a single level commission compensation offered to the sales representative, today’s Party Plan companies are combining the Multi-Level Marketing compensation model with the time tested and proven Party Plan concept.
The principle of group sales through Party Plan combined with MLM is quite simple. In traditional distribution and marketing a company distributes its product to the consumer by going through wholesale distribution channels which eventually land the product on the shelves of a retail store. At each step of this distribution channel there are costs which are added to the price at which the manufacturer sells the product. Typically the manufacturer also spends large amounts on packaging to attract the consumer's attention and on advertising to create sufficient demand to move the product off the shelves of the retail store. These packaging, distribution and advertising costs represent a very large percentage of the retail price of the products.
In Party Plan/MLM, two significant differences occur. First, the distribution channel is simplified because the product normally moves directly from the manufacturer or distribution company to the Party Plan Hostess to be distributed to her party attendee customers. The Hostess is a volunteer ambassador for the products that can earn gifts, cash or credit toward the purchase of her own product selections. This cycle is begun and completed by the Independent Representative who will ultimately be the catalyst for the retail sales of the product at the party. Secondly, it is not necessary to spend large sums on product packaging and advertising. Most products offered through Party Plan sales are low in cost, highly demonstrable and of benefit to most potential customers. The independent representative who makes the group sales presentation utilizes and relies on word-of-mouth "advertising" by satisfied purchasers to create a brand name loyalty and an ever expanding demand for the company’s products. Enticing the party attendees to return to another party in the future is critical to the growth of a good party plan system. This can be accomplished by introducing new products, offering future discounts to past customers, or most assuredly by making sure that the attendee has fun and looks forward to a repeat performance. The sales representative has the ability to use this group sales party environment to recruit other candidates to act as Hostesses for their next party. In addition they can use their exposure at the party to sponsor new independent sales representatives on whose sales he/she will also realize a small return. Since this whole procedure can then be duplicated by the newly sponsored rep and income can be generated for everyone through several levels of sales activity, the Party Plan/MLM model can create momentum which fuels the spectacular growth of which this business is capable. The dollars which would otherwise have gone to distribution and to expensive packaging and advertising campaigns are paid directly to the Party Plan/MLM representatives as commissions and bonuses rewarding their sales efforts for retailing the product.
Today Multi-Level Marketing Companies not only accounts for billions of dollars in sales, but they are estimated to influence one out of every three homes in America with marketing related contact. In fact, the Direct Selling Association reported that MLM sales represent about 25 billion dollars in the US and are closing in on 100 billion dollars world wide. Virtually any area of the economy today is open to penetration by using a Multi-Level Marketing sales force. Any company who ignores the power of MLM is certainly missing the future."
At a time in history when large numbers of highly professional and entrepreneurial persons are motivated to get out of the corporate arena and into their own businesses, the Party Plan/MLM Industry is growing at an unprecedented rate.
Before you consider committing your time and efforts to this type of business, you should understand what a good company looks like so you can make an educated judgement. Naturally, of critical importance is a viable product or product line. The ideal Party Plan product must meet a widely experienced need, and offer a cost effective solution to that need in a way that is unique and non duplicable if possible. It must be priced such that its purchase represents an easy decision for the buyer. Following the purchase, the product benefits should be readily discernible and should create a level of excitement in the buyer that they will want to share with their friends. It is essential that the sale of the product return an immediate income to the independent sales representative as well as set the stage for earning future bonuses.
The next most important ingredient is the company leadership. As the leadership goes, so goes the Company. The leadership determines the company's character and personality and is responsible for maintaining this character and personality throughout the entire field marketing organization. The leadership must also be competent to deal with the potential of explosive company growth.
The marketing leadership is especially critical to a Party Plan/MLM company's success. This style of marketing is so unlike traditional marketing that prior experience in the company's marketing leadership is especially valuable. The entire sales and marketing momentum will take its shape, substance and values from the company's marketing leadership.
Momentum is the magic of Party Plan/MLM. Momentum can also be the death knell — if not properly managed. The marketing leadership can create momentum. The leadership team must also include administrative leadership to make certain the company can properly service the growth which marketing creates. Staffing at each growth level must be planned for and must be implemented in anticipation of growth. Cash flows become substantial and these cash flows must be managed according to a well-developed plan.
The ideal combination for a Party Plan/MLM leadership team is the counter balance of a boldly optimistic marketing professional and a practical, conservative administrator who works behind the scenes providing the required organizational structure, financial management and technical support to allow the marketing growth and momentum to continue unimpeded.
Advertising Age predicted that as much as 40% of the budgets major corporations were spending on mass media campaigns would be "migrating" to "point-of-purchase" marketing efforts. The only mistake Advertising Age made was in being too conservative. Recent estimate indicate that 60% of all manufacturers and marketers now want to spend their promotional dollars as close as possible to the consumer. One of the means they have recently discovered for this point-of-purchase marketing is Multi-Level Marketing. One of the reasons for the success of MLM is the recent explosion of entrepreneurial enterprises in America and throughout the world. Although studies conducted in the late 1960's predicted that more than 80 percent of the American work force would be employed by mega-corporations by the year 1990, just the opposite is true. The trend has been for corporations to "downsize" or “rightsize” their organizations while establishing "networking associations". One of the principal "career goals" cited by graduating MBA's last year was not to go to work for a corporation, but to get into some form of entrepreneurial enterprise.
Another reason for MLM’s success is simple socio-economic need. Milton Friedman, University of Chicago professor of economics and Nobel Prize Laureate, said that the greatest economic need of most Americans is for "cottage industries", businesses they can run out of their homes, on their own time, conforming to their own schedules; businesses that do not depend on the "good-will" of others; business that can increase the discretionary income of the average worker, but not at the expense of his or her family life. Such cottage industries, Friedman reasons, are especially valuable in times of recession or other economic uncertainty - times when MLM flourishes.
But, as important as any other element in the success of Multi-Level Marketing is what Advertising Age predicted; manufacturers and marketers are looking for ways to spend advertising dollars as close to the point of sale as possible.
That's what Party Plan/MLM does. It provides a high touch sales presentation to potential customers right at the point of sale. If a person wants to buy, he or she doesn't have to turn off the TV and go to the market, or dial an 800 number, search the Internet, or mail anything. All the customer has to do is say "yes". And the customer is more likely to say yes because Party Plan/MLM representatives are among the most enthusiastic and committed sales professionals in the marketplace today.
A Party Plan/MLM program, by its very nature, builds downward from a single person or entity. The person referred to here is not the VP of Sales or any other corporate marketing leader. The reference is to the front line Independent Representatives; people who functions outside the corporate structure as independent sales representatives, selling the product at retail and recruiting others into the Multi-Level Marketing program. These people are sometimes referred to as the "point" people in the sales organization.
It is not essential that "point" people are dynamic leaders - but it certainly is desirable. If it turns out that the person in this position does not have the desired leadership qualities, other leaders will eventually develop below him/her in the organization. It is the responsibility of the company's corporate marketing leadership to be very actively involved in this early structuring of the representative organization to assure that adequate field leadership is in place at, or near, the top.
It should be pointed out here that it is not uncommon for independent representatives to initially get involved on a part-time basis. It is fully feasible for someone to continue to work at a job, which provides the basic necessities of life while building a second income with this opportunity. When this second income becomes large enough to provide the basic financial necessities is the point at which most independent representatives will consider devoting full time to their direct selling pursuits.
The ultimate objective of a soundly based Party Plan company is to create retail sales of its product through the independent representative organization by way of the Party Plan hostess and into the hands of the party attendees. A company which loses sight of this basic retailing principal and promotes the “loading” of inventory to its sales representative can run afoul of the laws which govern how Party Plan/MLM companies operate. Through training meetings, training materials and all communications with the field organization major emphasis will be placed on the retailing of product.
Although the volunteer party hostess may obtain product orders without the sales reps assistance, most retail sales will result from personal contact between an Independent Representative and the retail purchaser. The purchaser may be the hostess’s neighbor, a relative, a friend, a co-worker, a business acquaintance or someone to whom the sales representative has been referred by a previous purchaser of the product.
Some representatives in the organization will choose to focus totally or largely on their own retailing of the product receiving a base commission. They may also have the opportunity to earn additional bonuses by on achieving certain predetermined monthly sales levels. The right individual, with the right product can earn a very respectable income in this manner.
However, the Party Plan concept offers an additional way for representatives to increase their incomes through group sales. By recruiting a person to act as a hostess and invite her own friends to a social event in her home, sales to multiple attendees will greatly enhance the independent representatives income potential while leveraging their available time to work the business.
In addition, many people who become hostesses as well as interested people who are party attendees can be recruited to become independent representatives. The recruiting representative will then have the opportunity of earning additional bonuses as a percentage of the sales created by those they have recruited.
Recruiting can be a very important part of a successful representative's involvement in Party Plan/MLM. It provides the opportunity for a person to literally build a business of his or her own with almost no investment. In the same way that no really successful business can exist solely on the efforts of one individual, no really successful Party Plan/MLM sales reps career can be built solely on the retail sales efforts of one individual. Even with generous commissions and bonuses it is difficult to build a significant income from ones own efforts. A sales rep is limited to their available hours obviously making it difficult to earn above average income. But in the same way the owners of a businesses hires employees so they can "multiply their own efforts", direct selling professional can "sponsor" people to help build their business into their business opportunity. It is this multiplier effect creating geometric growth that provides the momentum for individual representatives to achieve out of the ordinary income levels. This is also what propels the Party Plan/MLM forward with ever-increasing momentum.
It is important to mention once again that this type of business is not based on selling large inventories of product to new representatives. A new representative is usually not required to make any purchase of product in order to become a representative. The only commitment a new representative must make is the purchase of an “at cost” representative kit and possibly some product samples for demonstrations. Since it is extremely useful when presenting the product at a party to have samples to see and touch, all representatives are encouraged to acquire a sample kit for demonstration. These product samples can usually be returned for a refund if the sales person decides to discontinue their efforts. All products are usually shipped directly to the hostess or to the individual retail customer depending of the method used in each region.
Never before has their been an opportunity so right for the time and a market so ready to embrace the opportunity. “Controlled Growth” will be the watchwords of this new hybrid marketing concept. Timing is everything. If you are considering a part time or full time business opportunity with low risk and high potential rewards, the time is NOW!
Michael L. Sheffield is the CEO of The Sheffield Group, a full-service direct sales and multi level marketing (MLM) consulting firm. He is a Co-Founder and Chairman Emeritus of the Multi Level Marketing International Association and in 2001 he was inducted into the MLMIA Hall of Fame. He and the Sheffield team have assisted in hundreds of national and international MLM corporate start-ups as well as offered a full line of services for established direct sales companies including consultation on MLM Website development. As the most noted expert on compensation plans, he has been a guest lecturer on the subject for the DSA, University of Illinois, University of Texas, Berkeley and Harvard Alumni Association. He has helped launch over 200 new products marketed by direct selling companies around the globe. He can be contacted at 480-968-6199, The Sheffield Group, 2239 N. Hayden Road, Suite 103, Scottsdale, AZ. 85257, website address: www.sheffieldnet.com.
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