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|Author||John Towler, Ph.D.|
|Date Published||July 05, 1999|
A Look At Multi-Level Markeing (MLM)
For the past couple of years, John Weatherly and his wife have been playing around with being Amway distributors, but they haven't been "really putting the effort into it that it requires."
Now, that may be about to change. Weatherly, 65, and his wife will transfer on Sept. 1 into agents for Quixtar, a new enterprise on the Internet that, in Microsoft terms, embraces and extends Amway's much-mimicked method of "multilevel marketing" of soap, cosmetics and other everyday products and services aimed at consumers.
Just as with Amway, the Weatherlys will be entitled to a cut not only of the sales they make to people they know, but also of the sales of distributors they bring into the fold - and any distributors recruited below them in the marketing hierarchy.
Just as with Amway, they'll be selling just about everything under the sun, from detergent to long-distance phone service. Only they'll be doing it with the power of the Web behind them, with online technology explaining benefits and features to customers at a glance - and interactive functions, such as virtual faces showing how a particular lipstick or face paint might actually look.
And, just as with Amway, the Weatherlys will be pitching their wares to people they know, in the kind of "relationship" marketing that has made everything from Mary Kay Cosmetics to MCI's "Friends and Family" program work. Nothing succeeds like one-on-one marketing, Internet gurus say. Now, the Internet is about to find out whether that is true, with a vengeance. If "viral marketing" is the key to successful Web businesses such as eBay auctions and ICQ messaging, then multilevel marketing fits the Web to a T.
"There's no better viral marketing than multilevel marketing," says Yakil Pokal, president of Uwayy.com, which he claims was the first multilevel marketing site of note on the Web, starting up in March. "The only question is, how do you properly apply it to the Internet?"
There will be no shortage of marketers trying to figure that out. At the forefront is Amway, which is launching Quixtar. Amway's million pairs of feet on the street will have the choice of remaining Amway distributors or becoming Quixtar-focused distributors on Sept. 1. According to early forecasts from both inside and outside the company, Quixtar quickly could become a giant in electronic commerce, possibly racking up $3 billion per year in sales over the Web its first year.
Other multilevel marketers are much more modest, often capitalized with $1 million or so in start-up funds. Among these are Pokal's Uwayy.com, which wants to give its agents cuts of advertising revenue from its search engine site, or cuts of merchandise sold to persons who first visit its site.
In Vancouver, British Columbia, a former Internet service provider, Tom Lavin, is setting up shop under the name MegaChain.com, trying to use e-mail to move all kinds of travel incentives and product inducements. In Columbia, S.C., MarkNet will use multilevel marketing to sell Internet access. In Dulles, Va., the biggest ISP of all, America Online, is getting into the act - with a program called AOL Select, established in partnership with Monument Communications, a multilevel marketer.
In multilevel marketing, the actual sales of products and services sometimes are secondary to selling other agents or distributors on joining the team. The more agents who sign up, the better off any one agent is. In a hierarchy that acts like a family tree, a particular agent gets paid not only a commission on sales he or she makes, but also a piece of every sale made "down line" by agents who work many levels down the tree.
The commissions aren't all that great, even though they can add up to greater than 50 percent of the cost of the goods sold. If privately held Amway generated $6 billion in sales in 1998 as estimated, then each of its 1 million distributors would have pulled in, on average, only $6,000. It's nice extra income, but a livelihood only for the most talented, hardworking or aggressive. Or, for those with a large personal family tree.
That's because this form of marketing relies on what Ken McDonald, regional vice president at Amway North America, calls "high touch." This is what amounts to the need for agents or distributors to reach out and touch people they personally know, in order to make a sale. Almost all Amway sales start with face-to-face contact between people familiar with each other.
And while Amway is spending millions to rev up a jazzy Web site for Quixtar that relies heavily on the work of Microsoft and an e-commerce site specialist called Fry Multimedia, it will still count on "high touch" to move goods online. As with Amway, Quixtar agents will depend, first and foremost, upon personal contacts to get sales started. Only then will they refer customers to the Quixtar site, where initial and future purchases will be made and credited toward their commissions.
So far, there's nothing to be found at the Quixtar site; but 360,000 people - read: potential customers or distributors - have visited a separate site that promotes the Quixtar concept. And by the time Quixtar launches, its catalog lineup will greatly exceed that of Amway, though company executives are reluctant to compare the number of products and services to be offered online with what is offered offline.
The products will come not just from traditional Amway house brands such as Artistry skin care and cosmetics items, or Nutrilite nutrition products, but also from Panasonic and Sharp electronics, Black and Decker appliances and tools, and Arrow and Van Heusen shirts.
Quixtar's distributors, or "independent business owners" (IBOs), as McDonald likes to call them, will be given some limited publishing tools to set up their own sites to link to Quixtar goods. But the use of electronic mail to reach new customers will bring "immediate and swift" reaction.
"If you spam, you're out,'' McDonald says. "We want to avoid spamming."
Indeed, spamming - or the perception of it - could be the Achilles' heel that drags down multilevel marketing on the Web. While some practitioners, such as MegaChain.com and Quixtar, want to avoid it at all costs, a number of entrepreneurs, such as Uwayy.com's Pokal, see no problem with it.
"Mass mailings in and of themselves aren't an evil thing,'' Pokal says. "When it gets abused, you step in."
Still, it is a bad image that can stop a bandwagon before it gets going. In the case of Amway, the Ada, Mich., company decided that it needed to start fresh on the Web with a new name and organization, to avoid somehow tarnishing the effort with a brand name equated offline with pushy one-on-one sales.
But Amway isn't pulling out the roots that made it a multibillion-dollar marketer and its founders, Rich Devoss and Jay Van Andel, the fifth and sixth richest men in America.
Take the transfer of IBOs from Amway to Quixtar. By Sept. 1, every Amway distributor will have the chance to become a Quixtar distributor. Hundreds of thousands are expected to transfer, but even those who stay at Amway and just sell offline will benefit from the new online venture. All Quixtar distributors will still send sales commissions "up the line" to Amway distributors who sponsored their entry into the organization. And, to make accounting simple, the same compensation plan will apply to both online and offline sales.
That could lead to what Ken Harris, a partner at marketing consultant Cannondale Associates, calls "nanosecond millionaires," as some Quixtar distributors teach their customers to make repeat purchases on the Web and leave the "high touch" to the recruitment of new customers.
So confident is Harris that the Amway sales approach will transfer successfully to the Web that he expects Quixtar will generate $1.5 billion to $2 billion in sales in its first year, bypassing Amazon.com as the leading Web consumer e-tailer. And, he says, it could do twice that, given that the Quixtar distributors will be selling everything from household goods to computers to high-speed Internet access.
Indeed, given the financial clout and seriousness with which Amway is approaching the application of multilevel marketing to the Net, the idea that its brand of person-to-person marketing could be rejected is highly unlikely. "I would be shocked," says David Rush, a principal at Kurt Salmon Associates in Atlanta.
Re-printable with permission.
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