√ Understanding MLM, How it Works, Types, Strengths and Weaknesses

August 13, 2023
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Understanding MLM, How it Works, Types, Strengths and Weaknesses – In this discussion we will explain about MLM (multi level marketing). Which includes understanding, how to work, types, advantages, disadvantages of multi level marketing (MLM) with a complete and easy to understand discussion.

Understanding MLM, How it Works, Types, Strengths and Weaknesses

For more details, please see the review below carefully.

Definition of Multi Level Marketing (MLM)

MLM is a tiered marketing technique which means a marketing strategy where the sales force (sales) does not only be compensated for the sales they generate, but also for the sales of other sales they make recruit.

Recruited salespeople are called downline members. Another term for MLM is pyramid selling, network marketing and chain marketing, networking marketing, multi-generation marketing and uni-level marketing.

MLM is also defined as a marketing concept by providing opportunities for consumers or customers to participate as sellers and also gain profits in the partnership line.

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MLM members are called distributors or trade partners. The trading partners then invite other people to become members so that the customer or market network gets bigger and wider.

The success of Minyta Commerce in inviting and adding members will increase the company's income and increase the impact of profits. According to this, the company provides benefits to its partners in the form of incentives in the form of bonuses.

Understanding Multi Level Marketing (MLM) According to Experts

The following is the definition of Multi Level Marketing or MLM according to experts.

1. Yusuf (in Rozi, 2003)

The definition of networking marketing is a marketing network in which there are a number of people who carry out the product/service marketing process.

2. Royan (2002)

The definition of MLM or what is known as networking marketing is one of the entrepreneurial marketing methods by utilizing a network system.

3. Sabiq (2005)

The definition of MLM is an alternative business method related to marketing and distribution which is done through many levels (level), commonly known as Upline (top level) and Downline (lower level), people will be called Upline if they have Downlines.

4. Harefa (2000)

The definition of MLM is selling or marketing directly a product either in the form of consumer goods or services, so that the distribution costs of the goods what is sold or marketed is very minimal, even up to zero, which means that in this MLM business there is no need for fees distribution. MLM also eliminates promotion costs from goods to be sold because distribution and promotion are handled by distributors in a tiered system.

5. Muslim (2015)

The definition of MLM is a modern marketing system through a distribution network that is built permanently by positioning the company's customers as well as marketing personnel. In other words, Multi Level Marketing is tiered marketing through a distribution network built by promising consumers (customers) as well as marketing personnel.

6. Clothier (1994)

The definition of MLM is a way or method of selling goods directly to customers through a network developed by freelance distributors who introduce customers Subsequent distributor revenue generated consists of retail profit and wholesale profit plus a payment based on the total sales group formed by a distributor.

How Multi Level Marketing (MLM) Works

Sabiq (2005) states how the MLM business works are as follows:

First, the company makes efforts to attract consumers to become members or members by requiring potential customers to buy a package of the company's products at a certain price.

By purchasing the company's product package, the buyer is given a membership form or member from the company. After giving, the next task is to find new members in the same way, namely to buy company products by filling out a membership form.

The new members then look for potential new members again in the same way. If a member is able to attract many members, he will get a bonus from the company.

With the presence of these new members as well as regular consumers of the company's products, the members are at the first, second level and so on will always get a relay bonus from the company, because the company really benefits from having new members the.

Then according Setiawan (2017) the work system of Multi Level Marketing namely:
First, people who want to resonate will be sponsored by an MLM company distributor. Furthermore, in order to be registered as a member or distributor, each person is required to pay a predetermined amount of money.

After paying the entry fee, the member or distributor will sign a contract that is binding on the distributor and the company. The distributors then carry out activities to sell the company's products to consumers and also develop the widest possible sales network.

Types of Multi Level Marketing

According to Setiawan (2017), there are several types of multi-level marketing, including:

Binary Plan System
This system emphasizes the development of a network of only two legs and prioritizes network balance. The more balanced the MLM company's network and business turnover, the greater the bonus it will get. MLM companies with this system develop relatively faster. Partners will get a big bonus faster.

In order to make it easier to earn money, the company's partners will apply the rules for obtaining money as a bonus from recruiting the partners they invite. This system often provides big bonuses at the beginning of a career as a lure, but in fact the ones who benefit are partners who have joined at the beginning.

Matrix System
This system uses the concept of developing a network of only three frontlines and so on. This type arises to experience a binary system that is considered a money game.

Break Away System
This system in developing the network is more concerned with width. The more frontlines, the bigger the bonus received. However, the drawback is that an agent has to take care of everything himself. This system allows downlines to exceed their uplines.

The bonuses that partners get are often small at the start, but big at the top. That's because the member bonuses at the start of their career are small, so often these MLM companies rely on the lure of recruiting bonuses.

Advantages of Multi Level Marketing (MLM)

Joseph (2000) states the advantages of MLM include:

MLM can bring passive income which is quite promising in addition to the fixed salary received every month.
MLM trains each distributor to hone his communication skills with his downline so that a strong personal selling spirit is formed
Expanding relationships

Disadvantages of Multi Level Marketing (MLM)

MLM distributors are not entrepreneurs, but simply followers of a complex hierarchical system over which they have little control. Their fingers are controlled by the prevailing system, they cannot be free.
MLM has a negative impact on the real sector. If people are crazy about MLM, real sector activity will be disrupted. Because in MLM, money revolves only in the company's environment and it certainly reduces people's productivity at work (in the real sense)
MLM makes other people not want to try to rotate capital in real sector business activities. In the real sector requires substantial capital.
Customer money that revolves around the MLM business is not guaranteed by the government. Furthermore, the worst possibility (liquidation), the MLM customer's money cannot be controlled, aka forfeited.

Thus has been explained about Understanding MLM, How it Works, Types, Strengths and Weaknesses, hopefully can add to your insight and knowledge. Thank you for visiting and don't forget to read other articles.

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