MLM PAY PLANS

THE MLM Wal-Mart™ Syndrome
Or
The MLM Fatal Illusion?

By Rod Cook
Past President
NetWork Marketing Analysis Institute™


"The enemy of truth is illusion. Illusion is a false interpretation by the mind…a belief or hope that has no real substance. Illusion comes when we perceive something to be true that isn't true or is only partly true. Illusion comes because we want to believe the thing is true. Illusion is often, perhaps always, tied into false hope. From FATAL ILLUSIONS, by James R. Lucas (AMA Membership Edition)

Compensation plans revisited! Last year I wrote about the "Boomers" in NetWork Marketing (companies signing up 25,000 sales reps in a year or 250,000 in five) and pondered the question why there weren't any Stair-Step Breakaways on the list. I started putting the question out to my "Market Watchers". One of the founders of the NetWork Marketing Analysis Institute, Rick Larson, came up with the analogy "Everybody today wants to buy quality products, economically and quickly. That's why people like to shop at Wal-Mart!" Bingo! The "MLM Wal-Mart Syndrome" was born.

Wal-Mart has irreversibly changed the way Americans buy. Wal-Mart (and Sam's) accustomed Americans to buying quality products at (virtually) wholesale prices. On top of that, Wal-Mart offers quick service. So why wouldn't the mentality of quickly buying good products, at wholesale, have an effect on NetWork Marketing?

Lets' look at the wave of the future. The Internet doesn't tolerate pricing complexity. Comparison with other MLM companies is too easy. Potential buyers and distributors can price shop for similar products at the click of a button. MLM - Network Marketing programs move fast and don't have any allowance for splitting retail and wholesale prices. A good test was AMWAY's Internet project and the portion concerning their own product sales. Amway has drove traffic to the Quixtar Internet Mall and made the mall boom. However I haven't seen a rebirth of or explosion of membership activity.  In fact Quixtar is disappearing and the Name Amway is back.

Bi-furcated fast moving compensation plans will be the wave of the future. Simple to understand up front then with a secondary commission transfer for top recruiters.

I grew up and prospered with the Stair-Step breakaway starting in 1968 with Chemical Associates. In those days we stocked "our stores" in garages by the truckload. When someone joined our group they got a discount off retail of 15%. By working diligently they got 25% off retail, then 35% and finally they broke away and bought at 50% off retail (which was true wholesale). We had rebates, which meant the distributor paid retail and got their discount back at the end of the month (this sure helped the company’s cash-flow). Retail "discounting" isn't favored today - new distributors want to buy at wholesale right now! Reinforcing that trend we now have affiliate programs on the Internet promoting one-price products. This is the MLM Wal-Mart Syndrome!

There are only two or three good Stair-Step or Group Breakaways that have started, survived, and grown enough to be noticeable in the last 5-8 years. They are  Symmetry (overseas), and Starlight (about gone). With excellent products and proven management they should have been boomers (25,000 distributors first year), but it doesn't look like they will join the Boomer ranks. Rexall started longer than over years ago. They staggered at first until they dropped the Stair-Step part of their plan and became a Group Volume Breakaway before they joined under Unicity when it was born.

Many older companies use a similar basic system today. They aren't growing. I was shocked when I read in "Business Week" that AMWAY U.S. had dropped to less than 750,000 distributors. Amway just laid off 30% of their Headquarters staff. The old giant Shaklee isn't gaining any market share today either. There is strong evidence that companies with older compensation plans may be contracting and losing market share to companies with newer compensation plans. These older companies, rather than face the evidence they have a flaw, are ignoring it. Will these become "Fatal Illusions?"

The "Boomers" in the last 10-13 years,  Morinda, New Vision, Isagenix, Life Force, Monavie, and Xango (the last 2 are over a billion in sales) have sold at wholesale from the minute a distributor signed up. Yes, Alliance is gone but so are hundreds of other startups. In fact, despite competition in today's market their growth rate may be considered astronomical. The Boomers rocked the industry! They did it by selling quality unique products at immediate wholesale cost. The face of NetWork marketing has been changed forever! These plans are not necessarily simple. Some have a hybrid recruiting boost (based on product sales = legal) on the front end. Front-end money doesn't come from selling products above the absolute minimum cost that all distributors pay. Some used a break-away on the back end or a hybrid of it. Others used other new hybrid modifications providing depth payouts on the back end to promote their growth.

They do all have one thing in common. New distributors buy at the best wholesale price from the day they join.  No phony rebates with volume. On top off that some don't charge distributors for joining their companies!

 

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