How Direct Sales Differs to MLM
Direct sales is the marketing and selling of products and services directly to consumers. This sales method eliminates the need for retail outlets, and is based rather on a face-to-face approach.
Multi-level marketing is also the marketing and selling of products and services directly to consumers. This sales method also eliminates the need for retail outlets, and is based rather on a face-to-face approach.
Same difference, you say? Not quite.
Basically, multi-level marketing is, like network marketing, a subtype of direct selling, falling under the umbrella of direct sales rather than being a totally different form of selling.
Looking at the two under the microscope, we can distinguish some marked differences, taking into account the fact that both sales methods bypass middlemen and focus on a personal approach.
Let’s explore the difference between direct sales and MLM.
As explained above, direct sales (also known as direct selling) is an umbrella term for all marketing and sales methods whereby the product goes from the distributor to the client via a sales consultant who has personally sold the product to the end-user, bypassing retail outlets.
As a sales concept in its own right, though, direct sales in most cases offers a simple strategy: The sales consultant invests in the business, buys a certain amount of stock, and is paid a (usually respectable) commission on each sale: basically, the peddler of the new generation. The focus is on sales, commissions often increasing along with sales volumes. Consultants do not recruit new prospects, and are stand-alone business operators. This single-tiered system is known as single-level marketing.
Having said that, more and more direct sales companies are now adding further tiers to the direct sales compensation plan, giving the consultant the option to become team leaders and mentors to consultants that they have introduced to the direct sales business opportunity. These levels are not as complex or deep as those which are the core of multi-level marketing companies, the finer details of which are described below. The focus of the direct sales business is always on the sale of the product, not on the constant sponsorship of new recruits. Two successful examples of this system are Tupperware and Honey Jewellery.
In most cases, products sold by direct selling companies are more expensive, durable household items that carry an attractive commission for the consultant, although there are some direct sales companies that market less expensive products, such as costume jewellery and nutritional supplements.
Training and meetings are part of the programme, but on a small scale. Incentives are based mainly on personal sales, and are attractive but relatively conservative.
Single-level marketing companies now represent a very small percentage of direct sales companies, with MLM becoming more and more popular every year.
Multi-level marketing (MLM) is more complex than direct sales. It is also far more controversial, having attracted more than its fair share of critics and skeptics.
As a subtype of direct sales, what sets multi-level marketing apart from the traditional form of direct selling is that the focus of the business is the continuous recruitment of new independent sales representatives.
Of course, the product is still the crux of the business, but not in the same way as in direct sales.
Not all MLM companies are structured in the same way, so we are generalizing in this article. But in most MLM companies, independent sales representatives (in some cases known as IBOs or independent business owners) are obliged to sell a token amount of product to end-users who are not affiliated with the business so as not to be branded as a pyramid scheme.
In reality, these (in some cases extremely successful) companies encourage their representatives or IBOs to purchase as many items possible for their own consumption, and to encourage their recruits and those that their recruits have introduced to the scheme (members in this string of business owners are known as downlines) to do the same. It’s interesting to note that some of these companies offer an enormous range of products – from cooking equipment to pasta, olive oil, clothing, vitamins, make-up and household products to name just a few… all under the same umbrella. This way, nearly every household item that a family would need can be ordered from the MLM company’s catalogue, with commission being earned from your entire downline’s consumption of myriad products.
Product training, pricy monthly subscriptions to books and CDs (which the IBO pays for), motivational meetings and weekend seminars are a big focus of MLM companies. A lot of hype is generated at these events, spurring business owners to recruit more prospects, some of whom have been invited to these meetings prior to signing up.
Incentives are very desirable and earning potential is massive in MLM operations, with high achievers earning massive amounts of money and receiving not only recognition on stage at meetings, but also extravagant gifts, overseas holidays and cash bonuses.
Amway is the epitome of successful MLM companies.