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September 23, 2004
What's Wrong With Multi-Level Marketing? - I
By QBlog in
When I first began searching for information about Quixtar, sometime around the summer of 2002, I stumbled across Dean VanDruff's article titled "What's Wrong With Multi-Level Marketing?" Something about the article struck a chord with me and it's points have lingered in my mind ever since. I love the article's pragmatic tone and the meticulous way in which VanDruff defuses each potential objection, the sign of a skilled debater.
At my request, VanDruff has graciously granted permission for me to republish
his article here on Quixtar BLOG. His article analyzes four "problem areas"
with MLM and I will publish each specific analysis as a separate post (see parts
II, III & IV). I consider
this article required reading for everyone involved in any Multi-Level Marketing
business.
- by Dean VanDruff
I. Market Saturation: An Inherent Problem
Back to the Basics
A tutorial on market saturation hardly seems necessary in most business discussions,
but with MLM, unfortunately, it is. Common sense seems to get suspended when
considering if MLMs are viable, even theoretically, as a profitable means of
distribution for all parties involved. This suspension is created by a heightened
expectation of "easy money," but more on that later.
New, Innovative?
MLM can no longer claim to be new and, thus, exempt from the normal rules of
the market and the way goods and services are sold. They have been tried and,
for the most part, have failed. Some have been miserable failures in spite of
offering excellent products.
Marketing innovations are not rare in the modern world, as evidenced by the
success of Wal-Mart, which found a more efficient and profitable way to distribute
goods and services than the status quo, providing lasting value to stockholders,
employees, distributors, and consumers. But this is not the case with any MLM
to date, and after 25 years of failed attempts, it is time to point out the
reasons why.
Don't Some People Make Money in MLM?
First, we will analyze the "driving mechanism" of MLMs. We will detail how they
are intrinsically unstable, guaranteed by design to oversaturate the market
with no one noticing. We will look at why MLMs can never equalize into profitability
the way companies in the real world can, so that the result will be that the
organization as a whole cannot, even in theory, be profitable. When this inevitable
destiny occurs, the only money to be made is not from the product or service
but from the losses of people lower down in the organization.
Thus the MLM organization becomes exploitative, and many high-level MLM promoters have been shut down, the "executives" incarcerated, for selling the fraud of impossible success to others. Other, larger MLMs have survived by hiring large batteries of attorneys to ward off federal prosecutors, even bragging about the funds they have in reserve for this purpose.
The unfortunate "distributor" at the bottom is the loser, and once this becomes apparent beyond all the slick videotapes and motivational pep-talks, good people start to get a bad taste in their mouths about the whole situation.
So, yes, money can be made with MLM. The question is whether the money being made is legitimate or "made" via a sophisticated con scheme. And if MLM is "doomed by design" to fail, then the answer is, unfortunately, the latter.
But how exactly does this happen, and must it always?
Doomed by Design?
The first question is this: Is any company choosing this marketing strategy
destined to fail, to degenerate into an exploitative venture, regardless of
how good the product is?
To see this clearly we must go through an, otherwise, obvious and elementary
discussion of how any business must be careful not to overhire, overextend,
or oversupply a market.
The Real World
Any business must carefully consider supply and demand. For example, if the
ReVo Corporation thinks that it will have a full-fledged fad on their ovoid
sunglasses next summer, perhaps they should plan to build and distribute, say,
10M units. This involves gearing up factories, setting up distribution and dealer
networks, and carefully managing the inventories at each level so that ReVo
will still have credibility with their distributors, retail outlets, and the
public the following year.
If it turns out that there is a "run" on ReVo products, and they sell out in mid-June, then they have miscalculated demand and will miss out on profits they could have made. The more serious problem, however, is overestimating the saturation point for the product. If they make 10M units, and sell only 2M units, this may be the end of ReVo as a company.
The all-too-obvious point here is that management of supply and demand, and
keen insight into realistic market penetration and saturation are crucial to
any business, for any product or service. Mismanagement of this aspect of a
business will eclipse good market access, excellent product design, human resource
assets, production quality, and so on. Simply stated, a failure to "hit the
target" of supply and demand can ruin a company if the market is oversaturated.
Market Dynamics and the End of the Cold War
Interestingly, the issue of supply and demand is what brought the USSR to its
knees. By design, the Soviet government tried to macro-manage supply, where
bureaucrats would decide how many potatoes were needed, how much toilet paper,
etc. Assuming these bureaucrats did the best they could, unfortunately their
efforts to deliberately manipulate the control "knob" of supply and demand was
not good enough. Notwithstanding their good intentions, they were usually wrong,
which created huge shortages and surpluses, and led to a massive economic collapse.
Seeing the disastrous end of market naiveté in Russia should help clarify the fundamental problem with the MLM approach. In the real world, the profit of a company is directly related to the skill and prescience of the "hand" on the "supply knob," so to speak. In the USSR, that "hand" could not react fast or accurately enough to market realities through the best efforts of the bureaucrats.
With MLMs, the situation is much worse. Nobody is home. Even the Soviets had someone thinking about how much was enough! If the bureaucrat in Russia was having a hard time trying to play Adam Smith's "invisible hand" in setting the supply level in the Soviet Union, then an MLM "executive" is in a truly unfortunate position. Not only is there no one assigned to make the decision of how much is enough, the MLM is set up by design to blindly go past the saturation point and keep on going. It will grow till it collapses under its own weight, without even a bureaucrat noticing.
MLM is like a train with no brakes and no engineer headed full-throttle towards
a terminal.
"Everyone Will Want to Buy This Product!"
All products and services have partial market penetration. For example, only
so many people wish to use a discount broker, as evidenced by the very successful
but only partial market penetration of Charles Schwab. Not everyone wishes to
join a particular discount club, or buy gold, or drink filtered water, or wear
a particular style of shoe, or use any product or service. No one in the real
world of business would seriously consider the thin arguments of the MLMers
when they flippantly mention the infinite market need for their product or services.
The Demand Problem: Of Widgets and MLMs
Imagine a neat new product called a Widget that will sell for $100 (a fixed
price, to keep it simple). Now, while everyone could use a Widget, not everyone
will. Some will be afraid of anything new. Some will be loyal to existing brands.
Some will want to buy an inferior product for less money. Some will want a more
expensive product for prestige, regardless of quality. The reasons go on and
on, and the fact is that only "X" Widgets will sell at $100.
The question for would-be marketeers is... what is "X," and how can it be predicted to maximize profits? The fact that "X" is hard to pin down does not mean that it does not exist, and every Widget built beyond "X" will end up producing a problem for the organization. The market only wants "X" Widgets at $100. What are you going to do with your extra inventory of Widgets beyond "X" that no one wants, and the sales people you hired to sell them?
No one can perfectly predict "X," and the situation is not nearly as simple
as considered here, but the objective for marketeers is to forecast "X" as closely
as possible in order to provide lasting value to all parties involved: to avoid
missed opportunities as well as waste, loss, or failure.
The MLM Forecasting Approach: Ignoring the Target
Who has an eye on "X," the point of market saturation at a given price,
in an MLM? Well, the funny thing, or perhaps the tragic thing, is that "X" will
be reached and exceeded without anyone noticing or caring.
Let's just suppose that "X" has been reached today in a particular MLM; the
number of possible units sold at this price has just been exceeded, and you
happen to be a starry-eyed prospect sitting in an MLM meeting listening to the
pitch. Now consider: Does anyone in this company know about "X"? Does anyone
care? Is the issue being suppressed on purpose for some other motive? Since
we are supposing that the market saturation number "X" has been reached, everyone
joining the MLM from now on is buying into a false hope. But that is not what
the speaker will be saying. He will be telling you, "Now is the time to join.
Get in on the 'ground floor'." But it is all a lie, even though the speaker
may not know it. The total available market "X" has been reached and nobody
noticed. All the distributors will lose from here on out. Could this be you?
How could you possibly know at what point you will become the liar in an MLM?
Pop or Drop
Perhaps a better paradigm than the runaway train analogy offered earlier of
how MLMs perform over time is this: a helium balloon let loose in an empty room
with a spiked ceiling, where product quality is analogous to the amount of helium.
The better the product, the faster the balloon will rise, accelerating unhindered,
towards disaster. The other option would be the case of a lousy product, in
which case the balloon will sink of its own accord, never getting off the ground.
To be sure, equilibrium is not in the cards, except perhaps as an accident,
and then only temporarily. MLMs are intrinsically unstable. For any company
that chooses an MLM approach, it's pop or drop.
MLMs vs. the Real World
The basic question that needs to be asked is this: If this product or service
is so great, then why isn't it being sold through the customary marketing system
that has served human society for thousands of years? Why does it need to resort
to a "special marketing" scheme like an MLM? Why does everyone need to be so
inexperienced at marketing this! Is the product just a thin cover for what is
really a pyramid scheme of exploiting others? But more on that later.
From Contracted, Protected Distribution... to Mayhem
Imagine that Wendy's became suddenly possessed by the idea that "everyone needs
to eat," and opened four Wendy's franchises on the four corners of an intersection
in your neighborhood. Who would benefit from this folly? The consumer? Certainly
not the franchises; they would all lose. Wendy's corporate? Perhaps temporarily,
by speculative inventory sales while the unfortunate franchises were under the
delusion that they could all make money. But in the end, the negative image of
four outlets dying a slow death would likely offset the temporary inventory sales
bubble. Even the most unreflective of the hapless franchisees would think twice
about doing business in such a manner again. This is why real-world distributorships
and franchises are contractually protected by territory and/or market.
Again, the simple fact is that even the most successful products will have partial market penetration. The same is true for services. Demand and "market share" are finite, and to overestimate either is catastrophic.
So why are MLM promoters obscuring this? Who is in control of the supply "knob," carefully and skillfully managing the size of the distribution channels, number of salespeople, inventory, etc., to insure the success of all involved in the business? The truth is chilling: nobody.
Imagine trying to write a computer model of how MLMs work, and you will see
this point most vividly. An MLM could never work, even in theory. Think about
it.
The People Machine
Chernobyl had a control system that failed. MLMs have no control
mechanisms at all.
Where is the "switch" that can be flipped in an MLM when enough sales people are hired? In a normal company a manager says, "We have enough, let's stop hiring people at this point." But in an MLM, there is no way to do this. An MLM is a human "churning" machine with no "off button." Out of control by design, its gears will grind up the money, time, credibility, and entrepreneurial energy of well-meaning people who joined merely to supplement their income. Better to just steer clear of this monster to begin with.
There is simply no way to avoid the built-in failure mechanism of MLMs. If a company chooses to market this way, it will eventually "hire" (with no base pay and charging to join) far too many people.
Thus, the only "control system" will be the inevitable losses and subsequent bad image the MLM company will gain after it does what it was designed to do: fail. And sooner or later we have got to stop blaming this particular MLM company or that, and admit that the MLM technique itself is fundamentally flawed.
- By Dean VanDruff - republished with permission.
Comments
He's confused is he? Somehow I don't think it's VanDruff that's confused here.
I liked the writing style, but that was about all that I enjoyed about his article. I was glad though, to see that from the comments that he made, that he was obviously not talking about opportunities like Quixtar and Passport, but instead MLM’s that seem to offer just one unique product and are not taking advantage of any current or future trends.
Let’s look at a couple of VanDruff’s points…
• New, Innovative?
With the internet and technology growing at rapid paces these days, any company, including an MLM that takes advantage of these trends will be on the cutting edge and will be new and innovative. Everything from new products and services, to new ways of building communities and networks of people utilizing technology and the internet. Quixtar is an example of a company who is both new and innovative.
• Market Dynamics and the End of the Cold War
He went off on a tangent on this one…
• "Everyone Will Want to Buy This Product!"
If IBO’s are really out there saying this, then they should probably change their pitch. They are probably just really excited and speaking not factually, but emotionally, which happens a lot in MLM’s. Fortunately you don’t hear statements like that often with Quixtar.
• The Demand Problem: Of Widgets and MLM’s
If an MLM sells one very unique product, then this is really good advice and perspective, but companies like Quixtar that offer a diverse line-up of products don’t run into this problem.
• The MLM Forecasting Approach: Ignoring the Target
His example of assuming that X has been reached already is funny. Who has reached X? Try using this business equation with a company like Quixtar that offers private-label branded products, as well as many other well known brands and entire partner stores totaling hundreds of thousands of products. Even if you zone in on a specific product like XS Energy Drinks, you will still see that Quixtar continues to diversify that line of products so that it doesn’t reach a saturation point.
• Pop or Drop
Just like most of his comments, he is just putting a negative spin on MLM without much credible information. I could just as easily say that a better paradigm of how MLM’s perform over time is this: a helium balloon let loose in an empty room with no ceiling and the sky as the limit, where product quality is analogous to the amount of helium. The better the product, the faster the balloon will rise, accelerating with momentum, towards success. I could use his negative balloon example for any company, but without credible information to back up my statement, it would just be trash talking.
• MLM’s vs. the Real World
I remember when AOL was new, their heavy mass-mailing technique of marketing by giving out free CD’s with one-month free AOL service was heavily talked down upon by “traditional” marketing gurus, but sure enough, they had major success with that marketing campaign, and still use it today! If Costco is so good, why don’t they market their company traditionally like all the rest? Why don’t they put out 30% of every dollar towards advertising to try to get customers to shop there?
Last time I checked, Costco was doing great with their word of mouth marketing campaign. Even though the people doing the advertising for them are very inexperienced! So if Costco decided to set up an MLM structure to pay people to do what they are already doing to motivate them even more, would the critics beat them up to? If you look at their marketing strategy, that idea isn’t so far fetched. They have already begun giving customers rebates back on their own personal shopping. They even have a built-in way to track referrals through memberships. Or what if Amazon.com offered a tiered affiliate marketing option for us to advertise for them? Oh wait, they already do.
• From Contracted, Protected Distribution... to Mayhem
Notice that he used the example of Wendy’s and not Starbucks, because many of us wouldn’t believe him if he said that Starbucks wouldn’t make it if there were one on each corner! With the internet there is no geographical location, and so the comparison of a physical franchise to an MLM, especially an internet-based MLM doesn’t make much sense. Quixtar IS in control of the supply “knob” when it comes to product launches, when to change product strategies, etc. and so he is just wrong in his analysis here as it pertains specifically to Quixtar.
• The People Machine
Who is in control of the “knob” at Costco to control the amount of people that do word of mouth for them? They don’t need to because as the demand gets greater, they can increase the supply to fill the demand. The same goes for companies like Quixtar. He says that normal companies say “we have enough”, but if we look at some of the most successful companies out there, they have a goal to continue to grow. Has Costco started turning down memberships? When is the last time that you went by a Bally Total Fitness Club and they had a sign that said “Full, no longer accepting memberships!
Isn't it the goal of most companies to have their products “saturate” the market? Doesn't Pepsi have the goal of saturating the market with their brand of soda?
Do you think Starbucks is trying to stop the growth at this point since they are pretty much everywhere? Nope, there plan is to continue to grow because there is still demand. And if they somehow outgrow the demand, then I am sure that they will expand their business to offer new products/services to tap into new market demands and keep the opportunity growing. Quixtar is the same way. They will continue to make necessary changes to ensure that we don’t run into a lack of demand for what we have to offer.
Right now, we are going through a shift from shopping in-line to shopping online, so companies like Quixtar have their distributors out there teaching people how to change their buying habits to the new model of online shopping. In the near future, the majority of people will already shop online, and so the marketing model will change to trying to get them to change “where” they shop online. Once Quixtar gets to a point where it has grabbed its likely market share of people shopping online from their site, they will again make necessary changes to increase growth like offering more services/products to each shopper as well as introducing new innovative products to the market that people do not yet have. And they will also reevaluate what the new trends are and how to best take advantage of them.
People like VanDruff just have a negative view of MLM’s and Network Marketing, and I don’t blame him because a lot of companies out there are just the way he has explained. I am glad that the company I am involved with is not that way, and I was excited to see that his article was obviously not talking about opportunities like being and Independent Business Owner Powered by Quixtar.
There is a discussion about supply/demand and market saturation as it relates to Quixtar in the comments of this post:
http://www.webraw.com/quixtar/archives/2004/09/quixtar_backbone_project_entry_two.php#comments
Dean's essay captures the thoughts of many people (certainly mine) in a very succinct fashion. I think that the thesis of this essay is dead-on accurate.
MLM, regardless of the 'web' and other technical innovations, is simply a type of market channel. MLM channel market share is a small portion of the US GDP and has actually shrunk over the last several years, so it would appear that the MLM channel is not the market-preffered method of distributing goods and services.
And why should it be any larger than it is? 'Bucket brigade' distribution is inefficient. And if I wanted to purchase goods from an Internet site, why do I need an IBO to be involved with that transaction at all?
And, with respect to distribution saturation - 2003 North American MLM sales at Quixtar were $1,035 million with $343 million payed-out to IBOs. How many NA IBO's are there? 500K more or less? It takes half a million people to distribute one billion (at retail, mind you) worth of product? Two thousand dollars worth of products a year? Doesn't that indicate anything to MLM promoters?
This is all pretty obvious, especially to those that have taken any kind of economic training.
Actually, there are roughly 340,000 IBOs in Canada and U.S. combined:
http://tech-geeks.org/tiny.php?url=1229
Or search this blog for "Quixtar Average Income"
Sigh...I should have looked up the number.
Even using an estimate of the number of 'active' Quixtar IBOs (227K) one is still left with an per-IBO average of $4572 /year. That is, in my opinion, incredibly inefficient and should give someone considering spending time on thie'opportunity' pause.
Just a quick reference point with a business many people have heard of: Snap-on Tools. NA consumer sales have been steady at about $1B(about $750M dealer net) /year. This is done through a network of about 5500 dealers (and a handfull of stores, and a small amount of online sales). This means that each Snap-on dealer (independants and franchisees) sells about $184K /year.
This seems a trifle more efficient the the MLM model...
Who is Dean VanDruff? What background does he have and what has he accomplished? I'm curious.
Can we have an article or two from Frank Feather on here, discussing his views on the Quixtar business? He seems to like the model. Any articles by Harry Dent, talking about Quixtar. I heard him speak at a major event. He seemed to support the model.
Who does the reporting that Quixtar is high on the list of sales of Artistry? Or how about health and beauty on the net? Isn't Quixtar high up there? Or is that a company spin?
It seems to me like there's a lot of armchair business owners in here sitting by their computers with nothing better to do than to put down a company that they couldn't achieve success with. Either that or try to impress themselves with their own comments.
http://www.census.gov/mrts/www/current.html
I think you are overestimating e-commerce, Chris. Just take a look at the link and you will see that last quarter e-commerce only accounted for 1.7% of total sales in the USA. Sure there is growth, but it is very slow and small. And while this information, http://www.census.gov/eos/www/papers/2002/2002finaltables.pdf is a little old, just take a look at the yearly percent change is what is being bought/shipped online. Notice what things are being bought/shipped more online (large items), and what things are having the biggest decline, apparel, computer products, beverages. And do you know why, Chris?
Because online shopping isn't a revolution, but more of an evolution. What is the basics of buying online? You sit at home, look at a picture of a product with its price, contact the company, purchase it, and within days, the item is delivered to your door. Well, I could have done this over 120 years ago. It was called the Sears and Roebuck catalog! Of course today, I can just type in www.sears.com, not mail anything and have the money directly taken out of my bank account, but the dynamics are the same. The reality is, online shopping for material goods is just the next form of catalog shopping. And while there will always be a niche of people who buy from catalog, the majority of people will choose traditional brick and mortar distribution.
This is because traditional b/m offer several advantages. First and foremost is price. The cost to ship/distribute goods to Wal-Mart is cheaper then it costs to ship directly to you. It's a numbers issue. Wal-Mart utilizes trains and big rigs and ship hundreds, if not thousands of units to a small number of locales. The result is the shipping cost per item at Wal-Mart is minute. In contrast, when shipping a small amount of units to one location, the shipping cost is higher. It's bulk mail versus regular mail.
Second, time is a factor. Again, there is a niche who prefers to wait to have something delivered, but since the advent and proliferation of the automobile, people have been shopping, buying, and using the same day. At best, it will take overnight before you can use an item bought online (and the cost will rise). And as the song goes, "If I had a hammer...", well, if you went to Wal-Mart, you can begin hammering as soon as you get home, but order online, you will have to wait two to three business days, or pay more just to wait one day.
Third, shopping is a social activity. Online shopping doesn't really offer this, unless you can shop and IM at the same time. Still, when you think about what a typical 16-24 year old does with his/her free time, I would bet hanging out at the mall would rank high on your list. And as we know, the young market is very important.
Fourth and final, this goes along with point three. You simply cannot try on clothes online. You cannot touch things, smell things or test things online (with the exception of things bought specifically for the computer). Shopping isn't only social, but also an experience for all the senses. Online shopping only offers sight and perhaps sound, and you can never walk into a clothing store with your friend and try on clothes online.
• New, Innovative?
•• Quixtar is an example of a company who is both new and innovative.
The name was new, everything else was/is the same as the previous Amway...payment plan, structure, leadership, everything. The only innovation was making orders online, but that just replaced the telephone call with a computer session.
• Market Dynamics and the End of the Cold War
••He went off on a tangent on this one…
Really, I mean that has nothing to do with Quixtar and their lack of control for the usage of product...I mean if they had an issue with consumption, the various LOS' would start preaching 300 PV a month as a suggested minimum and come up with some way of having a automatic replenishment/fulfillment.
• "Everyone Will Want to Buy This Product!"
••They are probably just really excited and speaking not factually, but emotionally, which happens a lot in MLM’s. Fortunately you don’t hear statements like that often with Quixtar.
Excitement is the first (and only) thing taught at opens and reinforced by seminars and meetings. Facts are downplayed and often ignored, or put aside by "faith in the dream". Quixtar doesn't say 'everyone will buy this product'...but they do say 'everyone will want to do this'.
• The Demand Problem: Of Widgets and MLM’s
••If an MLM sells one very unique product, then this is really good advice and perspective, but companies like Quixtar that offer a diverse line-up of products don’t run into this problem.
They sell one product..."freedom from JOB" and it is expensive. Not everyone will buy it.
• The MLM Forecasting Approach: Ignoring the Target
••His example of assuming that X has been reached already is funny. Who has reached X?
See previous. They have always grown at a lesser rate than population...which is why not everyone has heard or been in Amway, but what does tht say about real growth?
• Pop or Drop
••Just like most of his comments, he is just putting a negative spin on MLM without much credible information. I could just as easily say that a better paradigm of how MLM’s perform over time is this: a helium balloon let loose in an empty room with no ceiling and the sky as the limit, where product quality is analogous to the amount of helium. The better the product, the faster the balloon will rise, accelerating with momentum, towards success. I could use his negative balloon example for any company, but without credible information to back up my statement, it would just be trash talking.
The spiked ceiling of A/Q is the population limits, but seeing how IBO/Distributor numbers have hovered around 300K for 30 years....something has happened.
• MLM’s vs. the Real World
••I remember when AOL was new, their heavy mass-mailing technique of marketing by giving out free CD’s with one-month free AOL service was heavily talked down upon by “traditional” marketing gurus, but sure enough, they had major success with that marketing campaign, and still use it today! If Costco is so good, why don’t they market their company traditionally like all the rest? Why don’t they put out 30% of every dollar towards advertising to try to get customers to shop there?
AOL is an apples to oranges comparison. AOL is a service, like the phone company and electrical company. But their advertising was much like a drug-dealer. They gave you a free sample, then once you got hooked on using it, started charging you rediculous charges. Even though there were always cheaper alternatives, they got people who "didn't know anything" and got online anyway. Those that knew how to get connected and didn't need the "super-simple hand-holding" paid less. Remember the stigma of having an AOL address? I do. Most people start at AOL, get knowledgable, and if they aren't concerned with losing their email name, go to somewhere cheaper. they do create a dependancy on their service, how else would someone with a cable connection, and everything for online services, still have AOL "for broadband" which runs on top of your connection? At least in that way they are similar to the Quixtar LOS.
••Last time I checked, Costco was doing great with their word of mouth marketing campaign. Even though the people doing the advertising for them are very inexperienced! So if Costco decided to set up an MLM structure to pay people to do what they are already doing to motivate them even more, would the critics beat them up to? If you look at their marketing strategy, that idea isn’t so far fetched. They have already begun giving customers rebates back on their own personal shopping. They even have a built-in way to track referrals through memberships. Or what if Amazon.com offered a tiered affiliate marketing option for us to advertise for them? Oh wait, they already do.
Costco does well because their prices are cheaper. You are not paying $50 a year to buy more expensive items like Quixtar. You can easily make back the membership fee at Costco. people are happy to tell others of their savings, people only spread word of Quixtar BECAUSE THEY CAN SUPPOSEDLY MAKE MONEY FROM IT!
Amazon rewards individual contribution. You get a percentage based upon how many orders amazon processes from YOUR links. No downline, no recruiting, no upline, no you need to buy our books, tapes, etc that don't count towards your sales in order to succeed BS(m).
• From Contracted, Protected Distribution... to Mayhem
••Notice that he used the example of Wendy’s and not Starbucks, because many of us wouldn’t believe him if he said that Starbucks wouldn’t make it if there were one on each corner! With the internet there is no geographical location, and so the comparison of a physical franchise to an MLM, especially an internet-based MLM doesn’t make much sense. Quixtar IS in control of the supply “knob” when it comes to product launches, when to change product strategies, etc. and so he is just wrong in his analysis here as it pertains specifically to Quixtar.
Show me one corner, actually documented location where there are 4 Starbucks on an intersection...or two next door to each other. Yeah, it's an old joke that Starbucks are "everywhere", and there are malls with "nothing but Starbucks". The nature of Quixtar is they want you to recruit your friends and neighbors...their friends and neighbors are your competitors for downline sales if they get attracted to a different LOS.
• The People Machine
••Who is in control of the “knob” at Costco to control the amount of people that do word of mouth for them? They don’t need to because as the demand gets greater, they can increase the supply to fill the demand. The same goes for companies like Quixtar. He says that normal companies say “we have enough”, but if we look at some of the most successful companies out there, they have a goal to continue to grow. Has Costco started turning down memberships? When is the last time that you went by a Bally Total Fitness Club and they had a sign that said “Full, no longer accepting memberships!
Why does Costco (or any other retailer) want to stop "word of mouth referrals"? It is FREE! Your analogy is flawed in an attempt to twist the original author's meaning.
Costco is not turning down membership because they make a profit from every member. They offer reduced price to sell on volume and quantity. Quixtar, by nature of their first year attrition rate (approx 50%), they are constantly replacing their own numbers, and depending on the LOS to create the dependancy to stay with the "business".
Bally's, apples and oranges. It's a service that most people can use and few will. They sign contracts that you pay for two years even if you stop going!! Quixtar would love that!
••Isn't it the goal of most companies to have their products “saturate” the market? Doesn't Pepsi have the goal of saturating the market with their brand of soda?
You confuse market share with saturation. Why else would Pepsi (or coke) for that matter need 5-6 variants each. Reg, classic, diet, reg caffeine free, diet caffeine free, reg sugar free, half-carb, etc??? Because they have saturated their market share for a particular type, and want more market share. That has nothing to do with Quixtar. Their saturation is based on the people willing to do "the business" not buy the products they already buy elsewhere.
••Quixtar is the same way. They will continue to make necessary changes to ensure that we don’t run into a lack of demand for what we have to offer.
That is what the LOS do. Crete the demand.
••Right now, we are going through a shift from shopping in-line to shopping online, so companies like Quixtar have their distributors out there teaching people how to change their buying habits to the new model of online shopping. In the near future, the majority of people will already shop online, and so the marketing model will change to trying to get them to change “where” they shop online.
Bull. They've been saying direct sales with Amway "shipped to you direct" was the way of the future for 30 years. Catalog sales, which Internet sales are, have not accounted for more that 4% of total retail sales in the last 100 years! Remember Sears & Roebuck catalogs? And going to Quixtar.com to shop is only a benefit to the IBO. Anything I can buy online (non-Quixtar made) that is available from Quixtar.com is available otherplaces on-line, and sometims even from the manuafacturer. Omaha steaks? Cheaper from the Omaha Steaks website thatn the Quixtar partner site.
••Once Quixtar gets to a point where it has grabbed its likely market share of people shopping online from their site, they will again make necessary changes to increase growth like offering more services/products to each shopper as well as introducing new innovative products to the market that people do not yet have. And they will also reevaluate what the new trends are and how to best take advantage of them.
Bull. They will continue to sell to themselves (the distributor, IBO, or whatever name they come up with next) and the amount of retail sales (even less with the "Member option") will continue to drop except as the items purchased by the people selling it! LOS will continue to suggest "core" serious IBOs buy more and more each month.
People like VanDruff just have a negative view of MLM’s and Network Marketing, and I don’t blame him because a lot of companies out there are just the way he has explained. I am glad that the company I am involved with is not that way, and I was excited to see that his article was obviously not talking about opportunities like being and Independent Business Owner Powered by Quixtar.
It never fails to amaze me, the number of people who get out of the business and have the same complaints, yet someone "in" the business comes along and says "I've never seen any of that in MY business". I'm not talking about the complaints of individual failure, but the abuses and actions of the upline.
Best regards to you Chris, I hope you have a successful non-BSM business, make lots of sales, and have a huge retail customer base.
Dang it DMM!!! You beat my Sears example by three minutes!
I think alot of IBO's get starstruck and confused when they go to a rally or "function" and see some of the guest speakers....they immediately think or believe that the person is "promoting" quixtar or its business model or even the products. That is usually not the case. Guest speakers are paid and they dont care any about the company they are speaking for. They speak of business ethics and motivation in general, they are in no way connected to or an advocater of the company who hired them.
nsaibo,
I agree with you that this is usually the case with speakers. As long as they are paid, they will put a positive slant on the company. And yes, they do talk in more general terms, as is the case with Paul Pilzer and a few others the corporation has had in to speak.
I'm not too familiar with Dent, but I do know that Feather specifically wrote about Quixtar in a book of his, and promoted Quixtar as a solid company with some tremendous growth potential.
As much as he likes the concept, in theory, I still question the business as a major force in the marketplace this decade or any decade for that matter. It is a small niche market at best, in my opinion.
But then again, maybe Frank Feather knows something that I don't know.
Ambivalent wrote:
"OK, wow, I disagree with just about everything he says here, mostly because he confuses the supply side (Quixtar corporate) with the profitability of the IBOs. Those are two separate issues. I look forward to the next installments. (I didn't read ahead) Maybe it will explain what doesn't make sense to me here."
QBlog wrote:
"He's confused is he? Somehow I don't think it's VanDruff that's confused here."
You're cryptic again here. Are you implying here that I'm the one that's confused. If so, you're assuming again. (I haven't made an argument yet). And you know what YOU say about people assuming. You really should follow your own advice.
And you might want to check out VanDruff's article about conversational tactics.
As for the article, if anyone here is wondering about what qualifies Dean VanDruff to speak here, as Allison and I did, you might want to do a Google search on him. I found it very interesting. If it's the same guy, I found an announcement in 2002 that he was named VP, sales in a high-tech. company in San Jose. I don't know the size, I didn't recognize the name of the company. This article is on a website that looks like a Christian website. He has several articles where he has definitive views on Christianity, politics, MLM, and conversational tactics. When you go to the MLM article, check out the link on the bottom of the article with the title FAQs. In this page, you'll see a couple links such as "What qualifies YOU to warn ME against MLM?" and "You are short on FACTS, man!"
A few things I learned from clicking through these links.
First, this was written in 1990 (can't tell if it was updated from the FAQs I clicked). So forget about any discussion in terms of the article about online anything. As QBlog pointed out to me, the WWW started in 1995.
Second, from what I could gather, he's not been in an MLM (but this was hard to ascertain since all the answers were in the form of an analogy).
Third, he's very clear that this is a critical piece and seems to be assert that it's not meant to be even-handed. You can judge for yourself by looking at the FAQs if you come to the same conclusion here.
None of these things means that the information presented here is not correct. But when an article so greatly differs from my experience of reality in both Quixtar and in business, I would always check the source.
Having done that, there are way too many things I disagree with to place in one comment. I'll try to post more in the next comment.
QBlog, what happened to the Blogging 101 concept of 'be brief." This post is much too long to respond to succinctly.
And BTW, the next installments, from what I've seen on the website, do nothing to explain what he means in this installment.
Ambivalent
I forgot to mention something about VanDruff's article in my last comment. He notes that 98% is original material that came from his observations.
So, IMO, there are a lot of assertions that he doesn't back up or verify. So for instance, when he says,
"success of Wal-Mart, which found a more efficient and profitable way to distribute goods and services than the status quo, providing lasting value to stockholders, employees, distributors, and consumers. But this is not the case with any MLM to date, and after 25 years of failed attempts, it is time to point out the reasons why."
he doesn't say how he came to the conclusion that every MLM to date has been a failed attempt. He doesn't differentiate how he quantified lasting value to stockholders (AmQuix doesn't have any), employees (didn't they both get paid), distributors (does he know about the value to distributors, and in the AmQuix model, which distributors), and consumers (they both got products, right?)
Skip down to what he calls "The Real World." The ReVo Corporation example doesn't apply to Quixtar. He's not really talking about saturation, he's talking about demand forecasting (the miscalculation of demand). The reason that this doesn't apply to Quixtar is because of the loyal or captive market that it has in the form of IBOs. Quixtar corporate doesn't have the general problem of underforecasting demand because as any Quixtar IBO knows, Quixtar frequently backorders items. Sometimes these backorders go for weeks or even months. In any other corporation, this would be lost profit opportunity because the customer would go elsewhere, but for the products that Quixtar manufactures, there isn't anywhere to go for this, so most of the customers sit tight and wait for the backorder. And the way that they forecast demand on the front end before a product is released is by way of advance order. Almost all Quixtar manufactured products have a several month advance order period where people order the product without expectation of getting it for several months. IMO, this is how Quixtar corporate guages demand. And in this way, IMO, they probably underforecast supply in order to avoid the excess inventory problem that this author talks about. After all, if there isn't enough product, they can always backorder it while they ramp up another manufacturing run. So this is how Quixtar corporate alleviates or eliminates the problem of miscalculated demand forecasting.
Now, as far as Quixtar corporate is concerned, the amount of units they produce is determined by the demand, period. How their product is distributed is not their issue. If the demand is 350K units, it doesn't matter to them whether 1 IBO sells 350K units retail to customers or if each IBO buys one for themselves. Obviously if 1 person retails all the units, they'll make the bulk of the money, If each IBO buys one for themselves, the IBOs on the bottom of the plan will be unprofitable. But that is wholly unconnected to how many units Quixtar corporate produces. And as David Stone notes in his blog, Quixtar corporate doesn't care.
Skipping ahead to "Of Widgets and MLMs," same problem here. He talks about extra inventory. As I noted above, Quixtar corporate doesn't have an issue with this. Then he talks about "the sales people you hired to sell them." Quixtar doesn't hire any sales people. That's why they're clear about the concept of IBOs--INDEPENDENT Business Organization (?-I can't remember what the O stands for) In presentations, they tell you over and over that you don't work for Quixtar, you work for yourself. Except for commission checks based on volume, Quixtar doesn't pay its IBOs and they don't provide medical coverage or any other benefits because Quixtar doesn't hire them. So again, Quixtar corporate doesn't care how the IBO force is organized. If that 1 IBO sells their entire inventory, it's all the same to them. Of course, it's not that simple because if 1 person sold the entire inventory, then they wouldn't have a captive market, but that's not the current reality.
OK, that's all the time I have right now. Many more problems with this article to be discussed.
Ambivalent
yea, what Ambivalent said.
Ambivalent,
Let's see the articles you've written.
Thanks.
Ditto for you Chris.
A few comments on the MLM Industry.
Look, I see many of these sites and articles that are negative towards MLM companies and Quixtar, as a good thing in many ways. MLM is an industry that is not closely watched by the media, government, etc, and one of the primary reasons is because many MLM companies are privately held, and do not advertise on these stations, and on and on.
So I appreciate individuals like QBlog, who are the "watchdogs" over the industry, and report on it as they see it, although the reports tend to just be negative and not reflect the positive side of the industry, but then again, isn't the news mostly negative as well? Plus, anyone that wants to can do just what QBlog is doing and put a positive spin on every issue as well. So it is completely fair what QBlog is doing, as long as he is honest and ethical in his posts, which for the most part, I have seen from him.
So then the question is "who is going to watch over the watchdogs?" That is why individuals like myself and others will respond to posts and either agree or disagree, but at least will allow for several views on the topic. Sometimes, figures and statistics can be used to prove something right or wrong, but for the most part it is still just opinion.
That being said, I can appreciate an article like this, written well, as an opinion of someone who does not see MLM as a successful business medium. But it is just that, someone's opinion, and I hold a very opposite opinion about MLM, and specifically a few companies within the industry that I think have got things right like Quixtar, Passport, Pharmanex and a few others.
Quixtar is the leader in the U.S. for this industy currently and so of course they are going to get the most heat.
This article is anti-mlm without facts backing it up.
Roger, our posts are too long to go back and forth without writing books :) So let's just let viewers read your response to my view of the article and let them decide for themselves.
DMM, you and I differ greatly on our belief when it comes to the future of the internet. I believe that you heavily underestimate the growth potential, and I see it without a doubt and am working to position myself in front of the trends and capitalize on them.
We could both find facts and statistics to back up our beliefs and get into long debates on the subject, but I will just let readers decide where they stand when it comes to the future of online shopping.
Just curious, How many other reades really believe that online shopping won't significantly increase over the years to come?
Am I the only one on here who thinks that the internet is and will dramatically change the way that we shop in the future? I am not saying all shopping will be done online, of course, but that the percentage of shopping done online will drastically increase over the next 5-10-20 years.
After 29 years in Retail and 16 in MLM ,I can tell you people like to get out and shop!They like to go out,see things,touch things etc...Online shopping will probably grow some more and level off ,but never be the majority way of shopping.
Ray, no one is claiming that ecommerce will become the dominant way that people do their shopping. But several experts all agree that we are just seeing the tip of the iceberg when it comes to online shopping.
Any smart businessman knows that it is wise to position yourself in front of the trends. DVD's are the trend, and VHS tapes are the past. But right now, millions of people still don't own dvd players, so this is a trend that several people are taking advantage of.
Blogs are also becoming a very big trend. They are really starting to pick up now that the major network news channels are talking about them ever since the story broke on Dan Rather. So people that offer services or products that are directed towards the blogging industry will capitalize on this trend as well.
I have not met one single person that thinks online shopping is going down or leveling off. I ask it every time I present the Quixtar opportunity, which is every other day, and everytime they say it is going up, and they agree that online shopping is the future.
It seems like the only people that disagree are the negative Qritics on this site.
Great discussion guys. I personally liked the article. I am not a Quixtar/Amway fan, but I do believe in people trying to better themselves, I just personally don't feel that Amway is the way to achieve it.
I don't think that anyone disputes that online shopping is gaining popularity, however, and this falls into why I'm not a fan of Amway, I also don't feel people will pay higher prices than need be just for the sake of buying on line.
As well, I have personally made purchases on line from major retailers. The prices are about the same as what you'd pay in the store, and the shipping was very dependable and affordable. In Amway, my experiences were very different.
I don't think its so much an issue of whether or not online shopping is viable because it is. The basics of value, efficiency and convenience will still be what dictates online success.
I just don't see Amway being as competitive as big box stores.
many of you seem to be completely missing the point of the article. The "market" which an MLM is saturating the people who will either be quixtar clients or IBO's. if i sign up to be an IBO, do i know how many people in my area, who would want to be ibo's are still available? do i know if there is anyone who will buy quixtar products from me, and not from the other ibo's in my area? Yes, quixtar makes products, but there are two quixtar businesses: the retail, and the MLM (im not even going to get into the tools. An MLM will fail for its participants independent of tools). the MLM is the business that will saturate. they probably have analysts calculating how many cans of XS to produce, though. But they dont care how many "ibos" they produce. they dont cost anything, if fact, they get paid to produce more. the business that will fail due to market saturation is not Quixtar, its the Independent "business".
It doesnt matter if ecommerce becomes so popular that every inhabitant of the globe buys from the web, and they all like quixtar. there are X people who will buy from quixtar or join quixtar, and there are Y IBOs. So each IBO, on average, can sell or recruit to x/y poeple. Saturation: when X/Y = A decent amount of clients for each ibo to make money, and stop recruiting. as you keep recruiting past saturation, X decreases, and Y increases. Eventually, x=y, so every ibo can only sell to one person: themselves. Since nobody is thinking: hey, only X people will ever buy from quixtar. we only need y salesmen, y increases without concern for X.
On a Side Note: Those free aol cd's? they pretty much bankrupted AOL during the burst of the dotcom bubble, because it caused speculation on how many clients they would get, thus incresing their stock price. when the majority of people quit their free accounts, they noticed their market saturation estimate was wrong, but thank god Time/Warner bought them off, so they didn't die. (thus AOL/TIME/WARNER we know today. They still give off cd's, though, but they no longer base their market share on free accounts).
On a separate side note: Dupont circle in Washington DC has at least 4 starbucks on it. I suppose a circle is not an intersection, but a starbucks is also not a wendy's. Yay Drugs! also, most starbucks in big cities are tiny, and most city blocks in large cities have more than enough caffeine-addicts to populate several starbucks during rush hour.
On a tangent: Speaking of e-commerce, quixtar has the worst e-commerce business model. I've been making major online purchases for ... 7-8 years now? I didn't even hear about quixtar till a couple of months ago. On the days of the information age, where everyone knows everyone's business, that is pretty poor. And there is nothing in their site that makes it appealing to shop there! Even the 2.0 site seems to have pretty basic web functions, at most, i have no brand loyalty to anything there, the products are more expensive, they make no pretense of having sales, or advertising, or offering free shipping, and i have to shop through another human being(the ibo)?? The web is all about antisocial net freaks. the last thing i want when shopping online is to know im having to interact with another human, needlessly.
As an IBO, one should consider this: What function do i provide for society? A temp in customer service provides a service: he helps customers with concerns. An IBO does what? Make more IBO's? Help/motivate other IBO's? Sell and advertise quixtar products?
If the answer is the first two, those are internal purposes, and thus do not affect anyone outside the system. if your answer was the latter, can't the website do all the selling? a user can log in, and place an order themselves. So you advertise. What self-respecting advertiser saturates their advertising market by making more advertisers for the same company? What form of advertising hides the name of the company it advertises? The web is filled with advertising (some more effective than others). Why do we need humans advertising to a market that is mostly online already?
Rocket,
With Quixtar the prices are very competitive and there is such a wide selection available to IBO's that you do not run into problems you do with other MLM type companies that have a limited supply of over-priced products. Quixtar is not one of those companies.
Amway may have been, I am not sure, but Quixtar offers hundreds of thousands of products, and they have expanded their line of private-branded products tremendously.
For the rest of you reading this, I cannot all these Qritics with there theories that MLM is going to saturate the market! Name one MLM that has ever done this? Or anything even remotely close? I would love to see a realistic example rather than hypothetical situations that are not likely to happen.
My business spans the nation, not the neighborhood, and there will ALWAYS be potential clients/members/ibo's out in the marketplace. Are you proposing that a day will come when I am no longer able to grow my business because everyone will have heard of the opportunity and will either be doing it or not? This is starting to sound ridiculous! Kind of like the Qritics who think that online shopping isn't a huge growing market and a trend you definitely want to be positioned in front of.
Maiki,
I completely disagree with your analysis of Quixtar. Using word of mouth advertising, Quixtar has managed to reach millions upon millions of individuals throughout North America. Even you have heard of the company. Quixtar has a great eCommerce model and is doing very well. Statistics for 2004 will be released soon and will likely show yet another year of growth, growing every year since their launch in 1999.
From a web design standpoint, everyone’s opinion of site design is different. I think that the new Quixtar 2.0 is a great improvement, and is very easy to navigate and find products, and the backend virtual office for IBO’s is awesome! IBO’s come in all types, not just techies, so the site needs to be the right blend for all types of people and personalities, and I think Quixtar does a great job with that.
The products are not more expensive. Many Qritics throw that statement out there, but it is not true. Some products are less expensive, many are average priced, and some are more expensive. Our site is very price competitive and our unique, high quality private branded products help create customer loyalty. IBO loyalty is created with a paycheck, by paying IBO’s to shop at Quixtar, they are more likely to be brand loyal. The Quixtar business model is great.
You said “they make no pretense of having sales, or advertising, or offering free shipping, and I have to shop through another human being (the IBO)?? The web is all about antisocial net freaks.”
Right when you start shopping on the site there is a section called “Deals, Hot Buys, and Auctions” so they do make a pretense of having sales.
Advertising is handled by IBO’s and the site does a good job of advertising top selling products in each of the main categories including the homepage.
Quixtar from time to time offers free shipping deals, and when they do, that is advertised to IBO’s and also very visibly on the website. It is widely known to IBO’s that there is free shipping on orders over $750 so that information is promoted by the IBO, and available on the shipping page on Quixtar.com
Your comment about the web being all about “anti social net freaks” is outdated. That is how the web used to be, and now the web is appealing to the masses, especially the youth generation. IBO’s provide “high touch” to a “high tech” world for most people. The average household benefits from having someone walk them through the experience. You may not want that, and so don’t go for it. But most people that I come in contact with appreciate and enjoy the personal marketing I provide. In fact, many web companies lack this aspect and could benefit from implementing it into their marketing strategy.
Your customer service example is ironic because one of the things that an IBO does is help people with their concerns. I hear people talk about their concerns about their lack of job security, lack of a retirement plan, lack of time for family, and I believe that as an Independent Business Owner Powered by Quixtar, they can finally have a solution to help address those concerns.
Rather than have the website do all the selling, Quixtar offers IBO’s the chance to do the advertising, marketing and sales for the company. Services like Ditto Delivery and new unique Private-Branded products are better described by an individual and a website than just a website alone. So Quixtar has an advantage over other web based companies because of this. A good portion of the sales are done by IBO’s who retail products to customers, and many of these customers buy directly from the IBO before they buy from the website or catalog..
Customers can purchase products from the website without the help of an IBO as well, all they need is the IBO’s advertising number. So someone like you would be better off doing it that way if you wanted to. Since customers can also purchase products directly from the IBO, or from a catalog, Quixtar is covering all areas of home shopping so again they have an advantage over other companies.
For your last point you said “What self-respecting advertiser saturates their advertising market by making more advertisers for the same company? What form of advertising hides the name of the company it advertises?”
IBO’s can advertise in their own unique way, as long as it is within the advertising guidelines that Quixtar provides, which are pretty lenient. I currently do not know any IBO’s that hide the name of Quixtar, the company they advertise for. Some IBO’s may use more of a progressive presentation that builds into the name of the company, but generally speaking, Quixtar does not hide its name the way you suggest.
If McDonald Franchise Owners got paid a royalty for helping someone else start up a McDonald Franchise, would they not be self-respecting? Even though that McDonalds would be their competition in a way, they would still own a piece of it in a way, so in most situations that would be a smart move. Similarly an IBO will help another IBO get their business started, but they will receive a royalty for doing so, so it is actually still part of the original IBO’s advertising business.
The right word is “leverage”. They are not hurting their advertising and sales potential by making more advertisers for the same company. They are increasing their advertising potential by doing this. This is common sense. The idea that this process might saturate the potential market for the IBO is all hypothetical and not very likely at all. I heavily doubt that you will ever see an MLM reach the point where it has fully saturated the market and if you are suggesting that Quixtar might actually do this, then I would be an idiot if I didn’t fully run with this business now while it has barely penetrated the market.
One example of an MLM that has saturated?
How about Amway/Quixtar.
It has had the about the same number of distributors (340,000-360,000) in the U.S. for over thirty years.
Despite being a business based on leveraging time by recruiting more distributors and being so innovative and new the number of distributors hasn't changed in over thirty years.
Can you say
SATURATED?
Chris, I have had it up to (holding hand real high) here with the Ray Kroc / McDonalds comparison.
Amway/Quixtar is NOT franchising!
McDonald's franchised the use of the name, process, and procedures for a SHARE OF THE PROFIT. (or fixed fee if for some reason you aren't profitable). The buyer of the franchise then makes a McDonald's restaurant. They do not go out and "franchise another person".
Quixtar is most definately NOT a franchise. They don't use the name to get you in the door (opposite of franchising). You are not opening a "Quixtar" business, you are selling the idea of selling the idea to other people. Regardless of if you push retail sales or not, you only make money by getting more people under you.
A franchised restaurant could be successful with ONE location!
The only comparison of the Quixtar "franchising" model would be to say McDonalds sold the idea of franchising to Subway, Burger King, Hardee's, Arby's, etc.
Those companies "did what Kroc did"...opened a successful business and then sold the right to use the same name and product/procedures to others for their own success.
The franchisee's did not then turn around and sell franchises...they sold food!
Quixtar in it's own plan tells you 6-4-2, (should be 6-6-6). You do not get anywhere by just selling product.
If Quixtar was a franchise, then I could get a building and start making LOC, SA-8, and Glister to sell to my own LOS chains.
way to be concise chris!
"I completely disagree with your analysis of Quixtar. Using word of mouth advertising, Quixtar has managed to reach millions upon millions of individuals throughout North America. Even you have heard of the company. Quixtar has a great eCommerce model and is doing very well. Statistics for 2004 will be released soon and will likely show yet another year of growth, growing every year since their launch in 1999."
Quixtar might be doing well, i dont argue with that. im concerned with IBO's businesses. Are they, by in large, doing well? On average, are they growing on the level an actual business would?
"From a web design standpoint, everyone’s opinion of site design is different. I think that the new Quixtar 2.0 is a great improvement, and is very easy to navigate and find products, and the backend virtual office for IBO’s is awesome! IBO’s come in all types, not just techies, so the site needs to be the right blend for all types of people and personalities, and I think Quixtar does a great job with that."
there is no accounting for taste, i suppose. i expressed mine. Im talking from the point of view of a client, not an IBO. 2.0 I dont know an Ibo. before i can buy from quixtar, i must ask them to find me one. that is a hassle, and does not make me want to shop.
"The products are not more expensive. Many Qritics throw that statement out there, but it is not true. Some products are less expensive, many are average priced, and some are more expensive. Our site is very price competitive and our unique, high quality private branded products help create customer loyalty. IBO loyalty is created with a paycheck, by paying IBO’s to shop at Quixtar, they are more likely to be brand loyal. The Quixtar business model is great."
three words- wholesale buying club. Why would a random client like me choose to sign up? The Quixtar business model is great-- at getting their "store clerks" to buy from them.
"You said “they make no pretense of having sales, or advertising, or offering free shipping, and I have to shop through another human being (the IBO)?? The web is all about antisocial net freaks.”.. (cut rest of paragraphs for brevity)..."
Let me clarify: The sales are a small link in regular font at the bottom of the page. that is not apparent. It is not even on the main page. The main page is 70% taken up by the ibo opportunity (not even the membership savings opportunity). go to any other site (say... store.apple.com) there is a big tag or banner informing you of sales. the advertising exists, but it is weak. i heard of quixtar solely through negative advertising. The fact that an ibo knows about free shipping does not affect me.
Clarifing my antisocial net freak comment. dont take it so literally, but: I'm shopping online, i dont know an ibo, why do i need to go through the hassle of getting one? One of the advantages of shopping online is not to have to deal with salespeople asking me : "do you need help with anything, what else can i offer you?" If i have questions, i go the the physical store, or i email customer service. Unnecessary human contact wastes my time. i have friends to talk to on my free time.
"Your customer service example is ironic because one of the things that an IBO does is help people with their concerns. I hear people talk about their concerns about their lack of job security, lack of a retirement plan, lack of time for family, and I believe that as an Independent Business Owner Powered by Quixtar, they can finally have a solution to help address those concerns."
It is not ironic. you miss the definition of ironic, somehow. I chose that example because it seemed like an ibo is MOST like a customer service rep, and, no offense meant to anyone is customer seervice, it is hardly something i'd call an independent business.
"Rather than have the website do all the selling, Quixtar offers IBO’s the chance to do the advertising, marketing and sales for the company."
excuse me while i scoff in compempt. the opportunity?? Companies pay thousands of dollars in advertising. I admire quixtar greatly, because they manage to get unsuspecting fools to pay them to have the right to advertise the company, to pay them to have the right to be a salesperson, pay quixtar to have the right to do marketing for them. These are JOBS. they are not even independent businesses. you are paying them to do this, when they should be paying you, and paying you well, not by commission, to do this.
"A good portion of the sales are done by IBO’s who retail products to customers, and many of these customers buy directly from the IBO before they buy from the website or catalog.."
this is not e-commerce then.
"Customers can purchase products from the website without the help of an IBO as well, all they need is the IBO’s advertising number. "
i need to get one of those, though i dont need to get one of those to shop from amazon or peapod.com. with both of those, i cover everything quixtar sells. Yes, quixtar is doing a great job at covering all the bases. I'm not arguing QUIXTAR is not earning money. They run an amazing business. You are still completely missing the point.
"If McDonald Franchise Owners got paid a royalty for helping someone else start up a McDonald Franchise, would they not be self-respecting?"
no mcdonalds franchise owner would convince someoen to open another franchise in the same block as his. odds are, both businesses would do worse, and the royalites would not be worth it.
"The right word is “leverage”. ... cut paragraph"
leverage actually seems like the wrong word. but...
As lawdag says: It has had the about the same number of distributors (340,000-360,000) in the U.S. for over thirty years.
that is saturated. The Ibo's market is limited. how many people are in your downline? how many people does your downline's downline have? and theirs? maybe the market was not saturated for you, but it might be for someone down the line to you. but you are selling them the idea that it will never be. that is a lie, and if you disagree, take a few intro economics courses. hell, if you are lazy, ask anyone with a Ph.d in economics.
My brother was propositioned by quixtar by his frat brother. My brother is a psych major, so he saw through all the mind tricks they were trying to pull on him, and didnt even consider signing up. but he is not completely eceonomically savvy, so he asked my dad (an econ phd) what he though about MLM. if you are interested in what he said, send me an email. this post is far too long as it is.
Someone made a comment (you know who you are) and signed it as QBlog's Forum with a fake email address. The comment itself was a link to a post in the Forum and then followed with a complete copy/paste of that Forum text. This is not acceptable for two reasons.
1. Don't impersonate me. Even saying you're "QBlog's Forum" could be confusing enough to some people that I won't tolerate it.
2. Do NOT republish stuff on the Web (especially lengthy stuff) in these comments. And especially don't republish something from the attached Forum. A link and maybe a pull-quote is sufficient.
The comment was a rebuttal of sorts to this VanDruff post. Follow the URL link attached to my name to visit it.
About shopping online, never once did I say it will shrink or even flat line. I agree that it will grow, but the question is, what services are going to bought/sold online? And I believe the growth will be in two areas. First is any "ticket" or "reservation" industry. For example of this is travel. How many people already buy online airline tickets or make car rental reservations online? A lot, and more do it every day. We can also look at the entertainment industry, as tickets can be bought at Fandango for movies, and Ticketmaster.com for concerts and other shows.
The other area that will grow is technology. Why go to a store and buy a big box containing one small cd-rom or dvd-rom when you can download the software? This is one instance where online is cheaper (no shipping costs) and faster (if you have a high speed connection). Otherwise, online shopping will have a difficult time overcoming the factors I laid out in my last post. Shipping costs make things, in general, more expensive. Time can be prohibitive waiting for things to be shipped, and simply put, online shopping isn't a social experience nor does it allow for taste, smell and touch.
And if you look again at the second link I posted, you will notice these exact trends from online shopping '01 to '02. Items that can be bought through traditional catalogs or even t.v. will still be a niche, and no bigger then 4% of the overall market, and it will be the "ticket"/"reseveration" industry and technology industry that will reflect online's shopping true growth. Meaning, Quixtar's market will be no bigger then Amway's, despite the utilization of the internet.
DMM,
Only time will tell my friend.
I agree with you that the 2 areas you mentioned will pave the way for online shopping. I have been saying the same thing for years.
Quixtar has services like Ditto Delivery which eliminate having to wait for something because it shows up before you run out.
IBO's bridge the gap for people who are not tech-savvy to help introduce them to online shopping, tapping into a market that is harder for other companies to get to.
IBO's have the opportunity to sample products, so that customers can look, touch, smell, feel, sample, etc. so that they can find out if they like the product or not before they order it online.
Quixtar has a return policy on their products so that if a customer orders something and doesn't like it, they can return it and get a refund. This helps to overcome the barrier that people might have in not touching/feeling the product before they buy it.
Many of these products don't need to be touched or felt anyhow, ie. toilet paper, office supplies, etc.
Quixtar also offers customer the opportunity to shop through their network of partner stores. Many of these partner stores capitalize on the areas of growth you mention above.
The census graph link show that e-commerce was around 1% of the total retail sales in 2001 and is now at around 2% and growing. Thanks for the great stats supporting e-commerce growth!
Forrester Research predicts that that US online retail sales will account for 12% of total retail sales by 2010.
Quixtar is positioned well in front of this trend and will continue to grow. Like I said, only time will prove one of us right in our predictions.
QBlog wrote:
"Ambivalent,
Let's see the articles you've written.
Thanks."
I don't need to write any articles. There are many books and magazines that give information about MLMs.
I would suggest that anyone that wants to know more about the industry at least check out a few books to see what some other people think about it. As with any industry, you'd want to know what's involved. This is no different.
Here is a sampling:
"Wave 3: The New Era in Network Marketing" by Richard Poe
"Successful Network Marketing for the 21st Century" by Rod Nichols
"Street Smart Network Marketing" by Robert Butwin
"Your First Year in Network Marketing" by Mark and Rene Reid Yarnell
"Inside Network Marketing: An Expert's View into the Hidden Truths and Exploited Myths of America's Most Misunderstood Industry" by Leonard W. Clements
"Success in Multi-Level Marketing" by Gini Graham Scott
"How to Build a Multi-Level Money Machine: The Science of Network Marketing" by Randy Gage
"Amway: The True Story of the Company That Transformed the Lives of Millions" by Wilbur Cross
"Networking Times" (magazine)
And these books point to other resources as well, some of them online.
A few caveats: 1. These books are really old. I got them when I was researching. There will probably be updated books availabe. 2. I don't endorse any information in these resources. They're just informational.
BTW, none of these books would be on a BSM except for the Amway book because they're too long to be read in a month and they don't necessarily endorse a particular MLM.
Here's snippet I found in "Wave 3: The New Era in Network Marketing" by Richard Poe:
(in a glossary of terms)
"Saturation: An imaginary point at which a network marketing company exhausts the market for potential recruits, and growth stops. As with other industries, network marketing companies' growth slows down as they mature. However, true satruation is virtually impossible to achieve, and is usually just a pejorative term used by competitors to discourage potential recruits from joining a competing company, as in, 'Don't join Company X. It's already saturated!'"
I haven't read his analysis on this. I would think there would be more in the book about this.
Ambivalent
I agree that only time will tell, Chris, and that overall, online shopping will continue to grow. Just we need to look at what people are buying online, and where online shoppers are coming from (i.e. where did they shop before shopping online). I just believe that items that are in Quixtar's core line are things the majority are going to continue to purchase at traditional brick and mortar stores, and for the most part, people who don't buy Quixtar's core products won't do much shopping at partner stores.
Things like ditto delivery and a good return policy doesn't necessarily solve the problem. For example, take toilet paper. I don't know about you, but my household's toilet paper use can flucuate depending on a few things like what I had for dinner the night before to whether or not we had a dinner party or friends/relatives staying overnight, to my family going out of town for an extended period. If my use goes up for a month, I might be stuck either ordering more or still running out to the store. And if I use less, I will either need to spend time adjusting my order, or find space for extra toilet paper in my house.
As for the return policy, if I buy something from a traditional store and need to return it, I can exchange it right then and there. With Quixtar, I now have to wait twice the shipping time for the old to return, and the new one to come in the mail. This is why I said you should look at the second link I posted and how people are actually buying less apparel and drinks online because for the average consumer, the traditional b/m mortar store is better. Which is why I believe that despite the presence of the net and any Quixtar advantages, the same old Amway market of catalog shoppers and IBO's will be the same basic niche market available to Quixtar.
lawDawg wrote"
"One example of an MLM that has saturated?
How about Amway/Quixtar.
It has had the about the same number of distributors (340,000-360,000) in the U.S. for over thirty years.
Despite being a business based on leveraging time by recruiting more distributors and being so innovative and new the number of distributors hasn't changed in over thirty years.
Can you say
SATURATED?"
lawDawg,
Can you expand a little more on how these facts drove you to that conclusion?
Because from the same facts, I'm drawn to the opposite conclusion.
Here are my thoughts. Let's take your facts (I haven't verified them) that there are 350K (for simplicity sake) IBOs for 30 years. And given the high turnover rate that we see, there must be some (probably high) percentage of people dropping out while others replace them. If there truly was saturation, wouldn't the number be dropping as people dropped out and there was no one to replace them?
My feeling is that since the amount of people who drop out of Quixtar is so small compared to the total population (of US and Canada), and the fact that people rejoin multiple times, and the growth of the population turning 21 every year, there will always be enough people to replace those that drop out.
Your thoughts?
Ambivalent
I'm not lawdawg, but let met take a stab. Quixtar has reached an equilibrium saturation point. Approximately 360,000 IBO's is the highest number Quixtar (N. American Amway) can have, and it can grow no more (hence the term saturation).
Think of a sponge that is completely saturated, i.e. it cannot soak up any more water. Now, put that sponge under a running faucet of water and what happens? The water doesn't run right through, but displaces water that was already in the sponge, correct? This sponge represents Quixtar IBO numbers, as the amount of water coming in equals the amount going out, and as a whole, the sponge cannot intake any more without expelling an equal amount. Hence, it is saturated and at equilibrium.
dmm wrote:
"Think of a sponge that is completely saturated"
dmm,
Interesting analogy.
Assuming that it's true (which I haven't conceded to yet), how does that negatively affect a new IBO?
Ambivalent
It affects the new IBO because as a whole, as one group's downline's grows, another must shrink to maintain the equilibrium. It's a numbers game, and odds are the game will eventually catch up to you, and your downline numbers will eventually shrink. It is why there is such a low occurance of pins. Sure there will be those that beat the odds, but for every one that does and makes it to diamond, over 13,000 will have "failed" to reach diamond status.
dmm wrote:
"It affects the new IBO because as a whole, as one group's downline's grows, another must shrink to maintain the equilibrium."
OK, so far I'm in agreement. If the entire population remains the same, then if one part is growing, another part must be shrinking.
dmm wrote:
"It's a numbers game, and odds are the game will eventually catch up to you, and your downline numbers will eventually shrink."
I agree. It appears to be a numbers game. But why will the odds eventually catch up to YOU. YOU might be the person that has the expanding downline. But even if you aren't, then you could still fill your shrinkage with people outside the system. Why does this create a problem?
dmm wrote:
"It is why there is such a low occurance of pins. Sure there will be those that beat the odds, but for every one that does and makes it to diamond, over 13,000 will have "failed" to reach diamond status."
I'm not sure how you got the 13,000 number, but for the rest, I agree that under this system, there cannot be 350K diamonds simultaneously. But this part of your answer is unrelated to my question of how saturation affects the new IBO and brings up a lot of unrelated issues. Please answer the question I posed in the paragraph above. Thanks.
Ambivalent
Like I said, it is a numbers game with a lot of variables. And as with all numbers games, the odds will catch up to at one point. If we cap the number of IBO's at 360,000, and then look at the total number of lines of sponserships, which is 16 according to this http://www.webraw.com/quixtar/forum/viewtopic.php?t=1387. If we assume each line is headed by at least one diamond and we know the frequency of a diamond is one in every 13,000 (http://www.amquix.info/quixtar_income.html), that is 208,000 IBO, leaving only 152,000 IBO's, and about 11.5 diamondships attainable (using N. American numbers only)
Mathematically, it is possible for you to attain one of the 11.5 diamondships available, but remember, since the total number of IBO's remains the same, it will mean in order to maintain the ratios, another diamond will have to fall out of qualification. And, if/when another new hot shot comes along and builds his business to diamond, who is to say your business isn't the one that loses it's qualification?
Of course, what I post is overly simplistic. There are variables I did not take into account such as retailing which would push the diamond to IBO ratio higher, or overseas growth, which of course raises the total number of availble IBO's. But, for the most part, the ratio of one diamond per 13,000 IBO's has reamined consistant for at least the past 10 years (see link), as has the total number of N. American IBO's over the past 30 years.
DMM,
We should place a friendly wager on your predictions. I am willing to bet that the number of north american IBO's increases over the next few years so that by this time 2007 we will see a much larger number of IBO's as well as members and clients.
If the number of IBO's increases then it proves your logic faulty. We are just getting started and I have confidence that we will see the increase.
The last I heard from Quixtar the number was somewhere around 800,000 people registered at Quixtar.com. This number accounts for IBO's, Members & Clients. This number does not account for customers that order directly from the IBO and not Quixtar, which would count for a signifcant number of people as well.
dmm wrote:
"Like I said, it is a numbers game with a lot of variables. And as with all numbers games, the odds will catch up to at one point. If we cap the number of IBO's at 360,000, and then look at the total number of lines of sponserships, which is 16 according to this http://www.webraw.com/quixtar/forum/viewtopic.php?t=1387. If we assume each line is headed by at least one diamond and we know the frequency of a diamond is one in every 13,000 (http://www.amquix.info/quixtar_income.html), that is 208,000 IBO, leaving only 152,000 IBO's, and about 11.5 diamondships attainable (using N. American numbers only)"
Your facts here are faulty.
As noted in the thread, those are lines of affiliation, not sponsorship. For instance, Ron Puryear is sponsored by Bill Britt, but they have developed different motivational systems. Ron Puryear has at least 12 diamonds under him not on that list IIRC. And I can think of several others (at least 3) off the top of my head not on that list. So that makes 31 diamonds which is already more than your 1 in 13K allows. I can't see the calculation of the 1 in 13K since it leads to a 404 error.
But despite this, you still haven't shown how this affects the new IBO? They could be the next diamond, right? Why would they care if they have to push someone else off the list, even if that were true?
Ambivalent
Let's try the link again, http://www.amquix.info/quixtar_income.html
Now, Ambivalent, here's a question. We have a confession from a former diamond that he was a "stage diamonds" and actually only qualified as an Amway/Quixtar diamond once, but kept the title anyway. The question is, can there be other "stage diamonds" who qualify as emeralds or even platinum level today but have retained the title "diamond" despite not re-qualifying, or is this phenonom limited to only one person? And again, I will admit I did not take into account overseas growth, which add numbers to the pot and therefore could lead to more diamonds. So, in reality, there could be more Quixtar diamonds then the 1 in 13,000 number allows.
Now, how does this pertain to the new recruit? Well, statistically speaking, it should squash the myth of residual income and retiring early with financial freedom if you reach diamond. In the numbers game, you will eventually be on the losing side of the equation, and will have to rebuild just to maintain levels.
And to Chris, I'll take the bet. If we are both still here in 2007, we'll check the numbers and see just how Quixtar is doing.
dmm wrote:
"Now, how does this pertain to the new recruit? Well, statistically speaking, it should squash the myth of residual income and retiring early with financial freedom if you reach diamond. In the numbers game, you will eventually be on the losing side of the equation, and will have to rebuild just to maintain levels."
If the recruit were under the assumption that one could retire once you reach diamond and not have to rebuild to maintain levels, then I suspect you're right.
But this doesn't affect their chances of becoming a diamond, it only applies if one thinks that you can retire once you become one.
I'm not sure about "stage diamonds." But my understanding was that the emerald that I worked with made more money than many diamonds. He had more width than many diamonds, but didn't have six legs under him. So since emeralds can make as much as, if not more than, diamonds, shouldn't a recruit be more worried about the money they make and not the pin they wear?
Ambivalent
Great point Ambivalent, but the compensation plan does pay based on pin level and FAA points, which are level based. So when focusing on making money, levels should be taken into consideration.
Currently, we are seeing the compensation plan make changes towards rewarding depth more than they ever had before. This is exciting to me, because depth is a much smarter way to build the business.
Depth spreads the income throughout the organization more than width does, and depth builds more security. The problem is that it is harder to reach the bigger pin levels while building depth, because the pin levels are based on width.
So recently we have seen some changes that reward depth, like the emerald growth bonus, and the fact that you can now qualify at the larger pin levels like edc and double diamond by having leg credits, instead of just breaking platinum legs.
What this means is that now you can be rewarded by helping your frontline business partners reach higher levels like q-12, emerald and diamond, and those count as leg credits that can qualify you at a higher level. Pretty cool stuff.
So I think that you will see more of a focus on the emerald level over the next few years, and we will see a massive amount of new emeralds that are making some pretty good money. That is my prediction.
As long as there are end users for Quixtar products Quixtar will always prevail and there will never be market saturation.
I had a talk yesterday with two people who would like to know my opinion on a new businessplan. As a financial consultant in daily life I agreed to talk to those people and help a friend with setting up a new business.
After half an hour we still weren't talking about the actual new business. I urged them to get to the point. Then it was clear what they were up to. 'Selling' a AMWAY, QUIXTAR (MLM) businessmodel.
How stupid can people be! Some comments on this blog are even more stupid. I think
it would be nice if people like Ambivalent would say that they are in this business or have an IQ even too low for the army.
Educated yourself!!! Look around you, talk to people who were in this scams. Don't look at the one person who brainwashes the audience but look and talk to the hunderds of IBO's who fail and are desperatly trying to turn around their luck in this business by putting in more of their own money.
For those people who don't understand the businessmodel.
Start working at a lotery company!! Let your salary be paid out in lotery tickets. If you win a price let the price be paid out in lotery tickets. If you win again, again let the price be paid out in lotery tickets.
Now, how many breads can you buy at the bakery?
You would probably understand that you van only eat bread if the baker is stupid enough to accept lotery tickets as some sort of money.
I know people who bought for thousands of dollars Herbalife/Nutrilife products. Products still waiting to be sold before their expiration date.
To be more succesful their flew from Europe to Florida for a training and bought some books along the way.
They are in depth deeply after just one year.
Ask yourself who is Frank Feather, waht do I know of him, how does he earn his money, why would he write a book on MLM's?
Would I write a book when paid generously by a sponsor? I don't say he is but we can't be sure.
Good luck to those who are in this business en want to get out, good luck to those who are trying to help friends and family to get out of this business, to luck to those who are ignorant and will find out the truth in 2 to 5 years!
OK, wow, I disagree with just about everything he says here, mostly because he confuses the supply side (Quixtar corporate) with the profitability of the IBOs. Those are two separate issues. I look forward to the next installments. (I didn't read ahead) Maybe it will explain what doesn't make sense to me here.
Posted by: Ambivalent | September 23, 2004 11:23 PM