Multi-Level Marketing Induced Business Processes - Coursework Example

MULTI LEVEL MARKETING INDUCED BUSINESS PROCESSES Multi Level Marketing Induced Business Processes Customer Name: Lecturer Name: Date: Contents Contents 2 Introduction 3 Multi Level Marketing Description 3 Compensation Plans 3 Multi Level Marketing versus traditional marketing 5 Multi Level Marketing Modeling 6 MLM BPMN MODEL 8 Multi Level Marketing Graph 9 Data structures (trees) for the MLM-distributors 10 Finding the corresponding prices for order items for every distributor 11 Research papers describing MLM processes 12 MLM Software 14 Works Cited 15 Introduction Multi-level marketing (MLM) is a marketing strategy based on the hierarchy of multiple levels of compensation and a down line of distributors. The sales personnel are compensated by the sales generated by others recruited by them down the hierarchy was well as the sales they generate. There are several other terms, which have been used to describe Multi Level Marketing such as referral marketing, pyramid selling and network marketing. With Multi Level Marketing, the sales personnel are expected to utilize various means such as word of mouth marketing and relationship referrals to sale products directly to the consumers. Multi Level Marketing Description Compensation Plans In multilevel marketing, different network and compensation plans exist. Different Multi Level Marketing organizations implement varied types of compensation plans. In addition, different researches have had controversial opinions on the suitability of the Multi Level Marketing compensation plans. Compensation plans therefore have changed from one organization to another to suit the organization’s structure as well as product and service delivery. The stair-step compensation plan is the simplest plan, which requires the participants to meet some defined baselines in order to climb the Stairs of Success”. The fundamental baselines include product sales and volume of product usage. The compensation plan has been hinged with the breakaway compensation plan. The name is sourced from the arrangement where distributors are required to climb the ladder of success. There is a break-even level, when the distributors reach, they can break away from their up-line distributors and independently run their organization. Distributors who break away get more commission. The methods also encourage the distribution of the parent company’s products through the unlimited recruitment of frontline distributors. Whereas the Stair Step Breakaway Plan has several similarities with the Unilevel Plan, the plan provides narrow incentives for teamwork. With the method, the break away by a distributor allows them to enjoy more commission, however, this is a setback to the distributors in the up-line since the volume previously received by the upline from the breakaway distributors, shall no longer be offered through them. In both the unilevel plan and the Stair Step Breakaway Plan, distributors are limited to sponsoring only a single level of distributors, while at the same time; there is no limit to the width of a distributor. According to (Hawkeye 56) some organizations implement override commission, where the original sponsor continues to earn a relatively small percentage from each break away distributors’ efforts. There is the challenge of the distributor’s downline growing and reaching the point of break away, as the same time as the upline, this substantially reduces the compensation of the distributor, since they shall not have downline. The challenge also with the Stair Step Breakaway, is that the distributors may be forced to buy a lot of stock to assist their uplines get commission, hence ending up with unsold products. Moreover, some Multi Level Marketing organizations set the threshold for breakaway at unrealistically high volume, such that distributors are stuck at one level with meagre commissions. Another compensation plan is the unilevel plan where there exists no ranking and promotions but there is a uniform level for all staff. The distributors are compensated through a given certain override off of the volume, and usually there is a minimum volume threshold to qualify for a check. The Binary approach considerers a tree sort of arrangement with two branches where volume. The compensation is based on the volume of each branch. The distributors have to balance between the two branches to avoid scenarios of one branch exploding while the other idles. The matrix arrangement of compensation is computer based compensation arrangement where distributors are computer grouped to fill the available slots. The plan is binary based and dependent on the number of recruits, where the more the recruits, the better the pay. The recruits are automatically allocated an upline by the computer program. Multi Level Marketing versus traditional marketing Multi level marketing has been a subject of controversies, criticism as well as the target of lawsuits. This has been occasioned by several factors, fundamentally based on the difference between Multi Level Marketing and the traditional marketing. Whereas MLM proponents insists that MLM is the most efficient and effective means of marketing and generating leads and sales, traditional marketers perceive MLM as a scam, a sot of pyramid scheme. An important significance in terms of difference is that in MLM, the parent company make profits and realise a lot of money, even if individual distributors are not making much. The distribution structure of MLM is so diverse such that even if no single distributors is achieving high sales, the group as a whole is selling at a very high level, and the company can make substantial profits. In the traditional marketing arrangements, the performance of one distributor severely affects the performance of the company, in the region under their jurisdiction. Furthermore, the difference is highlighted by the dissimilarity in the role of the marketer. In the MLM arrangements, the marketer serves to market the company’s products and services and generate sales. This is also the case in traditional marketing; the sales representative also serves in the identification and recruiting of additional sales representatives as their down line. More so, the sales representatives can be recruited and trained by their upline. Furthermore, there is no defined maximum number of sales representatives since the more the number the better for the distributor. In the traditional marketing arrangement, managers are only recruited as the market conditions may demand. The structure of expansion of the distribution network also varies. In he traditional marketing, companies then to expand vertically, while in MLM the structure of the distributing network expands vertically (Joe 68). There is also the difference in terms of compensation. MLM marketers are usually paid commissions bases on the volume of sales made by them and their downlines. Furthermore, the law of natural attrition applies in MLM, since low performers are naturally out competed and since they fail to make the desired volume sales, they are not paid hence quit. In MLM, the distributors are not offered special protection from territorial threats. Unlike the traditional marketing where distributorships and franchises are contractually protected by territory and/or market, Multi Level Marketing distributors have no special considerations. Multi Level Marketing Modeling Considering the existence of diverse Multi Level Marketing compensation structures, Multi Level Marketing companies utilize varied models. The models have however been a frequent subject of criticism focusing on their similarity to illegal pyramid schemes, price-fixing of products, exaggerated and complex compensation schemes, potential exploitation, unmanaged sales persons recruitment, cult-like techniques that some groups use to enhance their members' enthusiasm and devotion. However, the major Multi Level Marketing companies have pointed out that their models are legitimate business practices. There are varied implementations of multilevel marketing. Consequently, the models do differ. Multi level marketing in itself is a business model, founded on product distribution. The representation of MLM also varies due to the several Business Process Modelling tools available. Representing the induced business processes is a challenging task, and several businesses have used different tools such as organization chart, which is founded in representing hierarchical relationships, conversely, the organizational chart fails to appropriately capture the MLM business processes. The flowchart is a modelling alternative, which describes how information is transformed from one state to another through some activities. MLM is founded on decision making by the distributors in every stage, therefore it is imperative to utilize a tool that effectively captures decision-making. Business process model give an insight and document the current operations, recognize where information systems can be applied, show future operations, and are foundation for stakeholders to have a graphic view of the business processes. There are varied alternative to Business Process Modelling such as Business Process Modelling Notation, and Unified Modelling Language. MLM business Process Modelling is the development of efficient, repeatable business processes that align with the overall business strategy of an enterprise. Unified Modelling Language (UML) has been the prevalent business process representational tool since the tool supports the analysis and the design phase. UML utilises the use cases diagrams and the activity, which combine to represent the business logic of a business undertaking. UML however has some challenges, which make it unviable alternative in presenting MLM processes. This includes inflexibility in cases of changing business demands, inconsistency if alterations are not reflected at subsequent stages and inefficiency in the transfer process. The alternative representational tool to MLM processes is the utilization of Process Descriptions, which are flow charts, which have additional information, and Process maps, which represent uncomplicated flow charts of the activities. The tools however face several challenges such as insubstantiality of information to explicitly define actual performance Business Process Modelling Notation (BPMN) is the most appropriate tool to represent MLM business processes since it can provide a comprehensive viewpoint to support business process management; it is a simple understandable mechanism for all stakeholders to create Business Process models and can handle the convolution intrinsic to Business Processes. Furthermore, BPMN can represent complex process semantics and can bring to a common position the diverging requirements of a modelling language. Business Process Modelling Notation (BPMN) is an OMG proposed unified standard for business process modelling, which is aimed at offering a means of specifying business process through graphical means. BPMN provides a simple, standard and unified notation that is comprehensible by all the concerned stakeholders. BPMN Business Process Diagram can be merged directly to Process Modelling Language (BPML). MLM BPMN MODEL Figure 1: BPMN Model for monthly transaction Multi Level Marketing Graph Multi-Level marketing is represented graphically as a hierarchical structure, with the root being the company such as Amway, Mary Kay and Tuperware. The companies have the most up-line distributors; these are directly below the company in the hierarchy. MLMs work by geometric expansion, where a distributor recruits a specified number of down-lines, who in turn will also recruit other down-lines, hence creating the expansion. This is graphically represented as follows. Figure 2.0 Multi Level Marketing Graph Data structures (trees) for the MLM-distributors There are varied data structures for MLM distributors depending on the MLM model implemented. The structures are represented graphically to give the visual understanding of the structure. Figure 2:1 The Matrix MLM structure Tree Figure 2:2 Unilevel MLM tree Figure 2:3 Binary MLM Tree Finding the corresponding prices for order items for every distributor There are varied methodologies for finding the corresponding prices for order items for every distributor. The common implementation of finding the prices is a hybrid plan, which in most cases is a combination of varied compensation plans. The prices for items of every distributor can be determined through combination of the binary/unilevel, which offers the merits of both compensation plans. The distributor can be paid from the fast start bonuses and incentives, distributorship commission incentives, and one or more leadership bonuses as well as recruitment and enrolment bonuses. The corresponding prices for order items for every distributor, is in most cases calculated using sophisticated software technology, where the algorithm used in the computer program first calculates the distributor’s bonuses based on how the distributor places new members on the MLM downline. The system then recalculates bonus commissions based on the number of members sponsored front line in the unilevel, including the downlines. The price then varies where the distributors who recruit the most are given the lowest prices. The prices in most cases are inversely proportional to the commissions while the percentages match the bonus. There are therefore varied means for finding the corresponding prices for order items for every distributor. Research papers describing MLM processes There are several papers detailing the MLM processes. Whereas the papers share similarity in the general description of the multi level marketing, they however vary in the specifics of the Multi Level Marketing. The journal titled Ethical Issues Connected with Multi-Level Marketing Schemes, by Koehn, (153), the author argues that Multi Level Marketing is an endless chain of distributor schemes, where the distributor pays for the opportunity to recruit others into the scheme. The author of the paper is of the opinion that Multi Level Marketing is not only illegal, but also unethical since they are recruitment centred rather than being product centred. In addition, the author is of the opinion that Multi Level Marketing and pyramid schemes share a common characteristic in that those who join the scheme early make some money, but those who join late are likely lose money since there are no more potential downlines to be recruited. Another article on details on the Multi Level Marketing is written by Herbig and Yelkum, (26). The authors argue that the concept and application of Multi Level Marketing also referred to as direct marketing or network marketing is growing and has encompassed diverse business application models. The authors are of the opinion that Multi Level Marketing is subject to controversy considering that the business places emphasis on recruiting new members rather than the sales of the actual physical product, hence giving the product insignificant consideration when compared with recruitment of other sales persons. The particle provides a critical analysis of the Multilevel Marketing phenomena, concerning the past, the present and as well provides scenarios for its future. An article published by (Andreas, 130) in the journal of Information Economics and Policy argues that copyright protection regulations and technology counteract free-rider trend which encumber the marketing of information goods, therefore alternative ways of marketing information goods have developed. The author is of the opinion that Multi Level markets are advancement from systems based on the super-distribution of a good from buyer to buyer. The article presents a general model for financial fluctuation in a Multi level market, while offering description in the incentives that distributors get through different means such as resale revenues. The paper then discusses some qualitative issues concerning advantageous marketing of information goods. MLM Software There are different kinds of software which a used in Multi Level Marketing to perform different functions. Most of the software are web based and perform different functionalities. Some software offers a common platform, for an integrated approach to MLM processes implementation. The software includes features and modules such as Web Site Traffic Statistics Membership Database, Compensation Plans, New Member Creation, Membership Management, Genealogy Structure, and Downline Management. Payment Processing, Membership Fees, Manage Transaction Accounts Bonuses & Qualifications, Commission Pay Outs, Trigger System, Privilege System, Communication System, Automated Upgrade / Module Installation,  Reporting Features, Block Replicator Module, Username Generator Module, Home Page Rotator Module, Shopping Cart Module and Support System Module. MLM Software Pro is an example of an Enterprise Resource Planning system for Enterprise Resource Planning implementation. The software offers several features and capabilities such as support for different MLM compensation plans, downline builder engine, real-time commission viewer, integrated members’ communication and collaboration tool, sophisticated messaging system, member’s promotion and motivation systems, advanced payment verification and recruiting systems and Detailed downline genealogy report. The software also offers personalised web pages and sophisticated replicating page editor. Works Cited Andreas, Schmidt, “Multi-level markets and incentives for information goods” Information Economics and Policy, 18. 2 (2006):125-138. Daryl, Koehn, “Ethical Issues Connected with Multi-Level Marketing Schemes” The Journal of Business Ethics, 29.1-2 (2001): 153-160. Hawkeye, Richardson. Mlm: Is Multi-level Marketing Right for You?. New York: Booksurge Llc, (2009). Joe, Rubino, The ultimate guide to network marketing: 37 top network marketing income-earners share their most preciously guarded secrets to building extreme wealth. New York: John Wiley and Sons, (2005). Paul, Herbiga and Rama,Yelkurma, “A Review of the Multilevel Marketing Phenomenon” Journal of Marketing Channels, 6. 1(1997): 17 – 33. Read More