Network Marketing

1
Network Marketing Recruitment and Training
and the Industrial Ban in China A Review of
Literature

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2
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• Network Marketing Direct Selling
• Direct Selling in China
• 1998 2003
• Recruitment and Training
• Conclusion

3
Direct Selling

• Definition
• The marketing of products and services directly
  to consumers in a face-to-face manner.
• WFDSA
• World Federation of Direct Selling Associations
• http//www.wfdsa.org/index.asp
• Its type of selling channel that focuses on
  personal contact and selling goods or services.
  (Peterson Wotruba)
• It relies heavily on the presence of a
  salesperson to create an environment to
  communicate and influence an early buying
  decision. (Berry)

4
Network Marketing

• Definition
• A subset of direct selling, and is also known as
• multi-level marketing
• structure marketing
• multi-level direct selling
• (WFDSA)
• Network marketing can be best described as a
  direct selling channel that focuses heavily on
  its compensation plan because the distributors
  may receive compensation. (WFDSA, 2000)

5
Compensation plan

• Resources of a compensation plan
• Sales of goods and services to consumers
• Sales to or purchases from those persons whom
  they have personally recruited into the plan
• Sales of the distributor group or network
• (WFDSA, 2000)

6
Difference between Direct Selling Network
Marketing

• Multiplying effect
• The depth of the network (Berry, 1997)
• Non-multi-level payment systems
• 13 levels
• Multi-level payment systems
• 47 levels
• More levels, more commission
• Revenue distribution
• Network marketing (type1) 70
• Direct selling (type2) 30
• 1998, Direct Selling Association in the United
  States

7
Direct Selling in China
8
History of Direct Selling in China

• Japan Life
• First direct selling company in China (1980s)
• Avon
• First company with license (1990)
• Pyramid companies
• The Chinese government had to halt all direct
  selling operations. (1998)

Japan Life ????????????,??????????? ?????????????
??????????????,?????????????????? (WTO????????????
?????, ???)
???? ??????????,????????????????????? (WTO????????
?????????, ???)
9
History of Direct Selling in China (2)

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• ?????????,???????????????????????????????
• (WTO?????????, ??)

10
Reasons for the Ban

• Pyramid selling raised public concern. (1993)
• Territory Direct Selling (Chow, 2002)
• Governments rule
• Makes all direct selling companies illegal

?????? (pyramid selling)?????,????????????????????
???????,???????????,??????????????????,??????? (WT
O?????????????????, ???)
11
Definition of Pyramid

• Pyramid selling is a fraud. (WFDSA, 2003)
• Def.. (WFDSA)
• A pyramid is a scheme in which a recruit pays (an
  entry fee) for the opportunity to receive future
  benefits (money or privileges) which are
  primarily derived from that recruits
  introduction of additional participants into the
  scheme, rather than from the ???Allow the
  promoters at the top of the pyramid to enrich
  themselves through the payments made by recruits.

12
Improvement

• Pyramid schemes with improvement
• Pyramid schemes product
• Certificates
• Training programs
• Magazine subscriptions
• Illusory discounts
• Over-priced or under performing treatment

13
Difference

• WFDSA, 2003
• Business opportunity based on the sales of
  quality products to consumers
• Discourage overstocking of inventory
• Provide opportunity to return any unused
  merchandise to the company for a refund
• Little or no inventory investment
• Little of no entry fees
• Offer no get-rich-quick schemes
• Pyramid schemes mislead consumers into believing
  in a non-existent market with potential income
  earnings that are patently false. (Vander Keep,
  2002)

14
New Focus of Pyramid Schemes

• Pyramid schemes start to offer products and
  services. (WFDSA, 2003 Wotruba, 1995)
• The commissions may be paid based on recruitment
  instead of sales of products. (Vander Keep,
  2002)

15
New Focus of Pyramid Schemes (2)

• Its difficult for multi-level marketing
  organizations to avoid being considered as
  pyramid selling companies.
• High-level distributors receive bonuses from
  recruiting and have minimum monthly order
  requirements. (Barkacs, 1997)
• Many distributors emphasize recruiting much more
  than retailing. (Taylor, 2000)
• The compensation plan rewards recruiting more
  than retailing.

16
Peoples Perceptions

• The public are unable to distinguish between
  direct selling and pyramid selling. (Wong, 2002)
• Many direct selling companies have not been
  members of any direct selling associations
  (DSAs). (Wotruba, 1995)
• The distributors have no ethical guidelines to
  follow

17
Peoples Perceptions (2)

• Bad image of the industry has two sources (Chan,
  1993)
• Illegal and unethical practices of pyramid scams
• False claims from distributors

• Examples
• ????????????
• ??????????
• ????????
• ??????
• (WTO?????????????????, ???)

18
Why??

• Why China banned the direct selling industry?
• Protect the rights of consumers
• Promote fair competition
• Protect the economic order of market and social
  stability

19
Why??
(WTO?????????, ??)
20
Governments View

• Chun xiao
• Rat club
• Pyramid selling
• Firms sell smuggled, inferior, counterfeit
  products
• Pay no tax
• Sell products at abnormal prices
• (SAIC Document No. 46, 1998)

SAIC?????????
21
Chinese Legislation

• In April 1998
• Had investigated 2,528 cases of illegal
  operations
• Issued RMB 100 million of fines
• Found over RMB 71.38 million illegal products
• Banned 577 unlicensed chuan xiao companies
• (SAIC Document, 1998)

22
Chinese Legislation (2)

• The voice from the DSA (Direct Selling
  Association) of the US
• The legitimate direct selling was not banned nor
  severely restricted in most countries. (WFDSA,
  2002)
• The response from the Chinese government
• Conversion Regulation MOFTEC 455
• (?????? 455?, ???????????????????????)

23
MOFTEC 455

• MOFTEC 455 permitted
• some foreign-owned direct selling companies
  already in China to resume operations under new
  law which had specific requirements, for example,
  to operate from fixed retail locations.
• Mode change company
• A company employing salespersons.
• A company that earned commission through
  promotion and selling of the products without
  employing salespersons.
• Other conditions
• Total investment in China exceeding US10 million
• To manufacture and sell its own factory products

24
Amway

• Using non-employee sales representatives with
  retail locations to promote Amways products and
  services (WFDSA 1998)
• Sales dropped from RMB 1,500 million in 1997 to
  RMB 320 million in 1998 (ATV, 2003)

25
WTO Agreement

• The implication of WTO Agreement in China
• Reopen the market
• Allow the international standards and practices
  of direct selling to appear
• Sales away from fixed retail locations may allow

26
WTO Agreement (2)

• WTO???????????????
• ????
• ????
• ????
• ????????
• ?? pyramid selling
• ??????
• ??????
• ??????
• ????????
• ???????????????????
• (WTO?????????, ??)

27
The Role of Recruitment and Training in Network
Marketing
28
Distributors job

• Distributors job
• Selling
• Recruiting
• Training other distributors
• Training
• Supervision
• Motivation

29
Training

• Trainings purpose
• Maintain repeat sales
• Offer distributors
• Product knowledge
• Sales know-how
• Ensure they are aware of their ethical
  responsibilities
• (Raymond Tanner)

30
Ethical Unethical Concerns

• Ethical concerns
• Building self-esteem
• Making friends
• Proving entrepreneurial skill, leadership
• Simply learning about the business world
• (Wotruba Tyagi, 1992)
• Unethical concerns
• Earning override commissions or benefits on
  behalf of their friends friends (Bloch, 1996)

31
Recruitment methods

• In conventional market
• One-to-one
• Labor Union (Heery, 2000)
• Like-recruits-like
• Word-of-mouth

• In network marketing
• One-to-one presentations
• Home gatherings
• Large presentations
• Two-to-one
• (Poon, 2003)

32
Large Presentation

• The purposes
• Improve the knowledge of distributors
• Provide a platform for distributors
• The content
• Background of the company
• Products
• Compensation plan
• Sharing of experiences
• (Moore, 1998)

33
Training programs in network marketing

• Training programs
• Product knowledge
• Product induction
• Analysis, selection, and follow-up of prospective
  distributors
• The training of trainers
• The training course that involves training
  newcomers so that they can train others.

34
Product induction

• Product induction training is likely to
• encourage distributors to become constant users,
• demonstrate their faith in the product efficacy,
• provide them with personal stories as selling
  aids.
• (Ingram, 1992)
• It provides necessary knowledge to distributors
  to duplicate.

35
Summary Recruitment and Training

• Network marketing relies heavily on the daily
  activities of recruitment and training to make
  improvements in sales.
• Distributors are encouraged to become involved in
  both recruiting and training other distributors
  by receiving override commission from sales
  generated by their network group sales.
• Proper training is essential to overcome any
  unprofessional sales tactics in recruiting new
  members and in the presentation and selling of
  products.

36
Summary Recruitment and Training (2)

• We need more studies of recruitment and training,
  and of how sales respond to various techniques
  and commonly applied useful methods. (Ingram,
  1992)

37
Conclusions

• We discuss the relationship between direct
  selling and network marketing.
• Recruitment and training are crucial for a
  companys survival and expansion.