Multilevel marketing

HANOI UNIVERSITY FOUNDATION STUDIES DEPARTMENT THE CURRENT STATE OF MULTI-LEVEL MARKETING IN VIETNAM AND SOME SOLUTIONS Teacher: Ms Nguyen Huong Quynh Student: Nguyen Thao Phuong Class: 2D-15 Course: EAP Writing Date: March 8th, 2016 ABSTRACT Multi-level marketing is one of the most potential businesses in Vietnam during the present time This paper, based on secondary research, discussed the current state of multi-level marketing in Vietnam and its relating contents In particular, four aspects are mentioned, including the overview of multi-level marketing, its benefits and drawback, its current situation in Vietnam and some solutions The findings of the research indicate that although network marketing has a source of achievements in our country, there are many controversial issues Therefore, some suggestions, including measures to reduce pyramid selling and poor-qualified products have been given to consolidate this kind of businesses All in all, the paper draws the conclusion that improving people’s awareness is the best way to create a true network marketing environment TABLE OF CONTENTS Introduction Recently, multi-level marketing has become one of the most popular businesses in Vietnam Kiyosaki and Lechter (2001, p 202) point out that if you have huge dreams and desire to assist others to make their dreams come true, a network marketing company is the best-suited business you are looking for According to Vietnam Multi-level Marketing Association, an ideal about network marketing flashed through Karl Renborg’s mind, when he wanted to start his own business in 1927 Then, in 1934, Renborg opened Vitamins California Company as a turning point in his career with a network marketing system having no staffs but a team of distributors Thanks to this system, he spread his commercial activities out without any costs After its appearance in many countries around the world, in Vietnam, multi-level marketing was known first in Ho Chi Minh City in 1998, through the co-operation between a group of Taiwanese and Incomex Company In 2005, government brought in 110/NP-CP decree with the purpose of instructing, organizing network marketing activities, and then a lot of companies appeared However, the situation of multi-level marketing in Vietnam are changing so complicatedly; as a result, many people have a wrong look at this type of selling Therefore, this paper will provide some useful information about multi-level marketing, current state of this marketing in Vietnam and offer some solutions Discussion of findings 2.1 The overview of multi-level marketing World Federation of Direct Selling Associations (2000) defines that direct selling which is based chiefly on the personal interaction between distributors and customers is a dynamic, rapidly expanding channel of distribution for selling products and services directly to consumers Multilevel marketing is one type of direct selling operating through a network of distributors without any agencies or stores The typical multi-level marketing program works through a network in which independent contractors can earn money through both their sales and a portion of the income of their network (Ward 2014) Aside from the typical network marketing, a disguised type of it called pyramid selling currently exists and raises doubts about multi-level marketing Pyramid selling is an illegal type of network marketing in which people must pay an admission fee to join while the main work is persuading others to join, then make a profit through their money However, most products are overpriced, poor-qualified and difficult to sell; therefore, it can be seen that making money out of recruitment is still their main aim (Australia Competition & Consumer Commission n.d.) A true multi-level marketing business always has some key characteristics through which people can draw a distinction between it and a pyramid selling company First and foremost, about the purpose, a network marketing company develops itself by selling the products directly to final customers and establishing, then expanding a network marketing concept (Oksanen n.d.) In this concept, most contractors want to sell out their products and lead their network with the aim of consolidating that network and raising their revenue They never entice or drag others to their network in order to make a profit through others’ admission fee or deceive customers Moreover, according to Cruz and Olaya (2008), a multi-level marketing company has an explicit remuneration and cost system in which distributors earn a net commission in proportion of their retail mark-up instead of a basic salary like most other companies That commission is paid publicly and adequately in compliance with the initial agreement The cost to join in a network is negligible and only include the cost for procedure and material; therefore, people not need to spend much becoming a contractor Besides, a network marketing business can save a huge cost because they not invest in advertising and supply chains Last but not least, having a good product supply is one of the most important features of a multi-level marketing company They always provide well-qualified products which have the price higher than their original costs If distributors cannot continue selling, network marketing companies have to receive products and return at least 90% of the total value (Ho 2014) 2.2 The advantages and disadvantages of multi-level marketing Being one type of developing marketing, multi-level marketing offers a source of benefits for consumers Using a network as a means to market products and services, these companies gain the advantage of not having to hire full-time salespeople The distributors are responsible for selling products given by companies and recruiting new distributors, so they not have fixed working time Consequently, the distributors of the multi-level marketing can find another fulltime work in addition to working in a network so as to raise their income (‘Multi-level marketing 24’ n.d.) Furthermore, that business can connect with consumers rapidly through distributor system will create competed motivation in many businesses in order to improve quality of products As a result, consumers have a chance to use more outstanding products (Ho 2014) In contrast, network marketing also brings some minus points One major drawback of multi-level marketing is aimed at new people: the down-line Many distributors are focused on the idea of making money off someone else's labor and expect a huge residual income from their down-line instead of trying their best to sell products, which cause the passive situation and delay the development of this marketing (‘Multi-level marketing 24’ n.d.) In addition, abusing network marketing can change all relationships among people into commercial relationships Then, if there are any disagreements in business, distributors can lose friends, families and relatives Gradually, this fact can break society rapidly 2.3 The current state of multi-level marketing in Vietnam According to Vietnam Multi-level Marketing Association (2011), at the end of 20 th century, multi-level marketing appeared in Vietnam with several small companies and sporadic activities After the promulgation of the Competition Law in 2004 and 110/NP-CP decree in 2005, multilevel marketing was recognized as a legal type of business in Vietnam Until June 2011, there are 63 network marketing companies granted the operating license So far, the number of people taking part in multi-level marketing in Vietnam was over one million people with the turnover rising to 2799 billion dong in 2010, which was four times as much as in 2006 after only four years At the end of 2012, there were 78 companies registering as a network marketing business with millions of people joining in and more than 3400 billion dong income (Ho 2014) Multilevel marketing companies reported that, during the past years, these companies contributed to the state budget over 1.200 billion dong and over 170 billion dong personal income tax Until 2013, Ho Chi Minh City has 42 businesses which is a bit fewer than Hanoi (47 businesses) Among them, Amway, Oriflame and Herbalife are companies dominating this market with some main products like fast moving consumer goods, cosmetics and functional foods After over 10 years developing, multi-level marketing in Vietnam had not only a lot of achievements but also some problems On the one hand, its pace of development grew sharply and brought jobs and income to millions of the unemployed, promote good circulation and consolidate Vietnam economy On the other hand, Ho (2014) reported that the proportion of network marketing consumer was 39.9% of total survey participants There are two main reasons for that situation: lack of consumers’ belief in this marketing and poor qualified product Beside many transparent and legal multi-level marketing companies, in Vietnam, some network marketing organizations with a sign of cheating consumers appeared made a stir in fame In the Annual activity report 2010 (Competition Administration Department), there were two illegal network marketing cases in 2007, 10 cases in 2008, three cases in 2009 and four cases in 2010 It is too easy to see a series of law violations with more and more unpredictable trickeries in network marketing activities Meanwhile, for this kind of business, the products require a good quality because its marketing method is mainly from one person to another In Vietnam, today, as statistics, multi-level marketing has about 7000 different items of which 90% are functional foods Nevertheless, many of these products not guarantee the quality, and the price is much higher than the cost of production (‘Ban hang da cap’ 2015) 2.4 Some proposed solutions To promote the proper role and benefits of multi-level marketing, some solutions for the two problems in network marketing in Vietnam are urgent Firstly, for the existence of pyramid selling, the government need to enhance the supervision, penalize law violations strictly and rapidly respond to any situations In addition, they can raise the function of Multi-level Marketing Associations in improving people’s awareness of legal and illegal network marketing to limit pyramid selling Also, network marketing companies have to abide by the laws about multi-level marketing, and train their distributors more thoroughly about their products and professional ethnics Furthermore, consumers should raise their awareness of both multi-level marketing and pyramid selling, propagate for relatives understand this kind of business as well They must be wary of the invitations of illegal multi-level company and carefully consider the agreement before joining in any networks Finally, for the fact of the poor-qualified products, the government should require network marketing companies to report specifically on the price and survey to detect the cases of fraud, arbitrarily raise product prices Likewise, they need to have some specific rules on technical standards and product quality Those companies ought to list the price for final consumers to avoid pushing price up without control Besides, consumers should check product quality before buying (Ho 2014) Conclusion From all the findings above, obviously, multi-level marketing in Vietnam still has some huge problems which are more and more widespread and difficult to deal with A sad fact is that most of them come from people’s greed and cause many bad effects on society To solve these problems, there is nothing better than cleaning up from their root: the greed Kiyosaki and Lechter (1997, p 173) claim that you have to get into work to receive a worthy financial reward Hopefully, people can understand it, then eliminate their greed to remove pyramid selling and poor-qualified products in the near future, through which multi-level marketing can become one of the flagship businesses in Vietnam, and consolidate national economy Words count: 1699 words REFERENCES Australia Competition & Consumer Commission n.d., Pyramid schemes, viewed February 2016, https://www.scamwatch.gov.au/types-of-scams/jobs-investment/pyramid-schemes ‘Ban hang da cap’ 2015, Thế bán hàng đa cấp lừa đảo?, viewed 10 February 2016, http://banhangdacap.vn/tin_bai/168/85/The_nao_la_ban_hang_da_cap_lua_dao-.html Competition Administration Department 2010, Annual activity report 2010, Vietnam Cruz, J.P & Olaya, C 2008, A system dynamics model for studying the structure of network marketing organizations, viewed 27 January 2016, http://www.systemdynamics.org/conferences/2008/proceed/papers/OLAYA411.pdf Ho, T.B.T 2014, Thực trạng bán hàng đa cấp Việt Nam số giải pháp đề xuất, PhD Thesis, 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hàng đa cấp, viewed 27 January 2016, http://mlma.org.vn/index.php? option=com_content&view=article&id=65%3Alch-s-nganh-ban-hang-acp&catid=38%3Atim-hiu-v-mlm&Itemid=77&lang=vi Ward, S 2014, Multi-level Marketing, viewed February 2016, http://sbinfocanada.about.com/cs/marketing/g/mlm.htm World Federation of Direct Selling Associations 2000, What is direct selling?, viewed 23 January 2016, http://www.wfdsa.org/about_dir_sell/index.cfm?fa=whatisds 10 ... dreams come true, a network marketing company is the best-suited business you are looking for According to Vietnam Multi-level Marketing Association, an ideal about network marketing flashed through... information about multi-level marketing, current state of this marketing in Vietnam and offer some solutions Discussion of findings 2.1 The overview of multi-level marketing World Federation of... directly to consumers Multilevel marketing is one type of direct selling operating through a network of distributors without any agencies or 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