Thursday, June 17, 2010

Melaleuca is a Tree, not a Pyramid

I have been guilty of using the word 'pyramid' when describing the Melaleuca business model, referring to the tree form of compensation. I thought MLM described the bad kind of pyramid and Direct Consumer Marketing (Melaleuca) the good kind of pyramid.

Well, I don't really know whether there is a universally correct nomenclature, but I am becoming familiar with the concepts.

I know of 2 basic differences between Melaleuca and legitimate MLMs: 1 - In Melaleuca, you enroll to buy products directly from the company, not the person who enrolled you, whereas in a legit MLM, you buy products from the person. So in the MLM, it's about selling products as a distributor and in Melaleuca, it's about referral compensation, giving the independent agent a percentage based on all purchases of the referral for as long as the referral continues their enrollment. 2 - Melaleuca ensures that your downline cannot simply pick up and move out from under you, leaving you to start over, no matter how big your business you built. Other companies lack such rules.

As I understand it, the basic difference between legitimate network marketing and a fraud is, the legit network serves to spread the word of mouth about the company, eliminating advertising costs and allowing competitive prices and value, and encourages help and support of new businesses from older ones. Because of the value in the product, opportunity for new business is as great as the old. Fraudulent "companies" typically have no real product and use a funnel (pyramid) simply to flow money from as many people as possible to one or a few. This scenario is like any funnel - you pour something in and it all goes through, leaving nothing at the big end of the funnel. You could also liken a pyramid to an Egyptian tomb wherein the block at the top enjoys the view at the expense of the blocks underneath. Some of these schemes are more disguised as legit companies than others. The less disguised schemes simply play on peoples' greed and willingness to gamble they will move up in the pyramid before it burns out. They use hype to quickly make their money. But disguised or not, these are illegal.

The National District Attorneys Association calls the fraudulent schemes "pyramids," and the legitimate companies "MLMs." Melaleuca likes to call itself neither, mainly (I think) because its members do not buy or carry inventory or invest significantly. In any case, one mark of a legitimate company is the ease in quitting whenever one desires, whether they can simply drop membership not having made an investment (only purchases with which they are satisfied) or have their inventory bought back by the company.

I have yet to know the details of the Melaleuca business. There is a lot more to it than I describe here. But money doesn't just go to one person in Melaleuca and it doesn't flow all the way to the top. They have it worked out to compensate generously and fairly according to one's role in the marketing success, as in any good and legitimate company.

So I made a mistake. I take it back from everyone to whom I ever said it was a pyramid but different. It is not a pyramid at all. It is more like a tree.

Think of a family tree. There are 2 ways to see a family as a tree. One is the usual genealogical diagram that shows you as the trunk and all your ancestors as the branches. In other words, your ancestors branch out as you go back in time. Another way to look at it is the way your posterity branches out (hopefully, but not in all cases) from you and your spouse, going forward in time. In this scheme, the parents and grandparents support and nurture the new branches as they sprout and grow skyward. The parents and grandparents enjoy the multiplying and residual benefits as the upper branches grow. Yet the new branches have as much opportunity (all else being equal) to become rich grandparents as any of the older generations. In no case does a small branch support a heavier one.

Melaleuca is like a tree.

You may say, trees only grow so big. Okay, so the allegory is not perfect because unlike a tree, there is no foreseeable limit to Melaleuca's growth. Or maybe Melaleuca, the company, will die some day. If it does, no one will be burned. The worst that could happen is my residual income could go away after all that hard work. But I would still have what I had received thus far, including the glad experience of said work and the personal growth there gained.

I am no expert, I am still learning. But I know people first hand who got pretty far into an MLM before finding out it wasn't structured the way they had been led to believe and they lost everything overnight - and that was in a "legit" MLM. As far as I know, that is virtually impossible in Melaleuca.

I think a lot of people are creeped out by direct marketing because it's unconventional or involves sales people who infiltrate into the community. People are conditioned to think of it as some kind of cult thing. But really, it is the mark of a free capitalist society and has been around forever. What a wonderful thing to be able to produce a product and just go out and sell it to anyone any way you can reach them! Our government continues to lay on more red tape to burden us as time goes on, but still basically lets us venture this way. Take Watkins Company or Fuller Brush for example. Just a fine line of high quality products sold by sales people, door to door. Watkins has been around more than 100 years. Awesome. America.

As Melaleuca founder (or whatever his title is) Frank L. Vandersloot says, there is nothing wrong with business.

Store or door to door. Equally legit. Equally prone to unscrupulous sales tactics and schemes. But I see more bad deals in the stores these days than on the street. Sensationalist advertising, high price and low quality abound these days. Our landfills are filling up faster than they should.

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