If you refer a restaurant to a friend, the restaurant does not pay you- Network Marketing perspective

Have you ever seen Shahrukh drive an Hyundai i10? asked my friend.

I replied 'Yes of course. he drives the same red Hyundai i10 daily in my TV'

He persisted 'No No I mean do you really believe Shahrukh drives an i10??'

I quipped 'What Nonsense !!! why would he do that? He probably drives around in a Rolls Royce (which he incidentally owns)

'Ahhh there you are.... Can you see that? He drives around in a Rolls Royce but advertises for an Hyundai i10'

'But Dude. he is using his brand image to promote a product'

'Do you know he gets crores paid for that' my friend persisted.

'Yup.. that is the price to pay for his image and popularity..so what are you trying to tell me?'

'Will you buy a Hyundai i10 just because Shahrukh endorses it?' My friend was unrelenting.

'Nope, I wouldn't' I said and continued .. 'I would rather ask around my friends for their recommendation, then have a test drive the shortlisted cars and then choose one that I liked most'.

'Got You !!!!!!' my friend grinned from ear to ear. 'See there you are...Let me tell you some interesting fact.. More than 90% of what you buy is because your friend recommended it or you asked your friend about it and not from the TV ADs or the hoarding on the road side.. this is called Word of Mouth marketing or referral Marketing'

He went on 'Did you know that word of mouth is a very powerful way to influence a friend to buy certain product more over than the ads in TV because you trust your friend more than Ads in TV or Magazine?.

He had a valid point and I said Yes

He continued ..'My Company works on the same principle of Word of Mouth marketing. We cut down on Marketing and Advertisement expenses as you, Our Customer is our walking talking marketing and advertising :)  We remove Shahrukh from our Business model and pay the amount to you directly( albeit a very tiny fraction by means of commission).
'Now this works like this.. when you buy a product from our company directly through their web portal you bypass the Marketing, Advertisement and Distribution costs and so you get a product at a discounted price. Further when you refer our unique and wonderful products to your friend or family, they will buy it on your trust and word of mouth and you again cut down the Marketing, Advertisement cost to the company and now the company pays you a hefty commission for the same.

I thought 'This is so cool'

then my friend went a little further 'If you like a restaurant and refer it to your friend who visits the restaurant and enjoy the food as well, will the restaurant owner pay you anything ? or if you like a movie and refer it to a friend who goes and enjoys the movie, will the theater owner pay you?'

I said 'No.. never heard anything like that'

'Ahhh... there you see. all the time you have been referring a restaurant or a movie to a friend or family, but neither the restaurant or theater owner bothered to pay you something for the extra business that you bought them. They made money at your cost and did not bother to even acknowledge it or reward you' he started mocking me.

I started thinking ' Yes. if I refer a customer to a restaurant or a movie, I should get paid or should I' I was in a dilemma.. who ever thought all this ...

He said 'This is how our network marketing company pays you. You refer a product to a friend or family the company pays you a commission, then your friend refers the product to his friend then both you and your friend get commissions, then your friend's friend refers to his friend, then you, your friend and his friend gets paid... this is the network you build and you and your downlines will get paid every time when some one further downline (a person under you in your network) buys product. so it is a multiple residual income for which you don't have to work for always. So if you see, word of mouth marketing can bring you a life long residual income'

'This is good' I thought.  my brain was working fast. but then wait a minute. Did you say every time anyone in the downline ( like your friend's friend's friend's friend buying product by word of mouth starting from me) you get paid?

So let us assume that Paradise Hotel in Hyderabad pays Rs. 25/- for every person who refers their Biryani o their friend. Let us work it out. A Chicken Biryani at Paradise Costs Rs. 220/-. Let us assume that the actual production cost is Rs. 70/- and Paradise Keeps a margin of Rs. 150/- per plate of Biryani.

Now I, Ashok, visit Paradise, enjoy the Biryani so much that I refer the restaurant to my friend Benjamin.
So this guy Benjamin visits Paradise and enjoys a Biryani. Now I get paid Rs. 25/- as commission.
Next Benjamin refers the restaurant to his friend Carlos and Carlos visits Paradise and enjoys a Biryani.
Now I get paid Rs. 25/- and Benjamin gets paid Rs. 25/- as referral commission
Next carlos too loves the Biryani and refers his friend Daniel who visits the restaurant to enjoy the Biryani.
Now again I get paid Rs. 25/-, Benjamin gets paid Rs. 25/- and Carlos gets paid Rs. 25/-.
Now the Biryani is so good that Daniel recommends it to his friend Eddie who comes to paradise to enjoy it.
Now. I get paid Rs. 25/-, Benjamin gets paid RS 25/-, Carlos gets paid  Rs. 25/-, Daniel gets paid Rs. 25/- because when Eddie eats his Biryani all above him will get paid referral commission.
Let us take it further.
Eddie refers the Biryani to Felix who visits Paradise to enjoy the Biryani.
Now again I get Rs. 25/-. Benjamin gets paid Rs. 25/-, Carlos gets paid Rs. 25/-, Daniel gets paid Rs. 25/-, Eddie gets paid Rs. 25/-
Let us drag it further.
Felix enjoys it and recommends to George who really relishes the food.
Now again I get paid Rs. 25/-, Benjamin gets paid RS. 25/-, Carlos gets paid Rs. 25/-, Daniel gets paid Rs. 25/-, Eddie gets paid Rs. 25/-, Felix too gets paid Rs. 25/-
so cool every one is enjoying and having a great time and making money.
Wait a min. Let us look at the Paradise owner. when George eats his Biryani, the restaurant owner has shelled out Rs. 150/- as referral commission to all those who referred him.
Now if George refers the wonderful Biryani to his friend, Harry, the restaurant owner has no option but to shut down the shop as he has to dig into his pocket to pay all, forget making any profit at all.

This is an inherent flaw in the network marketing model where every person from bottom to top like George to Felix to Eddie to Daniel to Carlos to Benjamin to me, Ashok gets paid when some where down Harry eats a Biryani. This is handled by putting a cap on payment. but that is another discussion altogether.

So a normal transaction. the profit or commission is made at the most 4-5 levels (distributor, wholesaler,retailer et) or a single profit like a hotelier or a theater owner which any business can sustain.
But any referral commission pay out on recurring basis over and over again ( above 15 steps or more) is a sure recipe for going burst.

And now when you refer your friend a good movie or a restaurant there is no ulterior motive / personal interest ( read financial gain) for you in that recommendation but just that you care and love them and you would want them to have a good time. When there is no such ulterior motive seen in your action, your friends embrace the recommendation fully. They trust you.

Now do the similar referral of a MLM product to a friend of you. As soon as he understands that you stand to gain personally ( financially-referral commission) from this referral, the first seeds of doubt are sown on your very action of referral. From then on it is only the Trust that he carries upon you sees you through to a successful transaction else you stand to loose your friend.

So if someone tries to draw a parallel with the hotel or movie referral where you don't get paid, but for just referring the MLM product, they pay you commission and over that all your downlines who refer the product, you continue getting the referral commission, tell them that there is a basic flaw in their understanding of the whole mechanism and explain them the difference....

and do that over a Biryani at Paradise :)

 

A Seller Sells or A Buyer Buys ??? - A Network Marketing Perspective

In every transaction that occurs on earth there is a product or a service and a seller and a buyer. Now the transaction can be again in 2 ways.

1. A seller sells a product
2. A Buyer buys a product

Both look essentially same….. but look carefully.

In the first instance the seller sells his product irrespective whether the buyer really needs it or not. For example a seller comes to your door step and sells educational books. You don’t really need it, but then he coaxes, pleads, and somehow sells it to you. Now you are not a really happy customer. You will just keep the books inside and forget it.

Second instance you want to buy car of a particular brand and model, you go to showroom to know that the price has increased suddenly and waiting period is 6 months. But still you make the down payment and eagerly await 6 months for the car.

So what is the difference in the above 2? Both were business transactions. In the first instance the seller wants to PUSH or SELL his product irrespective of your need to buy it and hence the value exchange does not happen. The buyer does not see value in the purchase but in the second instance even after waiting for 6 months the buyer is happy coz he PERCEIVES THE VALUE in his product. All transactions are essentially value exchanges where product and money change hands and value is perceived to have received at both ends to their fullest gratification. If this value perception fails at any end, we have an unhappy person there.

In MLM biz, not always but most of the time the buyer does NOT NEED the product such as an overseas vacation for Rs 7 Lakh or an expensive watch costing Rs. 40K as he is not seeking it nor does he perceive any value in the purchase, but with the persistence or perhaps the trust factor, he still goes ahead and buys a product which does not mean much to him and he comes in the 1st category above. This is where the problem starts.

Now, we should note that the product, say a vacation or an expensive watch (unlike the car above) is not his inherent desire to acquire and hence the value is not perceived. But the silver lining is the business opportunity which apparently makes you financially Free.  If this business was as easy and simple as sweet talk and a beautiful presentation, then you would have financially free persons, dime a dozen and BMW’s and Mercedes companies would go into overdrive to satisfy the customer demand.. If you know what I mean

Now that is not how the industry works and our little buyer over a few failed feeble attempts quits the lofty  dream of financial freedom and then starts feeling cheated and product over priced etc.. and over that when he is unable to pursue his friends / relatives to buy the products that they do not actually need ( again he becomes the seller of the 1st type above) and desperation grows and then every person you come across becomes a biz target and eventually the biz fails and so does one looses the money (losing money means he does not see value in the product – for example a man who does never wear a watch buys an expensive watch for Rs. 40k just to get into MLM business, surely he does not see value in that watch right).

THINK…. you buy stuff coz you like it or you need it or you want it, not because somebody else wants you to buy it .

Now what did I say in my earlier post. Network Marketing is basically direct selling a product from manufacturing to end user so that some of the cost saving benefits could be transferred to the end user / customer and one of the basic tenets of this assumption is that the CUSTOMER NEEDS / WANTS the product and he wants it cheaper or more cost effective.

But with a product which one really is NOT looking out for, how can any Network Marketing company claim to be actually saving any cost on product purchase by its customer?  The answer or rather the bonus lies in the business opportunity as the seasoned Network Marketing representative harps more incessantly. More on that some other day.

So this is not direct sales per-se….

Does a Network Marketing model beat supply chain management model?

The other day a friend asked me what is this network marketing? Well this is not so easy to answer in a simple way as straight as the question was fired at me. So I picked one aspect of the biz.

I asked him 'Dude you know how a traditional supply chain management works?' let me explain a bit here.

Let us take the example of a bottle of Coke. Now the cost of manufacturing a bottle of coke could be what, say Rs. 5. To move this coke from the manufacturing plant to your glass at your home, industry follows the MAD process, Marketing, Advertisement and Distribution

Marketing and advertisement is a costly affair and many companies earmark a substantial budget for this endeavor to make their product reach as many end user / customer as possible. and this costs huge money.

Now this bottle of coke passes through the whole supply chain of distributor, stockiest, whole seller, retailer before it reaches the end user i.e. you. Now all the above parties in the supply chain are in business obviously. so they have their individual margin of profit which adds to the cost of coke  Add to it is cost of transportation, cost of cold storage, maintaining inventory as part of distribution process.

So finally you will pay RS. 25/- for the same coke and you are bearing all the cost of the supply chain management all along the way

Fine now what if I say, I shall deliver get you the coke directly from the factory at say Rs. 15/- you save Rs. 10 and I still earn my Rs. 10/-. This is called Direct Sales where a customer /end user benefits from the absence of middle men in terms of reduced price or otherwise he becomes a single point of conduit between the company and the end user for a commission. Now note that in the second scenario the customer still gets the product at a substantially lower price thereby beating the whole supply chain management system.

Now Network marketing company follows the direct selling model whereby the whole hog of MAD is bypassed. So No Marketing cost, No advertisement cost and No distribution cost. How is that?

Marketing and Advertisement is done by word of mouth by the company distributors or independent representatives and the product flows directly from the manufacturing place to the end user.

This is one of the many ways you can have a glimpse of a network marketing. Now let us see how this whole claim by networking industry works.

 If you observe, most of the network marketing companies promote vague /intangible product with less / or no known / established market / product value. The established product value of a known brand of washing machine, Fridge or a Motorcycle is different from a wellness product or an online educational programme. The value of the latter is determined by the promoter as they deem it fit (Of course the actual product value is much less / fraction of the sale value considering the step referral commissions / pay out involved, which can go up to say 13 or 14 steps / levels for example). 

So in the above scenario you see that that  it beats the claim of bypassing the supply chain flat out as the products are in fact priced much higher than they actually are else from where would the company pay out referral commission all the way say up to 13-14 steps / levels.  What I mean to say is if the same product were to be introduced in the market directly using the traditional supply chain management then the cost of the product could be very much much lesser

Now on the lighter side.    Let us assume that you want to buy one of the products of the networking companies but find them too expensive (which they are). Just try eBay. If you are in luck, you could just find someone who has put the  product your are seeking, on the block for a much lesser price than he had bought it, just to ... let us say get it off his back. 

This brings to the question why did he not keep it in the first place..... Well that is for another day to chat.. 

Good Morning Guys

It was a cloudy day with ferocious wind and heavy rain. Myself and a few friends made our way into a small hall where in there already were a motley crowd of about 30 persons with smile on their face and expectations in their eyes. A senior leader, the shepherd had graciously consented to share his knowledge and guide us through with his wisdom.

I greeted a friend with a friendly 'Good Evening' .. and he equally responded with all the jest. 'Good Morning Ashok. Nice to see you' and I just checked my watch. well it was close to 7 PM and by no means a morning unless you are on the other side of the world.

then 'Good Mornings' followed and the senior leader made his appearance with a thunderous 'GOOD MORNING Friends. How are you feeling today?'

I know I know what you guys are thinking :) this is Goa and 7PM is already little late to get high and this sure must be a party going on with rain pouring outside and Whiskey flowing inside the room....Hold on.. the whiskey can wait. we are into a more intoxicating fare here. Aahh welcome to Network Marketing and Yo ... you are in a QNet meet.

So what is this Good Morning all about? I asked my upline not long ago and he said 'Ashok, we are an e-commerce company with global presence and rightly we are on the go 24X7. Every moment some where at some corner of the world, some one is showing a presentation, some one is buying a product. so we always greet our biz partners with a Good Morning nevertheless of the time of the day'.  Aaaah that's it. How cute. what a wonderful to bond and build our brotherhood.

Then I was thinking of my friend in IBM or Toyota or Samsung or an Amazon or EBay for that matter who are a global conglomerate like hundreds of other companies in the world. Never heard any one greet me Good Morning in the night, except when he had downed more pegs than he could sanely manage. I am not implying that these 30 guys in the room were insane.  Imagine you are family n friends having dinner at 9 PM at a restaurant and this QNet guy from the far end shouts ' Hey Ashok. Good Morning' .......shucks !!

But then why? why cant you just be normal and greet the time of the day? why do you want to stand out with something weird? Greetings are what? just greetings. I don't think it implies anything more than an exchange of pleasantries, a matter of courtesy, But taking pleasantry to a different level concocting it with a global biz is something which has tinges of cult following. What has biz to do with a simple greeting I cannot fathom nor I can understand the necessity to warp a pleasant exchange.

My friends mock me at the QNet meeting with a sheepish grin and an Good Morning while I am content with a good afternoon or good evening. then more laughs follow at my defiance for not towing the line. May be my cup is yet full. ( this cup matter we will take up another day).. So as I was saying about inculcating a cultish behavior where in whatever is administered from above has to be followed with no questions asked and propagated downward with vociferous intensity. It also becomes one of the barometers (there are many) to assess your acceptance of the system. I say this because it is not easy for a man to say Good Morning when it is 7 PM in the evening unless you are conditioned to consciously call it out such and that takes some conditioning of the mind and when that happens your free will takes a back seat.

So what am I trying to convey? Nothing much but just a say that a simple greeting can be used as a powerful tool, first to coerce your mind (as it is against the normal) and later as a subtle demonstration to the society that you are different from the office going 'Morons' and within peers that you guys are a team and united in the quest for financial freedom.... Phew... Can a small twisted greeting achieve all this???/

Who knows, this network marketing biz is all about subtle cues leading to hardened views. :)

Time for my dinner now. 'Good Morning Guys' !!!!