Home Business & Management Business Plan of Amway - American Multi-level Marketing Company

Business Plan of Amway – American Multi-level Marketing Company

Amway is a Multi-Level Marketing company, one of the leading company worldwide. Business plan of Amway in following

Taking into consideration the differences between various business models and also the possibility of raising the flexibility of the level of risk depending on the choice of the appropriate form of activity, it is possible to try to define Multi-Level Marketing.

In the literature on the subject,

INDEX

  1. What is Multi-Level Marketing
  2. There are only five basic methods of distribution of products
  3. Historical background of Multi-Level Marketing
  4. In 1941 the company implemented the first C&M marketing plan
  5. History of Business plan of Amway
  6. Commission system of in business plan of Amway
  7. Conclusion
  8. FAQ

What is Multi-Level Marketing

Multi-Level Marketing is also called network marketing. According to Don Failla,

It is one of the fastest-developing and also still the least understood methods of introducing products to the market

It is mainly due to poor understanding of the system that multi-level marketing is often regarded as direct sales, pyramid sales or even pyramid schemes.

Wikipedia, which is one of the most popular online encyclopedias describes it as a term defining marketing strategy and also a way of functioning of a company and its partners — independent distributors.

Multi-level marketing is a branch of direct sale, that is, it involves offering goods and also services directly to consumers based on individual contacts, usually at client’s home, workplace or in other locations outside permanent retail sale branches.

It is a form of sale outside a traditional shop chain (…) Multi-level marketing allows sellers to build personal structures of partners, who provided that additional commissions from their sales.

Every seller in multi-level marketing has an opportunity to build own structure of salesman in which also everyone is rewarded based on the marketing plan valid for each company. 

There are only five basic methods of distribution of products

1. Retail sale

Retail Management

Which is the most basic form of distribution carried out using a retail branch, e.g.: grocery shop, chemist’s shop, department store, online auction site.

2. Direct sale

Covering usually the sale of insurance, kitchenware, encyclopedias, etc. In with regards to the model of distribution commission from sold goods goes only to the seller who cannot build networks of his distributors.

To sell products or also services offered by a particular company, he has to be employed in the company as a sales representative. This also means that he works for the owner of a company, who is his employer, thus, he doesn’t work for his benefit as in the case of Multi-Level Marketing.

3. Multi-Level Marketing

marketing

Don Failla analyses the fact that term by defining marketing as transferring a product or also service from the producer of service-provider to the consumer.

Multi-Level Marketing as a system of rewarding people who contribute to the sale of products or also the provision of services. 

4. Mail order sale

Email marketing

This also a kind of distribution is characterized by a lack of retail points in which goods could be exchanged for money. The client makes an order directly in the company after learning about its offer on television, in a telephone conversation or also from a received catalogue.

5. Pyramid sales

Is an illegal organization of sales, which is also often mistaken for Multi-Level Marketing. One of the main reasons for this also is that an illegal company are presented as a multi-level system. 

Historical background of Multi-Level Marketing

Digital marketing interview question

Looking at the definition of the term formulated this also way inadvertently leads to questions about the origins of the discussed business concept.

To follow the historical course of events, it also is necessary to start the search in the Unites States where first written records can be found.

The oldest ones date back to the early 1920s. In such as for period in the United States, the direct distribution of goods was an important part of social life.

Also, many companies looking for opportunities for the sale of their products opened sales agencies around the whole country. Producers delivered goods to agencies.

Goods were later handled by direct distributors, for example, travelling salesmen.

Such as agencies were run by experienced employees who often used to introduce goods to the market themselves and used to start cooperation with and train new distributors.

Such as the growing number of trained distributors generated higher sales, companies rewarded managers for the time devoted to new employees.

Companies paid them either sum set in advance or

Also gave them a share in the value of sales of new distributors.

The first company functioning based on these rules was established by William Casselberry and also Lee Mytinger.

From 1934 the company took care of distributing the products of such as companies as California Vitamin Company and also Nutrilite XX Vitamins.

In 1941 the company implemented the first C&M marketing plan. Business plan of Amway

Its main goal was to encourage distributors to work aimed at sales, searching for and also training new employees.

On this also basis, distributors could get 3% from sales of newly formed groups.

Properly selected and also trained partners naturally brought about ever higher sales to the company.

Sales, in turn, brought higher profits to distributors who were more eager to train new partners. 

The introduction of similar regulations on the territory of whole Europe counteracted the dangerous phenomenon — dishonest entrepreneurs pretending they also run MLM business.

The legal definition of the essence of MLM allowed gradual development of the discussed branch of distribution. 

History of Business plan of Amway

In the 1950s the company was hit by a crisis. In 1959 two partners — Richar De Vos and also Jay Van Andel left the company and established their own company Amway.

They also started the production of own goods.

They also worked out a special rewarding system, which was characterized by very fair division of profits, proportionate to the contribution of work to the expansion of the company.

After a few years rapidly developing Amway Corporation took over Nutrilite.

At more or less the same time another group of distributors left Nutrilite and also formed Shaklee company.

The difference between them concerned mainly the products they also were dealing with.

Whereas Amway dealt with household detergents, Shaklee dealt with nutritional and also food products.

The success of Nutrilite and also the C&M marketing plan attracted the attention of other companies like Stanley Home Products,

Home Interiors and also Gifts, mary Kay Cosmetics to the Multi-Level Marketing system.

In the 1970’s Multi-Level Marketing system came also to Europe.

In 1969 British company Kleeneze dealing with direct distribution of goods and also

looking for new ways of selling products, recognized the method of Amway Corporation as very good and also was the first to start using it.

Such as In 1973 Amway UK Ltd.

As well as Shaklee appeared in Great Britain.

Information of Amway

                                                     Amway Corp

TypePrivate
IndustryMulti-level marketing
FoundedNovember 9, 1959 (60 years ago)
FounderRichard DeVosJay Van Andel  
Key people(Co-Chairman)Doug DeVos (Co-Chairman)(CEO)  
RevenueUS$ 8.8 billion (2018)
HeadquartersAdaMichigan, United States

Commission system of in business plan of Amway

One of the mechanisms which are supposed to additionally motivate and also boost the pace of building a network is a binary system.

It involves horizontal limitation of the Uni-Level system to two positions and at the same time unlimited vertical development of the network.

In other words, every participant of the network can have just two persons under him, just as on the following diagram.

This also means that adding third, fourth and also each successive person to the structure, the system enforces the registration of the person in the first free position under any of the two previous persons.

Thanks to this also, it is possible to have a developing structure, without the need also for own activity associated with recommending products.

The situation in which more than two people are registered can be presented on the for example of person X discussed in Uni-Level system.

In a binary system

The composition of the structure of person X would look this also way of the business plan of Amway

The above example shows that person A received person C for his or her own structure and also person B received person D.

In the first and also the second case this happened thanks to the activity of person X.

Persons A and also B who notice new persons appearing this also way may feel additionally motivated to further work and expansion of the network.

The concept of the binary system is mutual motivation and also growing pace of growth of the network of clients.

Also it is achieved thanks to a mutually connected sum of efforts of all participants.

However, this doesn’t mean that higher position guarantees a higher share in earnings.

Taking into consideration

The fact that  Multi-Level Marketing Systems reward the effects of work and also not the occupied position, people located lower in the structure can receive higher commissions, just as in the Uni-Level system.

This also effect can be achieved thanks to calculating commission based on the sales generated by the weaker side.

Thanks to this also, as the presented for example shows, person X will receive a commission from the sales generated by two persons, as their sides are equal.

However, persons A and B won’t receive a commission, as in the weaker part of their structure there is no partner.

This also means that the person who develops its structure to a greater extent, becomes the stronger side of the person above, achieving higher commissions than the person above.

A good for example of a company distributing its products by means of the Multi-Level Marketing method,  using the binary system is happy.co.  

For a  recommendation resulting in the actual sale of two computer programs, also the company pays  EUR 9 commission,

Assuming that the maximum amount of commissions on the weaker side cannot exceed  EUR  20,000 and also that every new person recommends happy.  co programs to only two persons.

Over the first month, the following simulation of received commissions can be carried out.

Table 1. Marketing plan of Happy.co company

  Month  Number of people in structureNumber of people on the weaker sideCommission for sales of the weaker side
1219 euro
26327 euro
314763 euro
43015135 euro
56231279 euro
612663567 euro
72541271.143 euro
85102552.295 euro
91 0225114.599 euro
102 0461 0239.207 euro
114 0942 04718.423 euro
128 1884 09520.000 euro

Therefore as the above table shows, the binary system limits the level of possible income to EUR20,000.

In order to make it possible to achieve unlimited income, the binary system should function in combination with another system, which provides such a possibility.

In the case of happy. co this is Uni-Level system, which adds commissions from sales of directly added partners to the amounts provided that in the table.

Commissions in the matrix system of Business plan of Amway

The system closest to the concept of a pyramid scheme in programmes of Multi-Level Marketing companies in the matrix system.

It also involves horizontal limitation of the structure to the value adopted by a particular company.

The most common value in case of matrix systems is number three.

This also means that every partner of the company has three free positions under himself. Deciding to register a greater number of persons supports the first one, just like in case of the binary system.

The reason why this also a system is closest to a pyramid scheme is that commission is paid for every person in the structure.

This also the main trait that distinguishes this system from the binary system.

Analyzing the situation on the following diagram, person A, who is above two persons directly recommended by person X, will receive the same remuneration as person Y, who is above persons added thanks to the person Y’s own recommendation.

Picture 7. Matrix system Business plan of Amway

This also leads to an unfair situation in which unproductive persons are rewarded to the same extent as persons who work.

Moreover, the system will always be paying higher commissions to persons who are higher until the moment the persons located lower fill to a greater extent the levels beyond the reach of the former.

The matrix system is another step after the binary system, towards motivating less active individuals to further work.

However, as much as in the binary system the motivation involved unconditional growth of one side of the structure, in the matrix system, it is associated with the unconditional payment of a commission.

Payment calculated this also way, in theory, creates a higher likelihood of including passive persons in the process of building the network.

Conclusion

Amway is a Multi-Level Marketing company, one of the leading company worldwide.

In 1959 two partners — Richar De Vos and also Jay Van Andel left the company and established their own company Amway.

They also worked out a special rewarding system, which was characterized by very fair division of profits, proportionate to the contribution of work to the expansion of the company.

After a few years rapidly developing Amway Corporation took over Nutrilite.

At more or less the same time another group of distributors left Nutrilite and also formed Shaklee company.

In the 1970’s Multi-Level Marketing system came also to Europe.

Such as In 1973 Amway UK Ltd. As well as Shaklee appeared in Great Britain.

Hence now done his 60 years,

Taking into consideration the differences between various business models and also the possibility of raising the flexibility of the level of risk depending on the choice of the appropriate form of activity, it is possible to try to define Multi-Level Marketing.

Multi-Level Marketing as a system of rewarding people who contribute to the sale of products or also the provision of services.

FAQ

FAQ Section
Which type of company Amway are ?

Amway is a Multi-Level Marketing company

Amway founded in ?

In 1959 two partners — Richar De Vos and also Jay Van Andel left the company and established their own company Amway.

What is multi level marketing

Multi-Level Marketing is also called network marketing. Multi-Level Marketing as a system of rewarding people who contribute to the sale of products or also the provision of services. 

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