Few weeks ago, The Edge reported that Multi-level marketing (MLM) company CNI Holdings Bhd has missed its profit forecast for the second year running since its listing in 2005.
The main reason given was : price undercutting, a problem that plagued CNI for most of 2005 and continues to eat into the company's profits. (Price undercutting happens when CNI distributors sell the company's products below the recommended retail price in order to increase their sales and profile.)
Mobile stockist
Price undercutting not the only problem of CNI. In fact, majority of MLM company operate in Malaysia face such a problem, especially company that have mobile stiockist.
MLM's distributor only able to earn commission when your downline purchase an item. When another person from a different group buy a goods from you. You get nothing if he/she is not your downline.
However, if you are a stockist. You can sell to a member from different group yet you still get to earn a stockist commission. But you need to meet certain requirement before you entitle to become stockist.
The short cut is, you become mobile stockist.
You can become a mobile stockist if you stock up certain volume of stock at bulk purchase method. The advantages is, if you buy stock in certain volume, your personal sales also move up and you might move up a latter in the MLM hierarchy......Like to Gold Manager or Diamond Manager. Thus, your commission rate also go up other than stockist commission.
However, a person who buy your way up in the MLM business to Gold or Diamond Manager get promoted to such level because of his capital or financing capability, not his marketing capability. Thus, such high level Manager still know little on how to market the company product, causing his stock become slow moving.
In order to increase cash flow, such mobile stockist has to sales off the goods...fast. If he has cash flow problem. One way to sales the goods fast is providing huge discount to customer or what we call price cutting in CNI case. The situation is aggravated if the product have an expiry date. If the company has a large pool of mobile stockist. This can become a price war among a large pool of mobile stockist as everyone compete to cut their price to attract same pool of customer causing other distributor has difficulties market their product as customer can always get the product at a lower price else way. Distributor will start leaving the company as they unable to make profit if they unable to get the product at bulk purchase price.
To get ride of such price cutting problem. Industries veteran said they wouldn't joint a company that have mobile stockist system. However, mobile stockist system is the way a MLM company get back their working capital fast. Few company can resist such temptation to get such large amount of cash. Thus, they will act on short term rather than long term. Looking at the problem of the most successful company in the industries. Company has to find a long term solution on such problem.
Robert Kiyosaki, author of "Rich Dad, Poor Dad" stated in one of his book that Henry Ford said if he become bankrupt. He can become millionaire again within 5 years. This is because he learn how to become entrepreneur and become rich. If you become rich by strike a lottery. Chances are, you would lost all your wealth within 5 years. Worst, you do not have the skill to rebuild your wealth.If you buy your way up in MLM hierarchy, like what a lot of our undergraduate doing. You still do not have the marketing skill, despite you might be a...... Diamond Manager of the company. Robert Kiyosaki state in "
The Business School" (This book is about MLM industries by Robert)that one of the advantages of joining a MLM company is the opportunity to learn the marketing and leadership skill. Give yourself a time frame say.....two years. If you have the two skill. Financial reward will come easily and your foundation become stronger than those who buy their way up.Tag: Malaysia: MLM Biotechnology klse Direct Selling
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