Introduction to Concepts of Network Marketing OVERVIEW OF NETWORK MARKETING WITH FOREVER LIVING PRODUCTS

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Introduction to Concepts of Network Marketing

OVERVIEW OF NETWORK MARKETING WITH FOREVER LIVING PRODUCTS

Rex Maughan, President and Founder of Forever Living Products, devised his network marketing plan over twenty years ago. His is recognised as one of the most generous Marketing Plans in today's network marketing arena. Perhaps because of this, FLP is the number 1 distributor of health, nutrition, skincare and beauty products in every country where it has been established long enough. During the mid to late 90s Network Marketing has come of age.

So why does network marketing work so well? What is so special about this method of moving goods from the manufacturer to the customer? Why have network marketing companies in general, and FLP in particular, grown even faster during the recession than they did in the booming 80s? This is the reverse of the trend in conventional marketing enterprises, like retail shops and stores, and mail-order catalogues. Even huge franchises like MacDonalds are having difficulty finding new high-level locations: the major High Streets and Shopping Malls are finite entities, and the secondary areas will not generate the required turnover.

Perhaps it is because Network Marketing offers so many of the advantages of franchising, without the disadvantages, that it is enjoying such success. For example, as an independent distributor of Forever Living Products:

·         you are your own boss- nobody can make you redundant - yet you are part of a very large, very successful, very well-established company, with a billion-dollar worldwide turnover

·         you are running your own business- yet you are supported by your Sponsor into the business and the superb FLP Area Manager system

·         you have no initial outlay, there are no annual fees, and you will never need to hold stock - you buy products, as and when you need them, from your local Product Centre

·         you can work the hours you wish, at your own pace, to achieve your personal goals, and you will have very low overheads since you will almost certainly work from home

·         you have freedom to move location within the USA or to another country - your business continues to earn income for you - wherever you are

·         the Area Managers run regular free Personal Profit Sessions in your area - you can take along your guests to introduce them to FLP, and they will hear presentations by experienced top-level speakers on the business, the marketing plan, and the products

·         local training is available all over the branches in the world  to help you learn more about the products, and the concepts of network marketing and team-building

·         there is absolutely minimal paperwork- FLP does it all for you

·         you can only move UP in FLP - all positions in the Marketing Plan are permanent, so there are no penalties for taking a month or two away from your work

·         you are never required to pay your team member's bonuses- bonus checks are sent out by FLP, directly to each individual distributor, on the 15th of every month - without fail

·         bonus payments are based upon the Suggested Retail Value of all products purchased at wholesale price during the previous
month

·         invoices are logged daily, so if you achieve a higher level in the Marketing Plan in mid-month, your higher bonus will be applied immediately to all subsequent invoices

·         distributors below you in your team can never pass you by to reach a higher level - you will automatically be moved up to the same level

In short, you are empowered to develop your business to your specific requirements to achieve the financial and personal goals you set.

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THE CONCEPTS OF NETWORK MARKETING

Marketing in general is the provision of goods or services to meet consumer needs. For a product-driven company, marketing may be more closely defined as the process whose primary objective is to distrubute the maxium volume of product from the manufacturer to the consumer. Assuming no limitations in manufacture of product and a limitless reservoir of consumers, the effectiveness of the marketing process is determined by the distribution mechanism. The general marketing process is illustrated as follows:

In the conventional marketing process, the distribution mechanism consists of four major elements each of which has its own particular structure: advertising, sales force, wholesale and retail operations. The general structure of the distribution mechanism in conventional marketing is static - each of the elements is connected in line and each element is designated a fixed set of tasks. The static structure of the distribution mechanism is independent of the customer.

In contrast, the distribution mechanism in network marketing consists of a single major element: the individual independent distributor. The independent distributor performs all the functions required to sell and distribute the product to the customer. Each independent distributor is linked to other distributors through a dynamic hierarchical non-linear network which grows by geometrical progression. [The details and functionality of this dynamic network are described below] Moreover, the process of generating new customers provides a natural path for developing the distributor network. Each new customer represents potentially a new distributor source. Thus a positive feedback loop is established which naturally expands the distributor network. The dynamic structure of the distributor mechanism in network marketing is therefore dependent on the consumer element. This is shown in the following diagram:

The extent of the positive feedback relationship is determined by the particular company. For Forever Living Products, which is product-led, this consumer-dependent relationship is strong.

The dynamic hierarchical network is characterised by geometrical progression. For example, a distributor signs on two new customers as distributors and they in turn each sign on two further distributors and so on. In this simple growth progression, by the fifth generation, the total number of distributors in the network has reached 31. This sum is easily calculated from the formula:

where S is the total number of distributors in the network reached by the n th generation and R is the ratio between terms. In this example R = 2, n = 5 and S = 31. If each distributor signed up 5 instead of just 2, then R = 5, n = 5 and the total number of distributors is S = 781. This represents a dramatic increase for just 3 additional people per distributor and demonstrates the power of geometric progression. It is clear that the network grows rapidly and that in practice the network is more complex since: each distributor at each generation may sign on more or less than the number given in these examples, some distributors may cease to operate and the network generation may extend well beyond the 5th generation. A simple more realistic 4th generation distributor network may look like this:

The 1st generation shown in the diagram as the white circles is defined as the frontline in network marketing parlance and represents those distributors directly signed up under YOU. The 2nd generation level shown as the cyan circles and the 3rd generation level shown as purple circles constitute the remainder of the downline. The specific advantages of the network marketing mechanism are as follows:

·         Each distributor builds his or her team network using the principle of duplication of training methods at every level of the network. In the case of Forever Living Products, integrity is essential in the duplication process. Within the broad pattern of the duplication process there is a modicum of room for individual implementation.

·         Each distributor uses the products and is convinced of their efficacy.

·         Direct contact by word of mouth provides the most powerful proven method of advertising. Sharing experiences with personal contacts, friends and family provides the cornerstone of most distributor networks.

·         A personal bonus scheme is applied on the personal volume of product sold. The personal bonus percentage increases as the distributor rises up the ladder. An additional group volume bonus scheme is applied depending on the performance of the network belonging to the distributor and varying bonus levels applied within the given network. It is the group volume bonus that provides an additional positive feedback mechanism which drives the incentive of each distributor to continue expanding their network.

Forever Living Products' bonus schemes are generous compared to those of other network marketing companies. The particular marketing plan operated by Forever Living Products is discussed in Part 2.

The recruitment process consists of two essential ongoing activities: building and expanding the network team of individual independent distributors as well as building and expanding the consumer customer base. The understanding of the relationship between these two activities is critical to the development of a sound network business.

To develop the distributor network at the expense of the development of the customer base will severely limit the flow of money throughout the system and may consequently inhibit the recruitment process, as pointed out by Edward Ludbrook in "The Fundamentals of Network Marketing"(see reference at end of this section). Similarly, to restrict the recruitment process solely to the development of a consumer customer base will result in limiting peak performance levels resulting from the cost balance of maximum sustainable customer maintenance levels and customer losses. Clearly, the recruitment process is compromised by neglecting either activity. For optimum recruitment performance both the building and expansion of the customer base and the independent distributor network are essential and should be developed in parallel. Moreover, in addition to recruiting directly for new distributors, the consumer base further provides a built in positve feedback mechanism for the growth of new independent network distributors as previously discussed above. As suggested in the current diagram, a natural pathway exists between retail and wholesale customers. When total retail sales to a given customer reaches a specified value, the customer may then be offered the opportunity to purchase at the wholesale rate, market the products at the suggested retail rate and join the network team. Thus, the conversion from retail customers to wholesale customers represent a strong possibility to create additional new independent distributors - this is the wholesale positive feedback loop. Of course there will be a fraction of retail customers who recognise directly the advantages of becoming an independent distributor and join the network team straight away - this is the retail positive feedback loop. The success of the recruitment process is determined by two primary growth lines: the independent distributor growth time line TD, and the customer growth time line TC. These growth time lines are indicators of the growth rate of new distributors and customers respectively. The customer growth time line TC is further subdivided into retail TR and wholesale growth timeTW lines respectively. In practice, effective recruitment process management requires the ongoing maintenance, continous followup and promotion of all the growth time lines.

What emerges from the above discussion is a concept of a network marketing engine. This engine is defined by the dynamic hierarchical distributor network which utilises positive feedback mechanisms in the recruitment process to convert customers into distributors. The dedicated application of the principle of duplication ensures that the growth of the dynamic hierarchical distributor network progresses approximately at a geometric rate. What drives the network marketing engine is the incentives provided by the particular marketing plan. In the case of Forever Living Products, this marketing plan is generous and well formulated (See Part 2 below). Independent distributors not only receive a personal volume bonus on sales which is related to their position in the marketing plan, but more importantly, an individual distributor receives a group volume bonus which is dependent on the total sales of the independent distributor's downline as well as his/her position in the marketing plan. It is this latter group volume bonus which accounts for impressive earnings. The network marketing engine in the case of Forever Living Products is not just a concept, but a fully developed working reality.

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Forever Living Products Network Marketing Plan

The Forever Living Products (FLP) Network Marketing Plan, shown graphically above, is an excellent plan: it aims to reward distributors generously at every level of the business. There is no fee to sign up as an FLP Distributor, there are no annual fees to pay and it is not necessary to hold stock. Everyone in the Distributor Level progression from Assistant Supervisor to Manager buys their FLP products at the same wholesale price. The additional monthly Personal Volume Bonus varies from 5% to 18% depending on Distributor Level position along the progression starting from Assistant Supervisor and is calculated on the Suggested Retail Prices of all purchases each month. Hence the total profit on purchases will vary from 35% at the Assistant Supervisor level to 48% at the Manager level. In addition, as the network team grows, a Group Volume Bonus(Team-Leading Bonus) is applied according to the Distributor Level in the team. It is this Group Volume Bonus that provides the drive power of the marketing network engine. The colour coded graph above displays the basic structure and mechanism of the marketing plan up to Manager Level [Advanced Manager Levels are discussed in Part 3 of this article]. The following discussion illustrates the Distributor Level progression as a function of Case Credits over a period and the corresponding Personal Volume Bonus(PVB) and Group Volume Bonus(GVB).

DISTRIBUTOR LEVEL PROGRESSION

Independent Distributor: You join the company as an Independent Distributor by signing the single-page Application Form, which is countersigned by your Sponsor into the FLP business. You receive your unique FLP identity number and you buy products from your Sponsor at the Suggested Retail price.

Assistant Supervisor: To go from Independent Distributor to Assistant Supervisor you must purchase products to the value of 2 Case Credits (see explanation of Case Credits - CCs - below). You might buy the Touch of Forever Combo Box, or two of the Mini-Combos (either option will immediately qualify you), or loose products over a period of time. At this point you receive the Authorisation to Purchase (ATP) at the wholesale. Thereafter you will receive a monthly Bonus check direct from FLP representing 5% Personal Volume Bonus on the Suggested Retail Prices of all purchases in the previous month.

Supervisor:You reach Supervisor level when you and the members of your team purchase products totalling 25 CCs over any two-month period. At this level the Personal Volume Bonus on all the products you purchase is 8% and you receive an additional Group Volume Bonus(Team-Leading Bonus) of 3% on all products purchased by your Assistant Supervisor team members. If someone in your team becomes a Supervisor, you cease earning the Group Volume Bonus on their team until you progress to Assistant Manager level.

Assistant Manager: To rise from Supervisor to Assistant Manager you and the members of your team purchase products totalling 75 CCs over any two-month period. At this level the Personal Volume Bonus on all the products you purchase is 13% and you receive additional Group Volume Bonus(Team-Leading Bonus) of 5% on all products purchased by frontline Supervisors in your team, and 8% on frontline Assistant Supervisors.

Manager: To make Manager you and the members of your team purchase products totalling 120 CCs over any two-month period. At this level the Personal Volume Bonus on all the products you purchase is 18% and you receive additional Group Volume Bonus (Team-Leading Bonus) of 5% on all purchases by frontline Assistant Managers in your team, 10% on frontline Supervisors, and 13% on frontline Assistant Supervisors.

It is clear that the Group Volume Bonus kicks in at the Supervisor level and that higher levels along the Distributor Level progression accrue an increasing Group Volume Bonus from levels below. The Group Volume Bonus is the positive feedback mechanism which provides the incentive to maintain, develop and expand the downline network.

CASE CREDITS, PROFITS & BONUSES - Examples

Case Credits: The international currency unit used by FLP for calculating Distributor turnover and bonuses is the Case Credit. Every product in the FLP range has an assigned Case Credit value which is related to the monetary value of each item. In the USA, the wholesale value of 1 Case Credit = $ 125 excluding sales taxes. The suggested retail value of 1 Case Credit = $ 178.57. The purchase of 1 Case Credit value of product at the wholesale price thus corresponds to a 30% discount on the suggested retail price.

Profits and Bonuses: Your Bonus check is based on the suggested retail value of all purchases you personally make in a month and the total retail value of purchases made by your network group. Your Total Profit consists of three components: the Baseline Profit (BP) which is defined as the difference in value between all suggested retail and wholesale purchases; your Personal Volume Bonus (PVB) percentage contribution and your Group Volume Bonus (GVB) percentage contribution. Both the Personal Volume Bonus and Group Volume Bonus contributions are calculated on the sales tax exclusive suggested retail value of purchases. Your total profit is the sum these three components:

(1) Baseline Profit (BP) = [ R - W ] = 30%R where R and W are the total sales tax inclusive suggested Retail and Wholesale value of purchases you make respectively, and 30% is the standard discount level whichever position you are in the Marketing Plan.

(2) Personal Volume Bonus(PVB) = X%[R/1.Z] where X% is the personal volume bonus percentage which varies on distributor level over the range {5%, 8%, 13%, 18%} and Z is the decimal equivalent of the percent sales tax, for example, Z = 0.10 for a 10% sales tax.

(3) Group Volume Bonus(GVB) = Y%[R*/1.Z] where Y% is the network team or group volume bonus percentage which varies as a function of distributor level over the range {3%, 8%, 13%} and R* is the total sales tax inclusive suggested Retail value of all purchases made by everyone in your network team below your distributor level.

Consequently,

Total Profit = 30%R + X%[R/1.Z] + Y%[R*/1.Z]

The following practical example illustrates the contribution of each of the components in generating the total profit. For simplicity, we assume the case in which the percentage sales tax is zero. This means that Z = 0, both R and R* exclude sales tax, and the formula for the total profit becomes:

Total Profit = 30%R + X%[R] + Y%[R*]

This simplified formula is used in the following calculations.

Personal Volume Bonus: Say you spend $1050 wholesale on products; their suggested retail value is $1500, so a Baseline Profit (BP) of $450 is earned whichever position you are in the Marketing Plan. However, your Personal Volume Bonus (PVB) will vary with your marketing plan position and the corresponding value of the personal volume bonus percentage X%. The profit obtained from the Personal Volume Bonus and Baseline Profit are as follows:

.............................................................. X%...................... PVB........... BP...........................

Assistant Supervisor: .........5% on $1500 = $ .75 plus $450 = $525
Supervisor:............................8% on $1500 = $120 plus $450 = $570
Assistant Manager:.......... 13% on $1500 = $195 plus $450 = $645
Manager:............................ 18% on $1500 = $270 plus $450 = $720

Group Volume Bonus: Of course, from Supervisor onward you will be making additional Group Volume Bonus (GVB) based upon the suggested retail value of purchases by everyone in your network team below your Distributor Level. Let us further assume that the total retail sales of all the frontline Assistant Supervisors in your team is $2000. So, [R*] = $2000 (Front line distributors are those distributors directly signed up under you). The profit obtained from the Personal Volume Bonus, the Group Volume Bonus and Baseline Profit terms are given below. This is how it will affect your profits if your Distributor Level is Supervisor or higher:

........................................................... X%...................... PVB............Y%..................... GVB........... BP...............................

Supervisor:........................... 8% on $1500 =$120 plus_.3% on $2000 = $ .60.plus $450 = $630
Assistant Manager:.......... 13% on $1500 = $195 plus _8% on $2000 = $160 plus $450 = $805
Manager:............................ 18% on $1500 = $270 plus 13% on $2000 = $260 plus $450 = $980

This example shows only the increase in Personal Volume Bonus and GroupVolume Bonus for the same level of frontline Assistant Supervisor turnover along the distributor progression (Supervisor => Assistant Manager => Manager). It does not take into account that Assistant Managers will have further contributions from their frontline Supervisor team turnover and that Managers will have contributions from their frontline Supervisor team turnover and from their frontline Assistant manager team turnover. A more detailed example of the team or group volume bonus based on frontline distributors at different levels with a more complex team structure is given below.

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Passive Income & Advanced Levels in Forever Living Products Network

Marketing Plan

Royalty Bonuses - Manager Levels: There are 7 Manager Levels: Manager, Senior Manager (2 frontline Manager businesses in your downline team), Soaring Manager (5 frontline Managers), Sapphire Manager (9 frontline Managers), Diamond-Sapphire Manager (17 frontline Managers), Diamond Manager (25 frontline Managers), and Double-Diamond Manager (50 frontline Managers).

You earn Bonuses on the first three generations of Manager in your business: these are calculated as a percentage of the total turnover in each of the Manager Business Units. So you earn on your own immediate frontline Managers (1st generation), then on their frontline Managers (2nd generation), and on frontline Managers below them (3rd generation). The first six levels are shown below:

Passive Income: As you work with your Team, helping them to become Managers in the business, you start to access Royalty Bonuses. FLP pays these additional bonuses on three generations of your Manager business at a starting level of 6% on your 1st generation Managers, 3% on the 2nd generation, and 2% on the 3rd generation. As you develop more and more Manager-businesses, this will rise to a maximum of 9%, 6% and 5% Royalty Bonuses respectively for a Diamond Manager. This passive monthly income will continue throughout your lifetime, and can be willed on to anyone 18 years of age or over who is qualified to be a Distributor.

The 7th Manager Level - Double Diamond Manager is reached when the distributor develops 50 recognised 1st generation sponsored managers. At this level the requirement to turn over 4CCs per month is waived thereafter.

Company Cars - the Earned Car Scheme: FLP will provide 36 monthly payments of $300 (Level 1), $450 (Level 2), or $600 (Level 3) if you - with your Team - hit specific turnover targets in 3 consecutive months. At the end of the 36 months the car is yours to keep permanently. In fact, after three years most people will have requalified, so FLP will pay for another new car, frequently at a higher level than the first. At any time during the 36 months, if you achieve the appropriate higher level turnover over three consecutive months, you will bw moved up immediately to the next earning level.

International Travel & other Prizes: FLP runs incentives throughout each year where the Distributors reaching specific turnover targets will be rewarded with fully paid trips to the various national and international rallies - including flights, first-class hotel accomodation, and even spending money. Other incentives open to all Distributors attract prizes such as weekend trips to exotic locations, or valuable items such as computer systems.

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Practical Requirements of Building a Successful Business in Forever Living Products: The 4 Case Credit Strategy

CASE CREDITS The international currency unit used by FLP for calculating Distributor turnover and bonuses is the Case Credit. In the USA the relationship between the monetary value of each product is exact: at wholesale 1 Case Credit is $ 125 excluding sales tax. The corresponding suggested retail sales tax exclusive value of 1 Case Credit = $ 178.57.The purchase of 1 Case Credit value of product at the wholesale price thus corresponds to a 30% discount on the suggested retail price.

When you turn over 4 CCs each month in your business, this will be worth roughly $ 714 at suggested retail and $ 500 at wholesale. This means you will have made around $ 214 gross profit on the monthly sales and you will receive a bonus check of just under $ 36 (based on the suggested retail price excluding sales tax - at the 5% bonus level of an Assistant Supervisor). That amounts to just over $ 250 total profit on an outlay of $ 500.

4 CC BUSINESS It is vital for every new Distributor to aim for a 4 CC business: (i) to generate the essential turnover that drives money around the system and creates our bonus checks, and (ii) to lay the foundation for team-building and moving up the FLP ladder, and (iii) to progress up the FLP marketing plan levels in order to qualify for increased team-building bonuses on their downline.

A good proportion of this turnover should come from Customer Sales - as well as products for your own use, and the sponsoring of new distributors. Note: the 4 CCs must all be in your name - this is your personal turnover each month.

PERSONAL USE You need to use and experience the benefits of FLP products so that you can verify the quality of the products and share your enthusiam for them with prospective customers. If you start by purchasing the Mini Combo Paks, you will have all the most popular items in the range to use and share with family and friends. Aim for 1 CCs per month from personal use.

RETAILING A customer base of 20 or more is recommended for the development of a sound networking business. You are aiming for customer loyalty - people who re-order every month or so without prompting. Inevitably some customers will only buy occasionally, and some will drop out completely (they may even join your team!) - so keep on looking for new customers. It is essential to have a sound follow-up system: if you look after your customers well, they will come back to you over and over again. Set a time frame to achieve 20 customers - three months, perhaps. These customers should generate 1 or 2 of your required 4 CCs total. Be ready around week 3 of the month to boost the CCs by additional sales through, for example, Aloe Awareness evenings, fundraising activities, a table at local events. Aim for 2 to 3 CCs from personal Retailing and own use.

SPONSORING Try to Sponsor at least 1 new person a month into your team. Ideally, they will buy a Combo Pak from you to get their business off to a flying start - worth 2 CCs to you. If they cannot afford the outlay of a Combo Pak and need to retail their way into the business, you will aim to do three Product Launches with them in the first month or two. This should easily give them the 2 CCs they need to qualify for Authorisation to Purchase at the wholesale price. With the help of your Sponsor, you will start coaching them from Day 1 to do what you have done - achieve 4 CCs per month personal volume and Sponsor a new person each month. Aim at least for 1 to 2 CCs per month from Sponsoring.

TRACKING You need to keep a running total of your CCs to ensure you are achieving at least 4 CCs personal volume every month. Train your team to track their own total CCs and to send you the pink copies of their orders promptly so you can to keep track of your team CC total. Your Sponsor wil be working with you from day 1 to plan your business and to help you with team-building and retailing so you can achieve your goals.

Keep in mind that the achievement of new position levels in the marketing plan is based upon total CCs over a 2-month period (Base month & Qualifying month). So, when tracking CCs, carry forward the total from the previous month. Careful tracking is needed to ensure you reach the correct 2-month total CCs for success in achieving the next level in the marketing plan. Keep coaching your team members to do the same. Remember, you can use the second qualifying month for one position in the marketing plan as the base month for the next.

TRAINING You need to check out the local training available in your area, organised by your General Managers and their team. Also, your Sponsor will provide you and your budding network team with regular training sessions at agreed intervals.

This is a vital role in successful network marketing: the Sponsor takes responsibility for helping new Distributors identify their goals, gives guidance in planning their strategy for achieving these, and ongoing support and training. The aim of the Sponsor is to help the Distributor develop their team and move up through the FLP marketing plan together. For most people, this is the most enjoyable and rewarding aspect of a career in network marketing.

FLP has a number ofexcellent training videos and audiotapes that cover both the business side andinformation on the products. These are also available from the local FLP Officeor Business Center.