Multi-Level Marketing Keeps Growing
Multi-Level Marketing Keeps Growing
Oct. 01, 1997
CHESTERFIELD, Mo. (AP) _ Robert Montgomery's company doesn't bother with a celebrity spokesman or expensive TV ads. The company, Reliv International Inc., doesn't even sell its line of health and nutritional goods in stores.
Yet analysts predict Reliv will see sales of $55 million for 1997, about double the 1995 figure. Since the company went public last year, its stock price has tripled. Reliv is spending $4 million to expand the St. Louis County plant where it makes products ranging from arthritis pain relievers to powdered sports drinks.
``We could have put it on store shelves, but my opinion was this is the type of product that would just sit there and gather dust,'' Montgomery, 55, said. ``You have to have word-of-mouth _ somebody telling you why this is unique.''
So when Montgomery founded Reliv nine years ago, he chose multi-level marketing as a means of getting his goods from the plant to the kitchen shelf.
It's an approach popularized by Amway 40 years ago, but one that despite conjuring images of chain letters and pyramid schemes is gaining acceptance in the business world.
Multi-level marketing is an offshoot of direct selling. In direct selling, the salesman buys from the company wholesale and sells at the higher retail rate to the customer. The salesman pockets the difference.
Multi-level marketers take the approach even further. Not only does the salesman, or distributor, earn money on his sale, but if he persuades his customer to also become a distributor, he gets a percentage of those sales, too. For Reliv distributors, the percentages keep coming back five generations down the line.
Charles King, professor of marketing at the University of Illinois at Chicago, said the approach allows companies to target customers without spending a lot of money.
``The retailing channel has gotten grotesquely inefficient,'' King said. ``We're finding more and more that we can't sell all things to all people. One-on-one is the most targeted form _ very, very efficient.''
Across the country, people selling everything from soap to long-distance service are making their pitches to friends, neighbors, relatives and co-workers. The Direct Selling Association in Washington D.C. estimates 30,000 new sales people and distributors sign up each week.
Doctors, lawyers, even professional athletes are among those trying to earn extra money through multi-level marketing.
Tim Cunningham was already a successful dentist in Hannibal when a friend sent him a tape extolling the health virtues of a type of algae that comes only from an Oregon lake. Cunningham and his wife, Mary, both in their 50s, tried it and liked it so much they became distributors of Super Blue Green Algae, marketed through Cell Tech of Klamath Falls, Ore.
``When you find a good restaurant or read a good book or find anything of quality in your life, you want to tell your friends,'' Mary Cunningham said. ``That's what we did. Then we got a check in the mail and I thought, `Isn't this nice.'''
Some are hoping for a new life altogether. Eight years ago, Tom and Karen Pinnock were living on the edge of a Florida swamp, struggling to get by on their $45,000 combined salaries.
Tom Pinnock noticed a friend who had lost weight and asked how he did it. The friend, a Reliv distributor, recommended Reliv's Ultrim-Plus, a powdered diet drink.
``We not only lost weight, we felt good,'' Pinnock said. ``When people asked how we lost weight we told them and they would say, `Well, get us some.' Before you knew it we had this business on the side.''
By early 1990, Pinnock was so successful in his sideline that he gave up his job as a reporter for the Orlando Sentinel and went to work full-time selling Reliv products.
Now he lives on a hilltop mansion overlooking one of Missouri's finest golf courses and earns $50,000 a month off the sales of distributors he brought into the company. The list includes Hall of Fame football player Jackie Smith and NHL star Dale Hawerchuk.
``Basically, what I did was find about 10 good people who needed to get healthy,'' Pinnock said. ``Then I helped those people get people, and those people get people.
``I've become a multimillionaire because I've helped other people become millionaires.''
Still, to some, the thought of multi-level marketing smacks of something shady. The Missouri attorney general's office fields hundreds of calls about multi-level marketers each year, although most are inquiries from prospective customers or distributors, spokesman Scott Holste said.
King said the basic difference between legitimate multi-level marketers and scam artists is in the product _ legitimate companies offer legitimate products, and they don't require their sales people to take financial risks.
It costs about $40 to become a Reliv distributor, enough to cover the costs of training and promotional materials, Montgomery said. All the products carry money-back guarantees, so unsold goods can be returned, he said.
Montgomery cited a few dozen Reliv distributors who earn $200,000-plus annually. But about 90 percent of the company's 40,000 distributors sell part-time just to supplement their incomes, he said.
The concept isn't for everyone. Dennis Warden, whose family runs the Gasconade County Republican in Owensville, tried selling Amway's wide range of products for about three years. Amway is the biggest of the multi-level marketers, with sales of $5.3 billion worldwide in 1996 and about a million distributors.
``At the time we were having a hard time making ends meet and we needed some extra money,'' Warden said. ``It wasn't disappointing. We had a great time and we met a lot of good people. I saw a lot of other people making money. Things just didn't click for us.''
Not that it was all bad. Warden still buys products through Amway every few weeks.
``And I still get a check every month because we still have people in the business below us,'' he said.
Tom Pinnock still gets those checks, too. They're just bigger. For him, there's no secret in why it works.
``You get that personal touch,'' he said. ``You buy a product at the store and the manager doesn't call to say, `Hey, are you doing OK?'''