HISTORY of MLM
How MLM (Network Marketing) got started and grew to meet the needs of the customer and the entrepreneur. It’s fascinating ! Network Marketing or Multi-Level-Marketing (MLM) has been around since late 1800. Even though there’s no exact date or company as of when or who started it but it is safe to say that it all started with a simple concept of selling product from door to door in 1890’s when David Mc Connel started to sell perfumes in New York City. In 1906 this company had about 10,000 representatives and changed its name to Avon in 1937 until today. As time goes by and people started to become more creative and sophisticated, MLM business has seen a lot for changes in its marketing plan and business model. From door to door selling to home party to group meetings to the latest craze, online marketing. The Pioneers Like all-powerful concepts, Network Marketing has also met resistance due to a lack of understanding. There is no mystery to Network Marketing. It's just another form of sales and distribution. Network Marketing is almost 70 years young. In the early 1940's a company by the name of California Vitamins recognized that all their new sales representatives coming aboard were friends and family of their existing sales force, primarily because they wanted the product at wholesale cost. They also discovered that it was easier to create a sales force of a lot of people who each sold a small amount of product than it was to find a few superstars who could sell a lot of products. So they combined those two ideas and designed a sales compensation structure that encouraged their salespeople to invite new representatives from satisfied customers, most of whom were family and friends, who each had the same right to offer the product and representative status to others, which allowed the sales force to grow exponentially. The company rewarded them for the sales produced by their entire group or network of sales representatives. Network Marketing was born! But let’s talk about this company a bit later and now look at how Direct Sales idea was implemented into life and why. A company that creates a product must make that product widely known. Sales organizations made up of individual salespeople were (and still are) the backbone of business. The number of salespeople in the United States began to grow rapidly starting in the late 1800s. 1861: 1000 1869: 50,000 1885: 100,000 1903: 300,000 |
1860 - Traveling salesmen were known as canvassers, peddlers, hawkers and drummers. Some of these former peddlers created trained sales organizations. Had it not been for their influence, many of the corporate names we’re all familiar with today might never have been.
-Henry Heinz, a former peddler, created an organization of 400 salesmen to sell various vegetable products, like ketchup and pickles, to people who didn’t grow their own. - Asa Candler, another former peddler, built a sales force to sell Coca-Cola syrup to restaurants after buying the formula from pharmacist John Pemberton for $2300 in 1886. Out of these organizations came companies that allowed their salespeople to have their “own” business. 1868 - J.R. Watkins founded the J.R. Watkins Medical Company, one of America’s first natural-remedies companies where associates marketed directly to consumers. 1890 - David McConnel started the California Perfume Company, based out of New York. In 1906 he had 10,000 sales representatives selling 117 different products. The California Perfume Company changed its name to Avon Products in 1937 1905 - Alfred C. Fuller was another former peddler who greatly influenced future sales organizations. Fuller started the Fuller Brush Company and hired 270 dealers throughout the U.S. to follow his business plan on commission only. By 1919, the Fuller Brush Company had made $1 million in sales; by 1960, $109 million |
1931 - Frank Stanley Beveridge was the former vice president of sales for Fuller Brush Company. He and Catherine L. O’Brien founded Stanley Home Products. Influenced by the economic hardships of the Great Depression, Frank and Catherine envisioned an opportunity for people to start their own businesses with minimal investment, selling products that people use every day. This vision was obviously taken from the Fuller Brush Company. Stanley Home Products sold household cleaners, brushes, and mops. Some Stanley dealers began giving demonstrations for clubs and organizations rather than for individuals to increase sales volume. Other Stanley dealers quickly embraced this idea as a way to maximize the selling presentation. These dealers took the “clubs and organizations” concept into homes by having the home owner invite friends and family over….and the “party plan” was born. Stanley Home Products became the training ground for many well-known company leaders. Mary Kay Ash, founder of Mary Kay Cosmetics; Brownie Wise of Tupperware; Jan and Frank Day, founders of Jafra Cosmetics; and Mary Crowley, founder of Home Interiors all received early training as Stanley Home Products dealers - again spurred by the Fuller Brush company. |
Carl Rehnborg
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1934 - Carl Rehnborg started the California Vitamin Corporation selling what today are known as vitamin supplements. In 1939 the company changed its name to Nutrilite Products Company, Inc
Inventor of Multivitamins and Multilevel Marketing While working in China as a salesperson for Colgate between 1915 and 1927, Carl F. Rehnborg observed that urban dwellers showed terrible signs of malnutrition, but that this malnutrition was not as widespread among the poorer citizens in rural areas. He began to study the relationship between health and nutrition and realized that there were many plant-based substances critical to the human diet. He thought about making a plant-based supplement for the human diet and, on returning to the United States in 1927, set up a laboratory on California's Balboa Island to study which such supplements were needed. |
The more Rehnborg studied, the more he could see that the average person needed a single simple solution to the complex problem of dietary supplementation. After years o f research Rehnborg came up with the then-revolutionary idea of combining every needed mineral and vitamin into a single product. He called his company California Vitamins and produced one of the world's first multivitamin/multimineral food supplements in 1934. The name of the product and the company was changed to Nutrilite in 1939.
Back then, the concept of a single food supplement containing many different vitamins and minerals required a great amount of customer education—especially to a public just learning that vitamins existed. Moreover, since Nutrilite's new multivitamin/multimineral product was a hybrid between a food and a medicine, it wasn't carried by either traditional supermarkets or pharmacies. In order to distribute his product, his wife suggested that Rehnborg set up his own sales force of people-people who were already zealous consumers of Nutrilite themselves. This strategy created a constant need for Nutrilite to recruit and train new salespeople as the company expanded. |
Carl Rehnborg
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In 1945, Nutrilite contracted with Mytinger & Casselberry to become the exclusive American distributor of Nutrilite products. Mytinger & Casselberry created the first documented MLM compensation plan. It worked like this: A Nutrilite distributor bought his supplies at a 35% discount. (Ex: A distributor bought a box of vitamins for $13 and then sold them for $20 = $7.00 profit.) To encourage the distributor to sell more, Nutrilite paid an extra monthly bonus of 25% on the total sales. 20 customers x $13.00 (wholesale value) = $260 x 25% =$65.00 profit.
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Rehnborg's second revolutionary idea was a marketing plan that would allow salespeople both to sell the Nutrilite product and to recruit and train new salespeople - earning one line of income from their product sales and another line of income from the sales of the people they recruited and trained. Each individual salesperson, now called a distributor, would be treated equally by the company based solely on their sales and the sales of the people they recruited. Once the distributor proved that he could get 25 customers he was allowed to break away from the person who recruited him and become direct distributors for the company himself - which meant that he could find others who wanted to sell the Nutrilite products and then they would buy their products from him. In essence, once he proved that he could get customers he was “promoted” and allowed to find other distributors and to train them to get customers. As an incentive to train his distributors well, once he and his distributors amassed 150 customers, he received an additional 2% of the total sales volume. This is not a pyramid - it’s a quota-based system of management. Those who sold the most boxes of vitamins got a higher reward than those who sold little. The MLM compensation plan was simply an extension of the Fuller Brush Company rewarding production. With MLM (Network Marketing), the company could motivate a sales person to not only sell more products, but to train others to sell more products as well. |
Jay Van Andel and Rich DeVos
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Jay Van Andel and Rich DeVos
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In 1949, two young entrepreneurs from Grand Rapids, Michigan, Jay Van Andel and Rich DeVos, high school buddies and business partners, returned from military service and become distributors , purchased a Nutrilite sales kit and quickly rose to the highest sales levels in the company in 1950. Ten years later in 1959, while keeping their existing Nutrilite sales business, Jay and Rich started a new company to sell household products based on a similar marketing plan. They called their new company Amway, for "American Way." In 1972 Amway Corporation acquired Nutrilite. In 1973, Carl F. Rehnborg passed away at age 86, and Amway purchased Nutrilite Products, Inc.
1945- Earl Tupper created a line of flexible, lightweight plastic containers with tight-sealing lids. He started selling his products through conventional retail outlets, but realized the products needed emonstration. Earl Tupper then teamed up with Brownie Wise (formerly with Stanley Home Products) and launched Tupperware Party Plan, now a world-wide billion-dollar company operating in 40 countries. 1956 - Dr. Forrest Shaklee developed a method of extracting minerals from vegetables and used MLM (Network Marketing) to distribute his products. |
1963 - Mary Kay Ash creates Mary Kay Cosmetics. By 1996, company sales were in excess of 2 billion dollars.
Abuses of exponential growth haunted network marketing for years and it is still misunderstood today. One of the first abuses of the concept of exponential growth to generate income may have been the chain letter craze that swept the U.S. after World War I. The letters promised great profit if you would send a dime or a dollar to the person at the bottom. The chain letters spread as far as Europe, and by the 1930's the U.S. post office estimated that 10 million letters were being mailed each day. Postal Authorities and law enforcement agencies battled the fraudulent schemes and the chain letter phenomenon began to subside in the early 1940s. Unfortunately, this scam spawned schemes which came to be known as pyramids, where money was given for the right to involve others, as no valid product which was being purchased from the company. In 1974, Senator Walter Mondale declared such companies to be the nation's number one consumer fraud. Law enforcement agencies moved quickly to clean up the abuses. In the mid 1970's, with no clear understanding of what constituted a legitimate use of network marketing, the Federal Trade Commission and state agencies across the nation turned their eyes to almost all network marketing companies. |
In 1975, the FTC filed suit against Amway, alleging that the company was an illegal pyramid and that its refusal to sell its products in retail stores constituted a restraint of trade. Amway spent four years and millions of dollars in legal fees to clear its name.
In 1979 the FTC (Federal Trade Commission) ruled that Amway was not a pyramid and that its revenue was generated from the sale of its products, and the FTC acknowledged network marketing as a legal and efficient distribution system. Network Marketing exploded in the next decade. ************************ Today there are thousands of Network Marketing companies operating throughout the United States, Canada, Mexico, South America, the United Kingdom, Europe, Australia, New Zealand, Israel, Japan and the Pacific Basin. Little Malaysia alone has more than 800 active Network Marketing companies. Network Marketing is reported to be a $100 billion dollar industry, internationally, made up of FORTUNE 500 and New York Stock Exchange (NYSE) companies. In 1993, Amway was the fastest growing foreign company in Japan with sales over $1 billion. Discovery Toys markets their products solely by Network Marketing, with sales figures in excess of $100 million. Sprint, MCI and AT&T make their long distance phone service available through Network Marketing companies. The A.L. Williams Company utilized Network Marketing and astounded the insurance industry by outselling Prudential, a giant in the industry, in four short years. |
Traditional sales method companies such as Colgate-Palmolive and the Gillette Company have Network Marketing subsidiaries. Rexall Drug is now utilizing the Network Marketing method of distribution with its subsidiary, Rexall Showcase. Network Marketing companies such as Melaleuca outperformed Liz Claiborne, The Limited and John Paul Mitchell while Nu Skin bested the likes of Maybelline, Dow Chemical and Matrix. Mary Kay is bigger than Johnson & Johnson, Amway is bigger than Revlon, and Avon is bigger than Estee Lauder. Sam Walton, the founder of Wal-Mart is quoted as saying, "I'd rather run a profitable business in an unconventional industry than an unprofitable business in a conventional industry."
Network Marketing has evolved in other ways, as well. Companies that began as direct selling companies are now utilizing networking marketing compensation plans. Some examples include Avon, the $3 billion cosmetic giant, Watkins Products, which had been direct selling for nearly 100 years before it converted to network marketing, and Encyclopedia Britannica. One reason for the decline of direct selling is that beginning in the 1970's, distributors making calls on people found that no one was home. Women, long standing as the customer backbone of direct sales, had entered the work force, leaving few at home during the day. Companies watching these societal trends moved quickly to revise their marketing plans to network marketing, which allows for more informal methods of sales and greater compensation. Network Marketing Companies have actually pioneered entire industries: natural vitamin supplements, nutrition and diet drinks, concentrated and environmentally friendly household cleaners. |