指导教授：陈得发 博士 学生：杨铭辉

1. Network Marketing – Recruitment and Training and the Industrial Ban in China : A Review of Literature 指导教授：陈得发 博士 学生：杨铭辉

2. 报告大纲 • Network Marketing & Direct Selling • Direct Selling in China • 1998 ~ 2003 • Recruitment and Training • Conclusion

3. Direct Selling • Definition • The marketing of products and services directly to consumers in a face-to-face manner. • WFDSA • World Federation of Direct Selling Associations • http://www.wfdsa.org/index.asp • It’s type of selling channel that focuses on personal contact and selling goods or services. (Peterson & Wotruba) • It relies heavily on the presence of a salesperson to create an environment to communicate and influence an early buying decision. (Berry)

4. Network Marketing • Definition • A subset of direct selling, and is also known as • multi-level marketing • structure marketing • multi-level direct selling (WFDSA) • Network marketing can be best described as a direct selling channel that focuses heavily on its compensation plan because the distributors may receive compensation. (WFDSA, 2000)

5. Compensation plan • Resources of a compensation plan • Sales of goods and services to consumers • Sales to or purchases from those persons whom they have personally recruited into the plan • Sales of the distributor group or network (WFDSA, 2000)

6. Difference between Direct Selling & Network Marketing • Multiplying effect • The depth of the network (Berry, 1997) • Non-multi-level payment systems • 1~3 levels • Multi-level payment systems • 4~7 levels • More levels, more commission • Revenue distribution • Network marketing (type1) : 70% • Direct selling (type2) : 30% • 1998, Direct Selling Association in the United States

7. Direct Selling in China

8. History of Direct Selling in China • Japan Life • First direct selling company in China (1980s) • Avon • First company with license (1990) • Pyramid companies • The Chinese government had to halt all direct selling operations. (1998) Japan Life 日本一家磁性保健床垫公司，采用偷渡的方式进入深圳； 并以直销的制度来销售床垫。由于深圳市工商管理局没有干预，使得在很短的时间内地下直销相继出现。 (WTO框架下中国直销业的危机、创新与发展, 金永生) 福田公司 以广东淡水一带为基地，被骗去从事非法传销的内地民工达十万人之多。 (WTO框架下中国直销业的危机、创新与发展, 金永生)

9. History of Direct Selling in China (2) • 直销业的失控 • 批淮单层次传销 (地方保护主义) • 多层次传销的审核权在国家工商局 • 单层次传销的审核权在地方单位 (省级) • 权力腐败 • 某些直销公司利用行贿的手段逃避管理 • 政府的管理缺少中介组织的支持 • 同业工会 • 直销协会 • … • 直销业者的投机钻营 • 利用法规的漏洞从多层次转为单层次 • 不得跨区经营的规定，使得直销业者实施变相的异地经营；并且使得大部分的直销公司变得违法 (WTO之后中国大陆的直销, 杨谦)

10. Reasons for the Ban • Pyramid selling raised public concern. (1993) • Territory Direct Selling (Chow, 2002) • Government’s rule • Makes all direct selling companies illegal 金字塔式销售 (pyramid selling)是一种骗局，其架构为由所谓的某「投资」或「买卖交易」之办法推广组织，利用几何级数的增长方式，赚取加入这些办法的新成员所缴交的费用，藉以牟利致富。 (WTO框架下中国直销业的危机、创新与发展, 金永生)

11. Definition of Pyramid • Pyramid selling is a fraud. (WFDSA, 2003) • Def.. (WFDSA) • A pyramid is a scheme in which a recruit pays (an entry fee) for the opportunity to receive future benefits (money or privileges) which are primarily derived from that recruit’s introduction of additional participants into the scheme, rather than from the ??嘀Allow the promoters at the top of the pyramid to enrich themselves through the payments made by recruits.

12. Improvement • Pyramid schemes with improvement • Pyramid scheme’s product • Certificates • Training programs • Magazine subscriptions • Illusory discounts • Over-priced or under performing treatment • …

13. Difference • WFDSA, 2003 • Business opportunity based on the sales of quality products to consumers • Discourage overstocking of inventory • Provide opportunity to return any unused merchandise to the company for a refund • Little or no inventory investment • Little of no entry fees • Offer no get-rich-quick schemes • Pyramid schemes mislead consumers into believing in a non-existent market with potential income earnings that are patently false. (Vander & Keep, 2002)

14. New Focus of Pyramid Schemes • Pyramid schemes start to offer products and services. (WFDSA, 2003; Wotruba, 1995) • The commissions may be paid based on recruitment instead of sales of products. (Vander & Keep, 2002)

15. New Focus of Pyramid Schemes (2) • It’s difficult for multi-level marketing organizations to avoid being considered as pyramid selling companies. • High-level distributors receive bonuses from recruiting and have minimum monthly order requirements. (Barkacs, 1997) • Many distributors emphasize recruiting much more than retailing. (Taylor, 2000) • The compensation plan rewards recruiting more than retailing.

16. People’s Perceptions • The public are unable to distinguish between direct selling and pyramid selling. (Wong, 2002) • Many direct selling companies have not been members of any direct selling associations (DSAs). (Wotruba, 1995) • The distributors have no ethical guidelines to follow

17. People’s Perceptions (2) • Bad image of the industry has two sources (Chan, 1993) • Illegal and unethical practices of pyramid scams • False claims from distributors • Examples • 武汉新田保健食品有限公司 • 台湾华良非法营销公司 • 郑州神龙数码网站 • 上海申齐公司 • (WTO框架下中国直销业的危机、创新与发展, 金永生)

18. Why?? • Why China banned the direct selling industry? • Protect the rights of consumers • Promote fair competition • Protect the economic order of market and social stability

19. Why?? (WTO之后中国大陆的直销, 杨谦)

20. Government’s View • Chun xiao … • Rat club • Pyramid selling • Firms sell smuggled, inferior, counterfeit products • Pay no tax • Sell products at abnormal prices (SAIC Document No. 46, 1998) SAIC：國家工商行政管理局

21. Chinese Legislation • In April 1998 • Had investigated 2,528 cases of illegal operations • Issued RMB 100 million of fines • Found over RMB 71.38 million illegal products • Banned 577 unlicensed chuan xiao companies (SAIC Document, 1998)

22. Chinese Legislation (2) • The voice from the DSA (Direct Selling Association) of the US • The legitimate direct selling was not banned nor severely restricted in most countries. (WFDSA, 2002) • The response from the Chinese government • Conversion Regulation MOFTEC 455 • (外经贸资发第 455号, 关于外商投资传销企业转变销售方式有关问题的通知)

23. MOFTEC 455 • MOFTEC 455 permitted • some foreign-owned direct selling companies already in China to resume operations under new law which had specific requirements, for example, to operate from fixed retail locations. • Mode change company • A company employing salespersons. • A company that earned commission through promotion and selling of the products without employing salespersons. • Other conditions • Total investment in China exceeding US$10 million • To manufacture and sell its own factory products • …

24. Amway • Using non-employee sales representatives with retail locations to promote Amway’s products and services (WFDSA 1998) • Sales dropped from RMB 1,500 million in 1997 to RMB 320 million in 1998 (ATV, 2003)

25. WTO Agreement • The implication of WTO Agreement in China • Reopen the market • Allow the international standards and practices of direct selling to appear • Sales away from fixed retail locations may allow • …

26. WTO Agreement (2) • WTO之后大陆直销市场监控管理的趋势 • 资质要求 • 注册资本 • 设厂要求 • … • 清楚界定直销行为 • 区隔 pyramid selling • 规范直销行为 • 限制产品宣传 • 加强退货保证 • 严格规范直销公司 • 直销人员的行为将由公司承担大部分的责任 (WTO之后中国大陆的直销, 杨谦)

27. The Role of Recruitment and Training in Network Marketing

28. Distributor’s job • Distributor’s job • Selling • Recruiting • Training other distributors • Training • Supervision • Motivation

29. Training • Training’s purpose • Maintain repeat sales • Offer distributors • Product knowledge • Sales know-how • Ensure they are aware of their ethical responsibilities (Raymond & Tanner)

30. Ethical & Unethical Concerns • Ethical concerns • Building self-esteem • Making friends • Proving entrepreneurial skill, leadership • Simply learning about the business world (Wotruba & Tyagi, 1992) • Unethical concerns • Earning override commissions or benefits on behalf of their friends’ friends (Bloch, 1996)

31. In conventional market One-to-one Labor Union (Heery, 2000) Like-recruits-like Word-of-mouth In network marketing One-to-one presentations Home gatherings Large presentations Two-to-one (Poon, 2003) Recruitment methods

32. Large Presentation • The purposes • Improve the knowledge of distributors • Provide a platform for distributors • The content • Background of the company • Products • Compensation plan • Sharing of experiences (Moore, 1998)

33. Training programs in network marketing • Training programs • Product knowledge • Product induction • Analysis, selection, and follow-up of prospective distributors • The training of trainers • The training course that involves training newcomers so that they can train others.

34. Product induction • Product induction training is likely to • encourage distributors to become constant users, • demonstrate their faith in the product efficacy, • provide them with personal stories as selling aids. (Ingram, 1992) • It provides necessary knowledge to distributors to duplicate.

35. Summary: Recruitment and Training • Network marketing relies heavily on the daily activities of recruitment and training to make improvements in sales. • Distributors are encouraged to become involved in both recruiting and training other distributors by receiving override commission from sales generated by their network group sales. • Proper training is essential to overcome any unprofessional sales tactics in recruiting new members and in the presentation and selling of products.

36. Summary: Recruitment and Training (2) • We need more studies of recruitment and training, and of how sales respond to various techniques and commonly applied useful methods. (Ingram, 1992)

37. Conclusions • We discuss the relationship between direct selling and network marketing. • Recruitment and training are crucial for a company’s survival and expansion.