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| Travel industry is cool, but does it make sense to mix it with MLM? (Photo credit: Storm Crypt) |
Travel MLMs were the rage about 3-5 years ago, when multiple companies hit the market. Unfortunately, it was also plagued with scammers.
- TVI Express, a self-claimed make money and travel opportunity, was declared by Australian Federal Court as a pyramid scheme, and outlawed by China, Indonesia, Lesotho, South Africa, and more. (see Scam Study: TVI Express for more details )
- Zamzuu, aka YTB, or "Your Travel Biz", an opportunity that promised you to become an online seller of travel, was sued by state of California and state of illinois and forced out of both states after paying over a million in fines
- Business in Motion charged by Royal Canadian Mounted Police of being a pyramid scheme, offered travel sales opportunities to people, but paid on recruitment
However, we are not here to discuss the scams, but rather, the viability of the genre... Does this genre actually make sense? Is combining travel and MLM a meatball sundae, or a viable business?
In my opinion, combining travel with MLM is mostly a meatball sundae. It only makes sense under a very specific set of circumstances that is very rarely met, and thus, makes no sense for the average Joe.
The way network marketing works, offloading much of the marketing, training, and management costs off to the affiliates, and in turn, pass them large profit margins, requires that you actually *have* large profit margins to start with.
Is there such large profit margins in the travel industry? The answer is clearly NO.
SmartCompany article stated that operating margins for airlines is barely 3% in 2011-2012. Even in the best of times, the airline margins are less than 10%. It was down all the way to 1% around 2008-2009, the bottom of the recession. It is just slowly climbing back up, mainly by slashing unprofitable routes and raising prices.
The lodging industry (hotels and such) did a bit better, 15% pre-tax profit for 2011, according to another news report.
Cruises may do a little better, but it won't top 20% either.
These profit profit margin are extremely low compared to the traditional network marketing products... juices and such supplements or cosmetics (which traditionally has a profit margin of 50% to 90%) Clearly, there is little profit to be shared with affiliates, if any, in the travel industry.
Then there's the problem with competition.
With the cosmetics or nutritional supplements, you can always claim "proprietary formulation" or some such gobbledygook to claim "exclusivity" and such, that only YOUR company offers such.
No such luck with travel products. You are not the source, merely the middleman. You don't control the prices at all. Then there's the bazillion online travel websites and the fare / vacation search engines. Orbitz, Travelocity, Expedia, Kayak, Hotwire, Priceline... the list goes on and on.
Why should any one buy their travel through YOU, instead of a reputable online website? Same airline and stuff, right?
So you have to beat them on PRICE.
But if you beat them on price, your margin suffers, and so does the affiliate's share of the profits. As explained above, there is little margin to be had in the travel industry in the first place!
So this doesn't work at all, in good economy OR bad economy.
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There is one subgenre that *may* work... the luxury travel business. Posh hotels, cruises, first-class VIP treatment, and so on. Those would have the high margins to sustain a MLM. However, only those "rich and famous" can afford such, and that is indeed an extremely exclusive club in any economy. It's not something you sell to the Jones down the street.
You have access to Jones down the street. Do you have access to the "rich and famous" that are willing and able to buy such luxury travel?
Probably not.
Even if you do, you probably won't be their "travel agent". They would have their own.
Furthermore, those people won't care about the price. They are "price insensitive". So you can't really grab them from their existing travel agent.
You're still doomed.
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All in all, travel MLM just does NOT make sense on multiple levels.
However, it would make perfect cover for a pyramid scheme, by wording it as a "discount club", but also make you a ton of money if you recruit enough people. Just like TVI Express scam.
There are many other travel MLMs than the ones above. The worrying part is many of them were founded by people associated with some of the scams above.
If you are being recruited by a travel MLM, be VERY VERY careful.
Cruises may do a little better, but it won't top 20% either.
These profit profit margin are extremely low compared to the traditional network marketing products... juices and such supplements or cosmetics (which traditionally has a profit margin of 50% to 90%) Clearly, there is little profit to be shared with affiliates, if any, in the travel industry.
Then there's the problem with competition.
With the cosmetics or nutritional supplements, you can always claim "proprietary formulation" or some such gobbledygook to claim "exclusivity" and such, that only YOUR company offers such.
No such luck with travel products. You are not the source, merely the middleman. You don't control the prices at all. Then there's the bazillion online travel websites and the fare / vacation search engines. Orbitz, Travelocity, Expedia, Kayak, Hotwire, Priceline... the list goes on and on.
Why should any one buy their travel through YOU, instead of a reputable online website? Same airline and stuff, right?
So you have to beat them on PRICE.
But if you beat them on price, your margin suffers, and so does the affiliate's share of the profits. As explained above, there is little margin to be had in the travel industry in the first place!
So this doesn't work at all, in good economy OR bad economy.
----
There is one subgenre that *may* work... the luxury travel business. Posh hotels, cruises, first-class VIP treatment, and so on. Those would have the high margins to sustain a MLM. However, only those "rich and famous" can afford such, and that is indeed an extremely exclusive club in any economy. It's not something you sell to the Jones down the street.
You have access to Jones down the street. Do you have access to the "rich and famous" that are willing and able to buy such luxury travel?
Probably not.
Even if you do, you probably won't be their "travel agent". They would have their own.
Furthermore, those people won't care about the price. They are "price insensitive". So you can't really grab them from their existing travel agent.
You're still doomed.
----
All in all, travel MLM just does NOT make sense on multiple levels.
However, it would make perfect cover for a pyramid scheme, by wording it as a "discount club", but also make you a ton of money if you recruit enough people. Just like TVI Express scam.
There are many other travel MLMs than the ones above. The worrying part is many of them were founded by people associated with some of the scams above.
If you are being recruited by a travel MLM, be VERY VERY careful.
Hi, I love your post. I'd like to add. People who buy an MLM company's products simply because they like the products, but don't start a business (and never intend to) are also called "failed" by statistics. For example, in one company I know well, 60% are strictly customers who never refer others and another 30% are customers who will only refer others casually, that's 90% of customers who don't make money and are therefor wrongfully called "failed" even though running a business wasn't their goal. Cheers, @Jemima
ReplyDeleteAre you talking about MLMs in general, or the Travel / MLM mix in particular?
DeleteOr did you simply post this to get your keywords into the search results?
Some piece of information for you and your friend Oz
ReplyDeleteAnd i know you wont publish this, but you will read it....Get a life man
http://worldventureshappy.blogspot.com
Right back at you. Guess you don't bother defending it any more.
DeleteIm impressesed and amazed i gues you are not as bad as Oz Please leave me a reply there i want to hear your thoughts
ReplyDeleteIm not defending WV im stating the facts Kasey...simply the facts, and if it defending then so be it
You don't have thoughts. You have opinions backed up my nothing, which is proven by your petulant "rebuttal" blog you created
Delete