Sunday, July 1, 2012

Genre Analysis: What is wrong with the MLM + Penny Auction Niche?

Obverse side of a 1990 issued US Penny. Pictur...
Can you really get things for one penny?
(Photo credit: Wikipedia)
EDITOR'S NOTE: Genre Analysis is my personal opinion on a particular genre of network marketing, like MLM + penny auction, or MLM + daily deals, and so on. 

Following is a comment I left on MLMHelpDesk, outlining what I consider to be wrong with this entire niche of MLM + Penny Auction, where the company allegedly rewards affiliates for spending affiliate's own money to buy bids and give them away to promote the auction.


[Dear Troy Dooly,]

I am *guessing* Al’s point is… a penny auction (I’ll just say PA from now on) needs bidders, not affiliates. If a PA got more affiliates than bidders, then it’s clearly attracting the wrong type of people.
It’s a lot like the dilemma of self-consumption in a regular MLM. The “self-consumers” don’t sell retail to the public. All they do is sit there and buy a little every month. They are technically affiliates, but they’re not recruiting other salespeople… OR new customers.
I had asked Mr. Kevin Thompson what he thought about the situation, and he talked about his solution to this problem, so it’s clear we all thought about it.
And now, we’re here with ZeekRewards, on what exactly is the business model of Zeekler and ZeekRewards.
Promotion is supposed to come out of Zeekler’s budget, is it not?

So what Zeekler and ZeekRewards is doing is they are spending AFFILIATE’S MONEY for promotion (i.e. the giveaway bids), and promise to give back a share of the profit in return for use of that money. Isn’t it?  
MLM already does this by a certain extent, by offloading the promotion and training expenses off to the affiliates, but at least product-based MLMs have huge profit margins for sale of each product that can be profitable for the affiliates to cover such expenses (theoretically)
But in this PA niche, there is little PROFIT on the affiliate’s side for reselling. Affiliates don’t sell the bids themselves. There’s 20% commission, and that’s about it. (and goes down a couple levels).
So affiliates have to rely on this “profit sharing” for majority of their income. Indeed, most backoffice shows that income is from the profit shares, NOT the sale of bids to outside customers (most of the commission is from small repurchases of bids for giveaway from those in the downline, from a few backoffices I was able to glimpse)
This makes the affiliates have an OVER-RELIANCE on the company itself. They *have* to trust that the company is honest, and will resolve any problems swiftly.
For the product-based MLMs, if you sell 10 products, you know exactly how much you made (by pocketing the difference). And you can ask your downlines how much have they sold to know how much you can expect in commission.
For the PA niche, you simply don’t know. You *have* to trust the company to calculate the profit, the individual “shares”, and have the ability to pay you. What’s worse, you bought bids for them, with YOUR MONEY! Instead of they spending THEIR money to promote, they are spending YOUR money. You just gave them a loan, in essence, with promise of future repayment.
This, to me, is NOT a sign of a healthy company to affiliate relationship. The affiliate has NO CHOICE but to trust in the company. The company has their money. It is NOT an equal partnership,
In a normal job company trusts employee to do good work, and employee trusts company to pay up.
In MLM, company trusts affiliate to promote and sell products, and affiliate trusts company to calculate commission accurately and pay promptly. In a MLM, the company do NOT hold much of affiliate’s money. Most of the income is expected to be via retail.
Not so in PA (and especially ZeekRewards). PA has all the money. It is NOT a balanced relationship. There is virtually no retail. bids are GIVEN AWAY.
Thus, the affiliates have NO CHOICE but to “trust in Zeek”. Zeek has their money.


Additional links

SiteJabber and Wired explains how Penny Auction REALLY works (infographic)

BBB warns participants about danger of Penny Auctions

More on dangers of Penny Auctions from SiteJabber
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  1. MLM company already owned the stuff you're buying from them, and would have lost money if you hadn't agreed to move it. However, when you buy it, you assume part of their debt. Now you have some of their inventory to sell, and their debt to go along with it. After you sell it, you usually have to pay them commission as well. So they're getting paid twice, once when you buy the items, and once when you sell and pay them their cut. Unlike a standard business where all you invest is time, here you.@Anne
    Global Premier

    1. Did your message got cut off, or are you here just to push that link to Empowered?