Tuesday, September 17, 2013

How Does Peter Principle Affect MLM?

Peter Principle states that "employees tend to rise to their level of incompetence". Of course, Peter Principle is talking about work and promotion within a company, where there are rules and ethics and such governing such promotions. Does Peter Principle apply to the MLM world? Very much so, albeit with much more disastrous consequences.

At its heart, Peter Principle is about how human beings apply their bias: why change what works, even though its a new situation. When this is applied to people, i.e. a person will keep doing what he's doing, even though he's promoted to a new set of responsibilities, that person will no longer advance unless s/he learns new set of skills.

However, such change of responsibility are sorely lacking in network marketing. When you "grow" in MLM, you don't really take on bigger responsibilities other than training or inspiring new members.

Network marketing has two primary skills: sell products/services, and recruit people. Both can be called "sales" to a certain extent, but require very different persuasive arguments.

To sell a person the product/service, you will argue that the service/product will make his/her life better in some way, and the price to benefit ratio is good, esp. among any competitors.

To sell a person the position (i.e. recruit), you will simply appeal to the person's greed, envy, and pride. Don't you want to be financially independent? Don't you want to be successful (like other people)? Don't you want to join a winning team? So on and so forth.

One appeal to base desires (7 deadly sins, any one?) while the other appeals to logic. Guess which one is easier? Appeal to the sins, of course.

Let's say you can resist the temptation and sell products/service ethically instead of appeal to greed and such. You sell to the same people, maybe you hold a slightly different party every few weeks doing demos, but most of you won't make it big. Because you concentrate on SALES, and you can't do personalized sales to bazillion people at once. You can make it through referrals, word of mouth, and build up your business, but you won't make it BIG. You can live comfortably, doing something you like, but you won't make BIG bucks this way.

But you can RECRUIT OTHER PEOPLE to do sales... Which is heart of MLM. So... why not just skip the sales, and go straight to recruiting? Then you become a pyramid scheme, because you actually don't sell, even though MLM is about marketing (or sales). You just recruit, cart before the horse and all that.

Think about it: most MLM events are designed to reward RECRUITERS, not sellers. Recognitions are usually for team sales volumes (TV or GV), not individual sales volumes (PV). But that makes individual sellers, esp. the leaders lazy. They just do the bare minimum to qualify for multilevel payout (if that's even enforced, and they can always "borrow" a few sales from their downlines).

That just means MLM is ALWAYS in danger of reverting back to pyramid scheme (from which it had evolved), and there is little incentive for one to actually sell things, but instead, to money is made from recruiting OTHER people to sell things. And when there are only sales people buying things, not customers, then you have a pyramid scheme.

Let's assume again, that you're able to avoid the temptation of pyramid scheme and managed to achieve the team volumes and personal volumes properly through a lot of actual sales, not self-consumption and other cheats. You managed to recruit a bunch of ethical sales people like yourself who also did avoided temptation of recruitment schemes... So you advance... to what?

You get a shiny "rank" in the genealogy, you may get a mention in the company newsletter, and your commission rate goes up a notch. So what? You're still doing the same thing.

Let's say you're able to grow your sales team (having encouraged those who have absolutely no talent at all, or had the heart in the wrong place, or have no ethics in his/her heart, and so on, to leave your team) then what? You may be encouraged to speak, teach, inspire, some other teams, while you're encouraged to attend similar events held by a higher rank member than you are. Then what?

Given the amount of temptation you have faced thus far, it's clear that MAJORITY of the uplines you will encounter will be of the recruitment type. They see MLM is a recruiting game, with sales a completely secondary goal. Thus far, you have flown the straight and narrow path of ethical sales, thus, their techniques will not apply to you. Little if anything you learn will apply to you.

And it's clear that sooner or later, you'll run into a group who's simply NOT receptive to your ethical view of MLM, that sales comes first, and people who want to take shortcut should get out of town.

You've just proven that Peter Principle works in MLM... if you follow the ethical route.

If you prefer to go unethical... i.e. treat MLM as a recruitment scheme / pyramid scheme where you simply grab every warm body you can to fill your downline spaces... then your rise will be like a Saturn V rocket (assuming you have decent social skills and knows what sin buttons to push in people), and all your downlines will behave exactly like you... monkey see, monkey do except those who has a conscience, who will then leave.

How much of a conscience do you have? How many lies are you willing to tell to add a new recruit to your trophy wall? Will you go as far as Shawn Dahl's "Scamworld" recruiting empire, which is a clone of his mother-in-law's pyramid scheme in Canada? That raised him all the way to "Founder's Circle" in Herbalife, until he decided Herbalife is too clean (ethical?) for his taste, and left for Vemma? And what does that say about the top affiliates in Herbalife, if many of them are now leaving for other companies like Nutrie, Vemma, and so on, complaining that Herbalife's new marketing policy is a "handcuff" and one even committed suicide?

Peter Principle definitely applies to MLM... if you want to stay ethical. Because there is minimal supervision (few if any companies actively enforce their ethics code on members unless you are exploiting other members  or customers and being very egregious about the abuse and people made complaints straight to corporate ethics department) you are free to say "I am tired of enforcing rules on myself when nobody else does" at any time.

Then you'll be in a pyramid scheme. Of your own doing.

Thus is the danger of MLM.
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