Tuesday, July 31, 2012

The Danger of Autoship in MLM

Autoship is a term usually only encountered in network marketing, and it can be quite puzzling to some network marketing newbies. Here's a definition from Business Dictionary:
Method employed generally in network marketing, it is a regular shipment of a product on the basis of a standing order supported by some form of automatic payment (with a credit card, for example). It is through autoship that a network marketing representative can ensure his or her commission level by meeting qualifying sales criteria during each qualifying period (usually a quarter).http://www.businessdictionary.com/definition/autoship.html#ixzz21DJPfEaJ
You can think of autoship as a "subscription" program, where instead of just buying some stuff once, you get some shipped to your door automatically every month, assuming you use that much. 

There is nothing wrong with a subscription program on the part of the consumer. Indeed, some of the subscription programs recently are famous for being convenient, such as the shaving club (automatically ship safety shaving razors to your door). But those are generally NOT MLM. 

When you throw in MLM, things get a lot complicated, as you have to consider what constitutes sales, and what separates MLM from a pyramid scheme (i.e. SALES). 

What separates MLM from a pyramid scheme is a tiny little provision: while you can RECRUIT like a pyramid scheme, any PAYMENT must be based on SALES (of products) to customers, NOT recruiting. If you are paid by the number of recruits, even just a little, you are in a PYRAMID SCHEME. This is according to MLM lawyers, not just my own interpretation. 

[ Explore the  difference between MLM and Pyramid Scheme ]

As long as autoship is to a CUSTOMER, you are set, as this customer will continue to buy products, and you continue to rack up sales. The customer knows how much s/he consumes, and thus would not order more than needed. If they need an extra one, they can always order one through you or directly from the seller (with you as their referrer).

However, if the autoship is to YOU, you have a potential problem.

Let's say the autoship is as follows: your bonus level is PV of 750. You sold 700, and there's 3 days to go in this bonus period. You need 50 more sold. So your autoship kicks in and orders 50 with 1 day to go, to make sure you qualify for the bonus... but you also got 50 units that's gonna arrive. Can you *use* 50 units of whatever this is? Did you just SPEND money just to qualify for the bonus?

This "autoship" has a major danger of you loading yourself with way too much inventory that you can't reasonable expect to sell OR consume (or both). That's inventory loading, and that hurts you, as you now have your money stuck in inventory that you can't turn back into cash in a reasonable amount of time. And you did this to YOURSELF with that auto-ship.

[ Explore the problems of inventory loading ]

The answer is very simple: do some MANUAL tracking of what you need (your company's "back office" login should tell you clearly how close are you to the bonus level and thus, how much you need to order . ) and place the "filler" order manually, instead of relying on some "autoship".

Autoship actually is also NOT that good for you as an affiliate hoping to SELL products. To borrow a famous TV salesperson, autoship is a "set it and forget it" thing. Once you got the customer to commit to autoship, you rarely if ever sees him or her again, when you may want to catch up, touch base, discuss new products, techniques, discoveries, and maybe socialize so you can be introduced to his or her friends that may have similar interests. You don't do that if products just keep appearing at their doorstep without your involvement.

If you all you do to customers is encourage them to enroll in autoship, you are not really selling. You are RECRUITING. And next thing they do is they'll "join" you as a downline and get the stuff at wholesale price, and then we go into a "non-selling affiliate" problem, among other things.

To conclude, while autoship is an interesting customer retention tool, it only works for consumable products, and it only works for a real customer, not affiliates, as it has the potential of hurting the affiliate's bottom line merely in pursuit of the bonus, instead of actual sales and the profit within. Finally, you are not establishing a long-term relationship with the customer if you rely on autoship.

Beware of the risks and rewards with autoship.

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  1. I think having the autoship tied to a bonus is a joke and merely a way for the upper echelon to stay on top and rich. ANYTHING that has an autoship is simply to keep the money flowing in, because without that new money, no one makes money. Smell a Ponzi anyone?

    1. As long as they are getting their product, and they are NOT in the comp plan (i.e. they are genuinely buy the product for the product) autoship is fine. It's when it's employed in reality inversion, i.e. 'sell to oneself' that it's problematic.

  2. There's MLM: overpriced that require brainwashed people to ignore what Wall Street requires, an economic advantage. Stock Holders, savvy ones, don't touch products touted by most hyperbole driven pie in the sky MLM. Products are produced pennies on the dollar, no overhead, i.e. commercial distribution real estate and labor overhead. These people, MLMrs, are typically employees being taught that entrepreneurship is to ignore economics and "Think and Grow Rich."

    On the other hand, real entrepreneurs are diversified. Most of my MLM friends, especially the dinosaurs I know, will shun their mother or daughter should they consider looking at a different MLM company. Whenever an MLMr, typically a so-called "leader" or "heavy hitter," their success relies upon the ignorance and willingness of a prospect or follower to submit to financial abuse tyranny that MLM policy unilaterally dictate in their contracts.

    I love MLM, but only about 2% of it. This 2%, a totally arbitrary factless figure, but an educated guess, exists, and I have found several companies that actually do have an ECONOMIC ADVANTAGE [key phraseology]. Lower pricing than brick and mortar business provide undercuts brick and mortar main stream industry.

    As a result, MLM, a highly resisted industry with scam and rip off stigma in the eyes of people that become aware of the BS in pricing, comp plans with impossible qualifications, reveal the true nature of most MLM companies, the first in earn huge, and brain wash followers that cannot afford to pay auto ship out of their commissions. You see, the company already knows that most people will quit, so the bilk them high price up front, (front loading) and then put them in debt with unreasonable autoship that fills their garages, only to be tossed in the trash when the products expiration date ends. However, the clue was introduced to these non-business minded MLMrs when they purchased the product. It's introduced on an MLM as a loss, not an asset. The transaction is recorded in the debit column not the credit column in the P&L. So right there, unless it is inventory, which it no longer is due to direct mailing by the company from a website, those who "buy-in" really drink the Koolaid.

    I'm an economist. I'm own the Term MLM, the acronym that is so stigmatized due to the foregoing statements that I made. So the job of an entrepreneur is to find products that are an "asset/credit" not a "loss/debit." When I found my products, I can say ad slogans like "we are undercutting this industry or that industry. People that are "ALREADY SOLD" simply switch to my brand. Most of them don't even call me, they just order online. My other industry undercuts the "scarcest" of items on the planet, and I do have to actually engage in conversation, but it's well worth it.

    If your autoship is an asset, in the Robert Kiyosaki sense, you got something! So, in order for it to be an asset, it merely has to reduce your existing expense to buy the product. These products are hard to find, and you may not see the "scarcity" (an economic term that "built the Wealth of Nations," real economists will understand that quoted term). One product I thought at first had no economic advantage, but I was wrong. It took me about 6 months to see it, but then there it was, and the checks I deposit without leaving my Mountain Chalet in a town population 1200 prove that my theory of MLM Economics is fool proof!